The Scottish government is coming under greater pressure to use Scotland’s new income tax powers after Labour proposed a 1p increase and combined with a system to give a rebate for low earners.



Kezia Dugdale, the Scottish Labour leader, has followed the Liberal Democrats in calling for income tax in Scotland to be raised immediately to help cushion local councils from more than £350m in cuts to frontline services.

The measures increase the prospects of tax and education spending becoming dominant issues in this May’s Scottish elections, with Labour and the Lib Dems pledging to prioritise schools and colleges when spending the amount that the tax increase will raise annually, projected to be £475m-520m.

Dugdale will dismiss claims by the Scottish National party’s John Swinney, the Scottish finance secretary, that the first set of new tax powers due in force on 1 April are too inflexible as they require Holyrood to raise or reduce every income tax band by the same margin.



Holyrood will only be allowed to adjust tax bands and rates separately from April 2017. But Dugdale will argue that low earners can be protected from paying more tax if there was an across-the-board increase and then £50m was spent each year on a £100 annual rebate for those earning less than £20,000 a year.

“Given the choice between using our powers or making cuts to our children’s future, we choose to use our powers,” Dugdale will say in a speech in Edinburgh on Tuesday, before Holyrood starts its scrutiny phase of the budget on Wednesday.

“We will tear up this SNP budget that simply manages Tory cuts and instead use the power we have to set the Scottish rate of income 1p pence higher than the rate set by George Osborne. This will provide an extra half a billion pounds a year to invest in the future.”

Dugdale’s measures are designed to widen the battle with the SNP over the current Holyrood budget in the run-up to May’s Scottish parliament elections.

Labour is, however, struggling to make any impact on the polls and the SNP is expected to win by a landslide. Labour currently languishes at 22%, but the party’s council leaders in Scotland are trying to vigorously oppose a tough budget settlement being imposed by Swinney.

Councils face proposed cuts of 3.5% in their budgets, including a 4.4% or £130m cut in education spending, with a number now considering ending the eight-year-old council tax freeze.

Swinney has threatened sanctions against any council which increases council tax rates and will cut funding to councils who refuse to maintain teacher numbers. The GMB trade union predicts 8,000 local authority jobs will be lost in Scotland, including 3,000 in Glasgow and 2,000 in Edinburgh – the highest numbers of any British council this year.

Even if it succeeds in voting alongside the Lib Dems in the final Holyrood budget vote this month, Scottish Labour will be outvoted by the SNP and Scottish Conservatives, who reject any tax rises and are instead expected to suggest cuts for some higher rate earners.

Instead, Labour plans to fight the Holyrood election partly on a platform of introducing this 1p tax increase and parallel measures to introduce a new 50p top rate with the extra powers due in force in 2017.

Based on data from the Scottish parliament information service, the House of Commons library and the economist David Eisner at Stirling University, Labour says that a 1p increase would enable someone on the minimum wage to earn £81 a year more, due to increases in the UK personal allowance.

Labour will claim that the impact of a 1p tax increase would be greater on higher earners: a nurse on £25,000 a year would pay £140 more in tax each year, while an MSP would pay £481 and the first minister, Nicola Sturgeon, would pay £1,447 more of her £144,687 salary.

The Lib Dems, who face coming fifth in the Holyrood elections, are promising to plough all the £475m raised from a 1p rise into education, targeting colleges and schools.