It seems a long time since the Scottish Government set out its tax and spend proposals for 2019-20 back on 12 December 2018.
Tax rates and the spending envelope for 2019-20 have now been formally set after clearing their final parliamentary hurdle yesterday.
The Scottish ‘rate resolution’ which sets rates and bands for Scottish non-savings non-dividend (NSND) income tax for next year was passed on Tuesday 19 February by 61 to 52 with six abstentions (from the Green party MSPs).
Approval of the income tax rates and bands via the rate resolution is required for the Stage 3 debate for the Budget Bill to proceed (as this is underpinned by income tax forecast receipts). Yesterday the Budget Bill, which sets the spending limits for the next financial year passed by 66 votes to 58.
So, what has changed since the initial plans were presented in December?
On the tax side, to coin a phrase ‘nothing has changed’. Unlike the last two years, there was no need for the Scottish Government to change its tax proposals in order to command sufficient parliamentary support for its budget. As such the rates and bands proposed by the Scottish Government in December on income tax will apply from April 2019.
Proposed Scottish tax bands and thresholds, 2019-20
|Bands||Band name||Rate (%)|
|Over £12,500* – £14,549||Starter||19|
|Over £14,549 – £24,944||Basic||20|
|Over £24,944 – £43,430||Intermediate||21|
|Over £43,430 – £150,000**||Higher||41|
* Assumes individuals are in receipt of the standard UK personal allowance (£12,500 in 2019-20)
** Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000
As highlighted in a previous SPICe blog, this means that those earning up to £124,375 will pay less tax in 2019-20 than they did in 2018-19, although much of this gain is due to the increase in the personal allowance that was a decision of the UK Government. The Scottish Government estimates that those benefitting from the changes represent 99% of all taxpayers. For the majority, only around £10 of the benefit results from the Scottish Government’s decisions; the rest (£120-£130) is the result of the UK Government’s change to the personal allowance.
When compared with what individuals would be paying in the rUK, the comparisons are less favourable. Under the Scottish Government proposals, those earning less than £27,000 will pay slightly less (around £20 per year) than they would in rUK. However, those earning more than £27,000 will pay more tax in Scotland than they would in rUK. This accounts for 45% of taxpayers, according to the Scottish Government, and the differential is in excess of £1,500 a year for those earning more than £50,000.
So what changes were made to the December proposals in order for the minority government to win the support of Parliament?
Local Government was the political battleground again
Yet again, it was local government that dominated political discussions around where the Government’s spending proposals needed to change.
At Stage 2 of the Budget Bill, an additional £90 million was added to the local government general resource grant. This additional money changed the various headline figures for the local government settlement. In addition to this new money, as part of the deal with the Green Party, the Cabinet Secretary announced two additional “flexibilities” on council tax and social care, and a range of other commitments, including on a transient visitor levy (“tourist tax”) and a workplace parking levy. Full details of the revised headline numbers and other aspects of the deal are as set out in the previous SPICe blog on the budget.
The debate on the budget was, again, characterised by the different interpretations of the local government budget. Our approach in SPICe blogs, briefings and infographics is to explain the basis for all the different figures that are presented, to make the debate as transparent and easy to understand as possible for Members and for the public.
However, we realise that it can be very confusing for people watching the debates to understand how such different figures can be arrived at. SPICe will return to this issue in future briefings in advance of next year’s budget process.
The first year of the new Budget process
This year’s Budget process incorporated, for the first time, the recommendations of the Budget Process Review Group’s final report. The key recommendation of this report centred around a new ‘year round’ budget process designed to give parliamentary committees greater influence on the Budget.
A pre-budget debate took place on 24 January, giving Committees a chance to air their views on budget priorities. No amendments to the budget were proposed by any Committee.
It is early days in the new process and as a result it wasn’t immediately clear how the Committees influenced the Government’s budgetary thinking. As in previous years, all the ‘action’ in terms of budgetary changes, centred on behind closed-door negotiations between the Government and political parties.
It is likely that the new budget process will be incremental in nature as Committees develop mechanisms to try to influence the budgetary settings of the government.
The Bill will now receive Royal Assent in the coming weeks and the Local Government Finance Order, setting out final allocations to Local Authorities, will be published in early March.
With ‘Brexit day’ scheduled for just five weeks from now, there remains extreme uncertainty as to the outcome of the Brexit process. In his opening of the Stage 3 debate, the Cabinet Secretary re-emphasised what he considers as the ‘major dislocation’ threat of a no deal Brexit to the Scottish economy, drawing on the latest analysis of the Government’s Chief Economic Adviser.
The Cabinet Secretary stated when he introduced his initial budget proposals, that the Budget may need to be revisited in a no deal scenario. It remains to be seen whether such steps will be required in the coming months.
Ross Burnside, Senior Researcher, Financial Scrutiny Unit