Meeting of the Parliament

Meeting date: Tuesday, February 21, 2017

Official Report 833KB pdf

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Scottish Rate Resolution

The next item of business is a debate on motion S5M-03912, in the name of Derek Mackay, on the Scottish rate resolution. Members should note that I will put the question on the motion immediately following the conclusion of the debate, which will be just before decision time at 5.15.

15:17  

This is a historic day, when the Scottish Parliament will vote to set all rates and bands for income tax in Scotland for the first time in more than 300 years.

The powers in question expand on the limited income tax rate-setting powers that we had last year and allow the Scottish Government to make better decisions to support the people and the economy of Scotland. In so doing, it is important that Parliament understands that, if we fail to set the rates, we will put at risk the collection of some £11.9 billion in Scottish income tax, so let us be clear that this is serious business. The Scottish people are looking to us to act responsibly to secure the best possible outcome for them.

Parliament should be aware that I have written to the Presiding Officer about the procedural connection between the motion for the Scottish rate resolution and the Budget (Scotland) Bill. The effect of rule 9.16.7 of standing orders means that stage 3 of the bill cannot begin until the Scottish rate resolution motion is agreed to by Parliament.

No party won a majority mandate at the Scottish Parliament election, but the greatest proportion of the electorate supported the Scottish Government’s vision for the next five years. Therefore, although I seek support from other parties to get the 2017-18 budget approved, I am determined to stay true to our income tax proposals, not only because I believe that a vast number of the Scottish electorate support them but because I believe that they will deliver the best outcome for the Scottish people at this time.

The clear vision that we set out for income tax last March remains as stated—it is to protect low and middle-income taxpayers, while asking those who earn the most to forgo a significant tax cut at a time of continued United Kingdom Government austerity. As a result of constructive budget negotiations with the Scottish Green Party, the amended income tax proposals in today’s resolution stay true to that principle.

In the past, the cabinet secretary has argued that it would be wrong to give a significant tax cut to the highest-earning 10 per cent of the population by following the UK approach on the higher rate threshold. Is he not privately, in his heart of hearts, quite pleased that we persuaded him not to give any tax cut to the richest 10 per cent of society?

I am privately and publicly pleased that it looks as though the budget is going to be passed this week with the right package of measures to support our country.

Today, I ask the Scottish Parliament to agree to a Scottish rate resolution for the tax year 2017-18 that freezes all income tax rates, maintains the higher rate threshold at £43,000, protects those on low and middle incomes and ensures that 99 per cent of taxpayers will, on the same income, pay no more compared with 2016-17. It will also bring in an additional £107 million to be invested in public services in 2017-18. That additional £107 million supports a budget that will, if it is passed on Thursday, protect our NHS with record investment, deliver a living wage for social care workers, continue free tuition, expand early years provision, support efforts on energy efficiency, increase house building and support local services. I remain convinced that the proposals are the best approach to take at this time.

The Government is always mindful of the impact that taxes may have on individuals. Tax powers are not a political toy; they have an impact on individuals, which we must consider carefully. We are a Government that recognises the importance of growing the economy while raising sufficient revenue to fund further investment in our vital public services. Future revenues for the Scottish Government will be driven both by our policy choices and by the relative growth per capita in our tax receipts. That is just one of the reasons why we continue to invest in Scotland’s economy and its workforce to improve prospects for economic and employment growth, and we will not back any income tax decisions that would cause any impediment to that.

Tax should be progressive, which is why it would not be right to give a significant tax cut to the highest earners in Scotland at a time of Tory austerity. However, income tax policy should not undermine its own aims and, especially at this time, it should deliver the revenue that it sets out to raise. That is why we did not seek to raise the additional rate of tax. UK and international evidence suggests that having an additional rate in Scotland that was higher than that in the rest of the UK could significantly undermine Scottish income tax revenues, and the First Minister has directed the Council of Economic Advisers to keep the policy under review.

However, we also recognise that those who earn the lowest incomes—about 40 per cent of Scots—pay no income tax, so the income tax system cannot help them directly. Instead, we are delivering alternative policies to support those who are on the lowest incomes.

For example, the rates of council tax that are paid by those who are in the four highest council tax bands—E, F, G and H—will be adjusted in a move that will generate £111 million a year, while we will protect people on low incomes who are in those bands. The reforms will also provide additional support to families on low incomes across all council tax bands by extending the relief that is available to households with children. That will benefit up to 77,000 low-income families by an average of £173 per year, which will support an estimated 140,000 children.

In addition, our land and buildings transaction tax is more proportionate to the house price, which means that it is fairer, because it is based more closely on the buyer’s ability to pay. More than 90 per cent of home buyers will pay less in tax than they would pay in UK stamp duty or will pay no tax at all.

Beyond the tax system, we remain absolutely committed to the living wage. In 2016, Scotland remained the best performing of all four UK countries, with the highest proportion of employees—79.9 per cent—being paid the living wage or more.

There has—rightly—been significant debate about how the Parliament should use its new income tax powers. However, that significant debate has led to little consensus. The Conservatives have reverted to an anti-devolution position, whereas others want to experiment with every tax lever in an almost careless and reckless fashion. Those extreme positions do not serve the Scottish taxpayer well. Our position is that, given that the UK Government has cut the Scottish discretionary block grant by 7.4 per cent in real terms since 2010-11 and remains committed to imposing austerity at UK level, now is not the time to add to the burden on low and middle income taxpayers, as Labour would.

In the context of a difficult financial settlement, is the cabinet secretary not a little disappointed that he has not taken the opportunity of the new powers that he has in his hands to invest in good public services, such as those for education and mental health?

As a consequence of the budget that I propose, we will invest an additional £900 million in Scotland’s public services. I do not think that it would be right to increase the basic and higher rates of tax, because that would not end austerity—it would just pass on austerity to the people involved, some of whom are the less well-off in our society. That is why we have chosen to freeze the basic rate of income tax for 2017 and over the course of this parliamentary session.

Now is not the time to give away a substantial tax cut, as the Tories would. Asking higher-earning Scots to forgo a tax cut will raise additional revenue to support our vital public services.

Will the minister confirm that that measure will raise a mere £29 million?

Our position on income tax through the block grant adjustment will raise an additional £107 million. As for divergence, for less than the cost of a weekly prescription in England, living in Scotland ensures access to an NHS that is properly funded, gives families access to increasing amounts of free childcare and means that young people pay no tuition fees, that there is no prescription tax on ill health and that our older generation can benefit from free personal care.

Were we to match the proposals in the rest of the United Kingdom, as the Conservatives suggest, the Scottish Government’s budget would need to lose an additional £107 million. That raises the question of where that money would come from instead and what public services the Conservatives would cut to pay for that.

Others in the chamber have suggested that we need to impose a far greater tax burden on the people of Scotland. However, the budget that I propose already delivers an above-inflation increase in investment in the NHS; protection of public services that are free at the point of use, including free prescriptions; the support of our policy of free personal care; free higher education; and no business rates for 100,000 small businesses, as well as additional investment in reducing the attainment gap and doubling free childcare.

I remain convinced that our income tax proposals strike the correct balance between protecting low and middle-income taxpayers and still raising necessary additional revenue. The other parties must consider that, if the Parliament were to fail to agree to the Scottish rate resolution, the consequences for Scotland’s budget would be severe.

The motion protects those on lower incomes, delivers additional funding for our public services and makes economic sense. Across the chamber, all those with Scotland’s interests at heart should support that position.

I move,

That the Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2017-18 are as follows—

(a) the Scottish basic rate is 20%, charged on income up to a Scottish basic rate limit of £31,500,

(b) a Scottish higher rate of 40%, charged on income above that Scottish basic rate limit and up to a Scottish higher rate limit of £150,000, and

(c) a Scottish additional rate of 45%, charged on income above that Scottish higher rate limit.

15:28  

Let me start on a point of agreement with the cabinet secretary. This is indeed an historic moment in the history of devolution. For the first time, the Scottish Parliament has control over the rates and bands of income tax that are payable by Scottish workers. That substantial new power has been delivered by a Conservative Government at Westminster, thereby strengthening this Parliament as part of the devolved structures of the United Kingdom and proving that Conservatives in government keep their promises.

I do not think that it will come as a surprise to anybody in the chamber, or outside it, when I say that we will oppose the resolution today. We believe that the Scottish Government has made the wrong choices when it comes to income tax. The Scottish National Party plans to create a tax differential between Scotland and the rest of the UK, which will mean that some 374,000 people in Scotland will pay more tax here than they would if they lived south of the border.

Contrary to the claims that have been made by some SNP members, we are not talking just about wealthy people.

Will the member give way?

I will make this point and then give way.

The finance secretary told Parliament on 2 February that the changes will affect only the top 10 per cent of earners. That figure is incorrect: the true figure is that 14.6 per cent of income tax payers will be affected—more than one in seven. That figure includes train drivers, nurse consultants and some teachers. They are hardly the super-rich.

There are many thousands of households that include two adults and children, and in which just one adult in the household is working—the other has childcare responsibilities—and earns just over £43,000, which therefore represents the entire household income. Those are not wealthy individuals and they are not individuals who have spare cash at the end of the month, yet they are the individuals whom the SNP is targeting with its proposals.

On that hypothetical scenario, does Murdo Fraser accept that someone who is earning just above that threshold will pay barely a penny more in tax because it is only the element of their income that is above the threshold on which they will pay more?

Is not that a hypothetical situation? I know plenty of people whose circumstances are such that the one earner in the household earns just above the higher-rate threshold. If such people are earning £45,000, they will pay an extra £400 a year.

I am not surprised that the Greens back the plans—indeed, they would like to go further. I do not agree with Mr Harvie, but at least he has a principled stance. It seems to me that the SNP is caught right in the middle. SNP members talk left—they talk the language of higher taxation—but in fact they are afraid to go there because they know what the electoral consequences would be.

If the SNP’s plans were bad enough when they were introduced, they were made even worse with the grubby budget deal that was stitched up with the Greens, which increased the tax differential still further. In the long run, it will be the Scottish economy and the Scottish public finances that lose out, because we know that the performance of the Scottish economy sets the overall size of the Scottish budget. We know that Scottish gross domestic product growth lags behind that of the UK as a whole, and we know that unemployment here is higher, that employment rates are lower and that business confidence is substantially lower. The danger of having higher taxes in Scotland compared with the rest of the UK is that it simply entrenches economic underperformance.

The SNP might not want to listen to us on those points, but it should listen to the voices of Scottish businesses. Scottish Chambers of Commerce said that creating a tax differential between Scotland and the rest of the UK would set “a dangerous precedent”. The Institute of Directors in Scotland said that the plans would send the wrong message and have a negative impact on the Scottish economy, and that

“a taxation disparity between Scotland and the rest of the UK is not good news for business when competing for talent.”

Does Murdo Fraser accept that there are lots of tax differentials within Switzerland, among the cantons, and within the United States, among the states, and that it does those countries no harm whatsoever?

I am very disappointed in Mr Mason, because I remember the time when he used to argue for lower taxes: he used to argue for cuts in corporation tax. He seems to have taken a complete change of direction. Unlike Mr Mason, I think that we should listen to voices in the business community who are telling us of their concerns about the tax route that his Government is going down.

There will be SNP members—we heard this from Mr Mackay just a moment ago—who argue that higher taxes are justified because there are, they claim, better public services in Scotland. They will cite free personal care, free university tuition and free prescriptions. What they do not tell us when they make those points is that all those benefits existed before the tax differential was created and that they exist because of the Barnett formula, which ensures that public services in Scotland are funded to the tune of over £1,200 more for every man, woman and child in Scotland relative to the rest of the United Kingdom. What does the SNP want to do to the Barnett formula, which pays for all those services that it values so highly? It wants to tear it up. It wants to take us out of the United Kingdom, which provides the very funding settlement that pays for the services that they champion.

The tax rises are the wrong choice. They are bad for Scotland and for Scottish families, and in the long run they will hurt Scottish economic performance and the public finances. Perhaps even worse, we found out three weeks ago that they are not necessary. Three weeks ago, Mr Mackay came to Parliament and told us that in order to fund his budget deal with the Greens, he had found an extra £185 million down the back of the sofa. A good rummage under the cushions and the best part of £200 million was produced to buy off the Greens and get his budget deal through Parliament.

The total that is being raised by creating the income tax differential is £107 million, which is substantially less than the £185 million that the SNP had lying spare, which was £125 million of underspend plus £60 million from the business rates pool. To make matters worse, even in the past half hour, the cabinet secretary has come to the chamber and produced, as if from nowhere, another £40 million. He accuses other parties of having magic money trees, but there is nobody as magical as Mr Mackay when it comes to producing money out of nowhere to get himself out of a budget hole.

There was no need whatsoever for the tax rises. Mr Mackay could have funded all his original spending plans without raising a single extra penny in income tax. The SNP are taking the taxpayers of Scotland for fools. They will not easily forget it.

The Scottish Conservatives will not always argue for keeping taxes the same as they are in the rest of the UK. There will be circumstances in which we would argue for lower taxes in Scotland in order to give us a competitive advantage. That is precisely why we argue for lower air passenger duty in Scotland. That would grow the economy and grow tax revenues, as a result. I am pleased that SNP members share our ambition in relation to air passenger duty, but it is a pity that they cannot apply that principle to income tax, as well.

At a time of Scottish economic underperformance, it is foolhardy to send out a message that Scotland is the highest-taxed part of the United Kingdom. We should, instead, have a Government that takes measures to grow our economy and tax base, so it is much to be regretted that it is going in the other direction.

15:36  

I agree with the two previous speakers that we make history today in this Parliament by setting income tax rates and bands for the first time. We should not take that lightly because there is a great responsibility on each of us when we are making decisions that have significant impacts on the people of our country. There are some key considerations for us, as parliamentarians, to remember when we are reaching those decisions: the impact on household incomes, the impact on our economy, the impact on public services and the impact on inequality in Scotland. Those are the key considerations for Labour Party members in our approach to the motion.

In looking at household incomes, we must ensure that taxation is fair. Taxation must be based on the ability to pay and on the principle that people pay according to their means, so those who are able to pay more do so through a fair and progressive system of taxation. A fellow Fifer, Adam Smith, said:

“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities”.

At a time when we need investment in our economy and in our people—our country’s greatest asset—I suggest that asking the top 1 per cent of earners in the country to pay a 50p top rate of taxation is not unreasonable. Everyone would benefit and society as a whole would benefit from the return on that investment. Crucially, that is fair, just and the right thing to do at a time when we have a massive skills gap in our economy, an unacceptable gap in levels of educational attainment between the poorest and the richest people, and growing inequalities in health up and down our country.

Does not Alex Rowley think that an immediate jump to a 5p difference from the rate in England would be a rather risky jump? Does he not think that it has to be lower to start with?

No, I do not—but I will expand on that.

Now is the time to invest. Although SNP members seem to be more interested in what the Tories have to say, the Tories are wrong: they are wrong when they say that we cannot have a different tax policy from England and they are wrong in their assertion that increasing tax would damage our economy. Let us be absolutely clear: failed Tory austerity is what has damaged our economy, and what is damaging our economy in Scotland is the SNP’s failure to stand up to failed Tory austerity. The SNP instead chooses to use Scotland’s Parliament as a conveyer belt for that failed Tory austerity.

As Oxfam has so succinctly put it:

“The UK’s current austerity programme threatens to solidify the UK’s position as a country of growing inequality and poverty. Its emphasis on cutting public spending as opposed to increasing taxes has already begun to increase the hardship faced by people on low incomes, whilst allowing the richest bear a comparatively small burden of the pain. As millions more are expected to be living in poverty and at risk of poverty by the end of the decade, the richest look set to get richer.”

Is that really what the Greens and the SNP stand for, or will they join us, reject the motion, and bring forward a progressive approach to using the Parliament’s powers in the best interests of Scotland’s people and economy and, ultimately, in the best interests of Scotland’s future?

Every individual MSP has the choice between the Tory and SNP way of failed austerity, public services in crisis, lack of opportunity, low wages and growing insecurity, and real recovery, growing our economy, investing in public services and in skills and jobs and giving every Scot the best chance in life

We have a chance to shape future provision of public services in our country and to give young people a better future by investing in childcare, education, skills and jobs. We have the chance to provide better care where it is needed and to give those who have given all their lives to our communities dignity and respect in old age. I say choose investment, choose people and choose a stronger Scotland. Vote against the motion and stand up for Scotland.

There are five members who had better press their request-to-speak buttons now if they wish to speak.

15:42  

I welcome the debate because it gives us a chance to call out the ridiculous rhetoric about the Scottish rate of income tax that has been promulgated in the chamber week after week by the Tories. Every week, we hear from the Tories scare stories that people will leave Scotland in their thousands because the Scottish Government has refused to pass on to the richest in our society the same tax cut that the UK Government deemed so necessary. That assertion shows a fundamental lack of understanding of our citizens, the vast majority of whom are decent, hard-working, honest people who value their public services and do not have a problem with not taking a tax cut in order to provide investment in our public services.

We are doubling childcare, so Murdo Fraser might want to mention to his hypothetical family that the second adult can maybe get some free childcare and get back to work.

Decent people do not up sticks and leave a country because they have been asked to pay their fair share of taxes to keep public services going—public services from which we all benefit. Hard-working people are not just those who earn a very high salary.

I quite agree with the member that it is right to make the argument for having differential income taxes to pay for public services, but why is the SNP Government being so timid in limiting that ambition to simply not changing a threshold?

I will come on to the other side of the coin later in my speech.

The rhetoric that we have all heard—the claims that taxing higher earners a little bit more penalises hard workers or people with aspirations—is, frankly, offensive to everyone who works hard for whatever wage they can earn, whether they are skilled or unskilled. We all work hard and aspire to live a life that is without financial hardship.

The hardest-working people are those who work for the minimum wage, who often need to have two jobs to get by, who raise families as they work in those jobs, who struggle to make ends meet, who need the highest earners to pay their fair share, and who should have an income tax level that lifts them out of in-work poverty. The hardest-working people are the middle-income workers who do not qualify for any benefit top-ups, but who still find it hard to cover their bills from month to month, never mind save anything.

That those people will not see an increase in their income tax—and in many cases in their council tax—is fair. Given the challenging economic times, it is only right that 99 per cent of Scots will pay no more income tax than they did last year. That we do not want to give the top 10 per cent of earners in Scotland a tax cut at the expense of others who find it harder to get through the month, given the age of austerity in which we live, is a moral choice. I am utterly convinced that most of that 10 per cent believe that it is a fair choice, too, and that they will not suffer any hardship as a result of the Scottish Government’s decision.

Honest, decent hard-working people want to pay their fair share; they do not want to hide what they earn in order to avoid taxes and they do not want special circumstances that make their tax bills disproportionate in comparison with those of people on lower incomes.

What do we get with those taxes? We get the schools for the future programme, which will deliver new schools across Scotland. In my constituency alone, there is one new secondary school—Ellon academy—that is less than a year old, the foundations for a new primary school are currently being laid in Turriff, and plans are under way for a new Inverurie academy. That comes from investment in public services and in people’s education.

People living in Scotland also do not have to pay for prescriptions—we do not unfairly tax ill health. Young people do not have to pay tuition fees for college or university—we do not unfairly tax the right to be educated. We have investment in roads infrastructure in my area of the north-east that is unprecedented, and a promise of 100 per cent digital connectivity in Scotland by 2020. We are investing in Scotland.

Like all my colleagues here today, I am one of the higher-rated earners, and I am happy to pay my fair share of tax for the kind of life that I want people in this country to have. If the people of Scotland did not agree with me, we would not have the Government that we have—voted in last year for a third term.

15:46  

This Government has been given responsibility for setting income tax rates in Scotland. It could have chosen to reduce the tax burden on Scottish people and businesses, to encourage inward investment, and to make Scotland a more attractive place for professionals, entrepreneurs and job creators to move to and base their families in. Instead, thanks to its deal with the Greens, the SNP’s budget will see 374,000 people paying more tax than they would pay if they lived south of the border.

Will the member take an intervention?

It is early, but yes—of course.

The member referred to tax. Does he recognise that tax is wider than income tax? Does he recognise that the average council tax bill in Scotland is £400 lower than in the rest of the UK? Everyone benefits from that.

I thank the member for his intervention, and particularly for bringing in council tax, which I assure him I will come on to. I compare things in the rest of Scotland, not necessarily in the rest of the UK.

In “The Wealth of Nations”, Adam Smith said:

“There is no art which one government sooner learns of another than that of draining money from the pockets of the people.”

Even he cannot have envisaged how quickly this Government would learn that.

Let us leave aside the question whether the Government deserves more than half of people’s incomes, regardless of how hard they worked to earn that money. Let us leave aside the fact that more than one in seven workers will be paying more income tax than their counterparts south of the border and that, according to the Scottish Parliament information centre and the Fraser of Allander institute, the Scottish Government’s total budget in 2017-18 will be up, in real terms, from what it was in 2010-11.

We need to go back to base principles: the Government cannot tax its way to prosperity. If it raises taxes to a level that is too high, people leave and/or cease producing wealth. Those are the workers—they produce the wealth. It is not the Government’s money; it is their money.

The Scottish Government does not know better than the people who earn that money how to spend it. I well recall Di Alexander, the chair of the Scottish rural poverty task force, saying to the Economy, Jobs and Fair Work Committee, in 2016, that if people save money on bills, they put it in their pockets and they can spend it on the local economy.

When an innovator, an entrepreneur or an investor has an idea for a business, will she build that business in a Scotland that punishes her for her success, or will she look south of the border?

Will the member give way?

A quick one, please, Mr Mason.

Does the member accept that a pound in the pocket of a poorer person is more likely to go into local services than one in the pocket of a richer person?

I thank the member for his intervention. That is an interesting question, but it is one that I will not answer here, simply because the member who asks it is the one who, famously, is not quite sure of the distinction between national debt and national deficit. If he would like to write to me afterwards, I will explain it for him in some detail.

When a newly qualified nurse looks at where best to base himself for a successful career, will he choose Scotland, where, when he reaches mid-senior level, he can expect the Government to take 40p out of every pound he earns, or will he go south of the border, where he will not have to worry about that until he earns at least £50,000?

If only it were just about income tax. Across the north-east, people are receiving letters to inform them of the council tax that they will have to pay next year. We did not hear from Gillian Martin about that.

Will the member take an intervention?

I thank the member but no, I am running out of time—[Laughter.] Ms Martin had her chance.

Letters have been sent to inform more than half the residents of Inverurie and Ellon, where the majority of people live in houses that are in band E or higher, that the tax on the home that they bought with a big mortgage to raise their family in is about to rise—and that is before any rises that the chronically underfunded local council may have to levy in addition.

Murdo Fraser detailed how Scotland is underperforming compared with the rest of the UK. The solution has been made clear. The Scottish Chambers of Commerce said that the focus should be on growing the economy, rather than increasing taxes, and went on to say:

“Creating a differential between tax bandings north and south of the border will set a dangerous precedent.”

Former member of the Scottish Parliament and Royal Bank of Scotland economist Andrew Wilson said that the best way sustainably to double revenue is to double the number of taxpayers in Scotland who are wealthy enough to pay the top rate. The Institute of Directors said that the SNP’s tax plans will have a negative impact on the Scottish economy. The Royal Society of Edinburgh was also clear. It said:

“While there may be a political incentive to target high earners ... there should be a high level of caution exercised by the Scottish Government not to shrink its tax base”,

and Johnston Carmichael warned that higher taxes in Scotland could see businesses move elsewhere.

We well recall that reducing the 50p tax rate to 45p raised an additional £8 billion from additional-rate taxpayers.

Mr Mackay knows all that. On air passenger duty, he claims that the proposed 50 per cent cut is

“a fundamental component of our efforts to boost Scotland’s economy through ... generating sustainable growth.”

In 2012, Alex Salmond told business leaders that lower corporation tax would be the “best available weapon” to improve Scotland’s competitiveness.

What concerns me most is the direction of travel. It was the Greens who got the proposal through—the Greens, who want to tax everyone who earns more than £43,000 43 per cent of their income, with a 60 per cent rate for those who earn £150,000 or more. They want to end the personal allowance for people who earn £100,000—and their council tax proposals would see band H householders paying more than £7,000 a year. The Greens are some bedfellows.

Will the member take an intervention?

Not now.

The member is in his last minute. Also, I do not think that your card is in your console, Ms Martin.

Yes, it is.

We cannot tax our way to prosperity, but in an extraordinary irony, this Government appears to be about to tax its way to austerity. We do not agree with the motion and we shall vote against it at 5.15 today.

15:52  

I remind members that I am the parliamentary liaison officer to the Cabinet Secretary for Finance and the Constitution.

Today’s debate is not so much about tax as it is about the hard-working men and women in this country, from Lerwick to Lockerbie, who go to work, earn a living and contribute part of their income to the welfare of our society through income tax. That contribution—that tax—is, quite rightly, paid in proportion to income levels and directly makes this nation the safe, educated, healthy and compassionate country that we call home.

That we live in such a country is thanks to the teachers, cleaners and dinner ladies, the accountants, entrepreneurs and secretaries, the joiners, electricians and chefs, the doctors, nurses and therapists, the chief executive officers, board members and advisers, and all the men and women who leave home in the dark or get home in the dark and those who work so many hours that they do both. This nation would be crippled without them, not just because of the services that they provide but because of the contribution that they make to our public welfare, through income tax.

Decisions are taken in this Parliament almost daily about how to spend money. In our debates, elected members should never lose sight of the fact that we are discussing the hard-earned income of men and women across this country, and we have a responsibility to spend it well. On that, I agree with Liam Kerr: it is not our money but theirs.

Kate Forbes talked about hard-working CEOs, many of whom earn more than £150,000 a year. Does she think that it is right that such people are not being asked to make an additional tax contribution, at a time when council budgets are being cut by £170 million as a result of Mr Mackay’s budget?

I thank James Kelly for his intervention, because it allows me to make the point that goes right to the heart of the entire debate.

Our economy depends on a tax that is raised from people who earn more than £11,500. We do not think that people who earn £11,500 should be paying more, which is what the Labour Party proposes. We believe—and I agree with the member on this point—that those on the higher rates should not have their taxes cut, as has been proposed south of the border. Those in the top 10 per cent are being asked to pay a little more.

I hope that that answers the question; it lets me go right to the heart of the debate on tax. In the Holyrood elections, the people of Scotland delivered a resounding verdict on the parties’ plans for spending and for raising revenue through income tax. Members might make a lot of noise about their suggested alternatives to the Government’s proposals, but those alternatives were soundly rejected at the ballot box—and for good reason.

Murdo Fraser said that the SNP is “stuck ... in the middle”. I am proud to be standing in the middle, in a position of common sense between two ludicrous positions on the left and right of the chamber. On one side, the Tories are whinging that higher-rate taxpayers are paying a little bit more tax than those in England and Wales, not because of what this Government has done, but because the Tories in Westminster have actually cut taxes for higher-rate payers. On the other side, the Labour Party is arguing that people who earn as little as £11,500 a year should pay more, passing on austerity to the household budgets of the lowest-income taxpayers. Both positions are grossly unfair, and it is only this Government—

Is Kate Forbes happy that, in the area that she is from, Highland Council is receiving a cut of £11 million—or 2.7 per cent of its revenue funding—from the Scottish Government? Is she happy to defend that?

I am more than delighted to look at how much extra Highland Council had before and has after the additional £160 million that this Government has given it directly. I am delighted that more funding is going this year to Highland Council, which has, of course, just increased its budget to take advantage of the extra 3 per cent in council tax.

There are two main reasons why I am proud to be in the middle position: first, most hard-working families are still struggling to make ends meet, so this is not the time for tax rises; and, secondly, our public services are under pressure, so this is certainly not the time to cut taxes for higher-rate taxpayers, as is happening elsewhere in the UK. That is the fairest course of action; it means that 99 per cent of adults will pay no more tax than last year, given their current level of income.

However, the motion asks higher-rate taxpayers to forego the tax cut that has been implemented elsewhere in the UK. Those in the top 10 per cent of earners who are being asked to pay a little more than they would in the rest of the UK—approximately £400 more—are still benefiting from vital services, such as higher education, personal care and prescriptions, that are free at the point of access.

The cabinet secretary mentioned that it has been 300 years since this Parliament set income tax rates, and it is just less than that since the birth of the slogan “no taxation without representation”. There is representation in this Parliament, whose members were elected last May on manifestos that were clear and accessible to the electorate. The Government is sticking to the SNP’s election promises. We have the largest mandate in the Parliament and the most popular policy on tax, and we will stay true to our manifesto.

15:58  

Budgets are about choices—about what we want to spend our money on and what we want to invest in, and about the future of our country. There are two distinct facets: there are choices about where those tax revenues should be spent and invested, and choices that we now have in the Parliament about how and where to raise those taxes.

With those alternative choices, there are also alternative priorities. As the Tories have said, we can choose to minimise taxation and make it so that there are no different levels of tax in this part of the United Kingdom compared with others. Alternatively, we could take Labour’s view, which is that real competitiveness and growth need strong public services, investment and infrastructure.

As Kate Forbes has just said, the SNP seems to be “stuck ... in the middle”. Even Murdo Fraser was damning the Government with faint praise because it is, in essence, leaving most income tax absolutely static. The sole change to one threshold will mean a £400 difference only to higher earners, and will raise only an additional £29 million. Against a draft budget of £30 billion, that £29 million represents only 0.1 per cent. That is the size and scale of the SNP Scottish Government’s ambition.

Parliament was founded on the principle of making different decisions and having different priorities. On such an historic day, when we finally get to choose our own tax rate and set our own priorities, the SNP Scottish Government chooses not to use its powers.

Does the member accept that we do not know what behaviour change there will be, so it is better to be cautious in the first place?

I agreed with the member when he intervened earlier and said that differential tax rates were more than plausible within a single economy, but I do not agree with him this time.

The reality is that the SNP chooses not to use its tax-raising powers and pursues a line of argument that takes credit for forcing councils to raise their taxes. The SNP talks about extra funding being available from a hypothetical increase in taxes that it does not control. Since 2007, the Scottish Government has made a virtue of and crowed about freezing the council tax. It threatened councils with cuts to their revenue grants if they raised council tax, but now it wants credit for forcing them to raise council tax. The Government cannot have it both ways. It would be like the UK Government taking credit for hundreds of millions of pounds of additional revenue from the taxes that it controls. A 3 per cent increase in income tax, LBTT and landfill tax would raise £375 million. We do not praise the UK Government for £375 million in additional hypothetical spend, because that would be as ludicrous as the Scottish Government taking credit for council tax increases.

Let us look at what the Scottish Government has chosen to do. The level 2 budget lines show a clear £169 million less going to local authorities from the Scottish Government. Those revenue grants are the largest proportion of funding to local government. Council tax makes up less than 20 per cent of council revenue. When we talk about the total resources available and extra funding, they mask the real cuts to the main source of income to local government. That is why it is so disappointing to hear the Greens trot out the same lines time after time. At the start of the debate, they talked about progressive taxation being a red line, and now they trumpet extra funding, which turns out to be fewer cuts.

Those cuts have real impact. Since the SNP came to power, we have seen £1.5 billion taken from our communities and stripped from our local services. We have heard SNP member after SNP member dismiss those cuts as local efficiencies, or decisions that councillors or the people who are employed by councils make. It has nothing to do with them and everything to do with local councillors. We see the impacts in our roads that are full of potholes because councils cannot afford to maintain them. We see the impacts when people cannot get home from our hospitals because care packages are not available.

We also see the impacts in our classrooms, which have battered textbooks and insufficient resources. The reality is that 44 per cent of local government spending goes to education. The budget is about future growth that is built on public services and there is no more important public service than education. However, £1.5 billion of cuts have resulted in 4,000 fewer teachers, 800 of whom were in maths and science, and 1,000 fewer support staff. It has led to a fundamental cut in the future of our country.

This is indeed an historic day. It is also an historic missed opportunity. This was an opportunity to make a different set of decisions, and to show how we value our public services and can invest in them for our future rather than simply passing on Tory tax plans with a little bit of a tweak. There is no change in rates and the tax is no more progressive than the one that the Scottish Government inherited.

The SNP used to believe in using the levers that are available to it to make different decisions for our country. It is a shame that, today, it believes in leaving well alone and does not have the courage of its earlier convictions.

16:05  

Although this debate marks an historic step forward for the powers of this Parliament, we should not forget that key taxes and levers of economic control are still determined elsewhere. Scotland’s Parliament is still denied, for now, the right to set income tax rates for dividends or for savings income—I will come back to that point later. We are also denied, for now, the right to control most of the levers that can stimulate the economy, including corporate taxation.

However, within the limitations of the powers that we have, this Government has introduced a budget that is balanced and fair, which is reflected in the Scottish rates resolution. It conforms with the manifesto commitments on which we were elected last year; it takes into account the principle of the ability to pay, protecting—

Was the SNP elected on a manifesto commitment of cutting council budgets by £170 million?

As Mr Kelly well knows, the total amount of money that will be spent on local services is significantly more than it was last year. There are a number of things that he has not included in his calculations. It would be good if he included everything that is relevant, such as the attainment fund of £120 million, £2 million-plus of which is going to my Provan constituency.

The budget takes into account the principle of the ability to pay, protecting low and middle-income earners and asking those in the top 10 per cent of earners to forego a tax cut. The budget uses the tax levers that we have to generate the revenue that is required to fund our public services, which is essential—

This week, Glasgow City Council set its budget; within that budget, there was a £53 million cut that was imposed by the Scottish Government. Will the member utter a single word of opposition to cuts in the communities that he is supposed to represent?

As Mr Sarwar well knows, more than £20 million extra is going to Glasgow as a result of the attainment fund. More money is going in on account of the social care fund and, of course, there is money to be raised from the increases in the higher rate council tax bands, which will also have an impact on Glasgow City Council revenue. He knows that fine well.

This budget is based on sound economic principles. Of course, to enable us to understand and correctly evaluate the budget’s proposed tax measures and their impact on overall tax revenues, it is necessary to remind members of the conceptual underpinning of—dare I say it?—the Laffer curve. Although Laffer is most well known for codifying the principle that not all increases in tax rates generate additional revenue, the principle also clearly states that not all reductions in tax rates generate additional income. That applies in the same way that although, counterintuitively, a price reduction may increase profits for a business, it is very far from the truth to say that that is always—or even often—the case, hence the downward sloping curve of the Laffer curve for values of tax rates below optimal. Were that not the case—and if we followed Mr Fraser’s logical extension—maximum tax revenues would occur at the point where tax rates equal zero, which of course is a complete nonsense. Failure to grasp that point reinforces the Conservative Party’s lack of credibility in its understanding of these economic matters.

Our task as policy makers is to understand where we are on the Laffer curve and to legislate accordingly, balancing the maximisation of tax revenues with the principle of proportionality and the ability to pay. The decision to maintain the basic tax rate at 20 per cent ensures that we do not penalise those on low or average earnings in the way that the Labour Party would. It is fundamental to our protection of those income groups not to make them pay twice for UK Government Tory austerity.

Indeed, with a commitment over the course of this parliamentary session to raise the point at which earners start to pay tax to £250 higher than will apply in the rest of the UK, this Government is taking steps over time to make Scotland the lowest taxed place in the UK for basic rate taxpayers, who constitute by far the majority of taxpayers in Scotland.

The decision to freeze both rates and bands for higher rate taxpayers—the choice not to follow the UK Government’s higher-than-inflation threshold increases—provides additional revenue. It does so by asking those who can afford to pay more—the top 10 per cent of income tax payers—to do so to the tune of less than £8 per week.

As I mentioned previously, it is not true to say that this Parliament now has powers over all income tax. Legislating on savings and dividends income remains outside our power for now. That is important to recognise, because it has an impact on our ability to tax additional rate taxpayers. Given where we are and our lack of power over those taxes, we are at the point of the Laffer inflection with regard to the 50 per cent tax rate. That is why it does not make sense to increase additional rate tax at this point in time, although the door is open should circumstances change.

I turn my attention to the narrative that is building up on comparative tax burdens across this island. The inability of some to understand that income tax is not the only tax is astounding. Data clearly shows that council tax levels in Scotland are £400 lower than those in the rest of the UK, which offsets any relative difference in income tax bills due to higher rate thresholds. That is before we consider the benefits to 100,000 small businesses of the small business bonus and the substantial financial benefits of free public services to those living in Scotland, including free higher education, personal care and prescriptions.

It is important to recognise that the budget maintains a balanced, effective, fair and proportionate tax policy that meets the objectives of maximising revenue for public services while protecting the pay packets of low and average earners. The Scottish Government’s budget ensures that the people of Scotland continue to benefit from the best deal on tax and public services anywhere in the UK and that Scotland continues to be an attractive place to live, work and do business.

16:11  

As Winston Churchill once famously said,

“for a nation to try to tax itself into prosperity is like a man standing in a bucket ... trying to lift himself up by the handle.”

The Government seems oblivious to that statement of the obvious, and its handle on the economy is set to snap if it ignores the warnings that industry experts have dished out.

To those who were watching, Derek Mackay might have seemed less like a knight on a white horse coming to rescue the country from the measures that he had imposed and more like a cartoon character sitting in a sailboat who blows hot air into the sail but who refuses to pick up the oars and simply wills the boat on.

Perhaps the Government has had enough of experts. That must have been the prevailing feeling of those who watched as stakeholder after stakeholder commented on the finance secretary’s budget proposals. Reference has been made to the Scottish Chambers of Commerce, the Institute of Directors in Scotland and others who work hard to keep the wheels of our economy running smoothly. They have warned of the consequences of failing to incentivise living and working in Scotland.

Rather than seek to increase revenue, the budget seems to single out and negatively target success. Has the cabinet secretary forgotten so soon the hard lesson of the land and buildings transaction tax, for which revenue forecasts have had to be revised downwards? He appears simply to discount the warnings against bringing an ever-greater number of middle-class earners into the higher-rate bracket. As has been mentioned, that includes people such as police officers, senior teachers and nurses—people who were never expected to fall within such a tax bracket and who are being pulled out of it in England as a result of a UK Government budget that is fit for the realities of today.

Where does Gordon Lindhurst think that the cuts should fall to pay for the £107 million that he would lose in comparison with our tax position?

The minister seems to find money down the back of his sofa when he wishes to.

The magic money tree.

Yes—from the magic money tree, as it is being called.

The Scottish Government’s approach tells a tale about how it believes it should govern the country, which is by making it the highest-taxed part of the United Kingdom. The Scottish Conservatives reject that approach. We have all seen that it does not work. We need a Scottish Government that is on the side of hard-working families and businesses. However, the SNP Government thinks the opposite—it acts as if, because of what it tries to sell as a generous approach to prescriptions, personal care and education, Scots get the best deal in the UK. The Government is like a rabbit running into the headlamp of an oncoming train; it takes money from hard-working families and decides for them how to spend it. I agree with Kate Forbes that it is not our money. The people of Scotland are growing tired of the Government thinking that it knows what is best for them.

Does Gordon Lindhurst accept that, for our economy to grow, we have to invest in training, skills and opportunities so that we have a highly skilled workforce and companies will therefore want to come to Scotland? If so, how should we pay for that?

We have to invest by creating an environment in which the people who create jobs and bring business to Scotland want to come here, not by putting up a sign that says, “Highest-taxed part of the UK—closed for business”.

Maybe the Government could learn a thing or two from its own people about tax. The chair of the SNP’s growth commission appears to have understood, in the recent past, the link between attracting people to Scotland and generating revenue as a result. Members have referred to a comment by the former First Minister Alex Salmond, who conceded that lowering corporation tax would be the “best available” means for an independent Scotland to improve its competitiveness.

However, what we have is a budget fix with the Green Party that is liable to cost more than it raises for the Scottish Government. We know that simply increasing tax, particularly on those who will create business and bring workers to Scotland, is liable to decrease the tax intake. We have an unnecessary tax grab since the finance secretary found the extra £185 million nest egg. It seems that, if there is such a sofa, millions of pounds have been carelessly left down the back of it.

The difficulty is that, with Scotland’s economy lagging behind that of the UK as a whole, tax revenues are dropping. We do not want a finance secretary who appears to be heedless of realities, like some little tyrant of the Scottish high street. We need proper planning, not simply sticking plasters, to respond to the concerns of businesses when their rates are hiked. Just this week, before the latest measures were announced, a businessman told me that he was facing a tax rise of more than 100 per cent in his rates bill. I leave that with the Government.

16:17  

I listened to the ministerial statement on non-domestic rates and I subsequently heard glowing praise from SNP back benchers for the best possible Government position and outrage and anger from many Opposition members at the worst policy imaginable. I suppose that it is no surprise that an element of this debate has followed pretty much the same dynamic. The only surprise is that we have not had a second showing of Murdo Fraser’s unique powers of mixed metaphor, although Mr Lindhurst is trying his best to follow in that stead—I am not sure that I fully understand what a tyrant does with sticking plasters.

I agree with a great many of the criticisms and analysis that the SNP’s tax position is too timid and is not impressive or ambitious. I disagree with those such as Murdo Fraser—I thank him again for inspiring a new line of Scottish Green Party merchandise; I will bring him a watermelon badge, if he would like one, for the stage 3 debate on Thursday—who are keen to promote the idea that people in Scotland will be paying more tax.

The phrase “tax rises” has been used several times today, and I regret that such rises are not happening. People such as me and every member in the chamber should be paying a bit more tax in the next financial year than we are paying this year, but that is not going to happen. Some members have spoken about forgoing a tax cut that the UK Government is pursuing. We need to forgo such language and the thinking that compares tax policy in Scotland with tax policy south of the border. We should compare ourselves with the country that we want to be, not with our nearest neighbour.

While the Scottish Government’s position is somewhere in between the glowing praise and the outright condemnation, it is certainly not the ambitious and creative approach to tax policy that I would like to vote for, so I will not be voting for it. However, I will not block the motion, because of the consequences of blocking it.

Daniel Johnson was right to ask us all to consider the consequences of how we vote today. I will suggest what the consequences would be if the Scottish Greens were suddenly overcome with a fit of pique and decided to throw out the £160 million for local councils. If we voted against the rate resolution, the budget would fall. If that happened, immediately—perhaps within the hour—in 32 council headquarters around Scotland, 32 chief executives would go into 32 leaders’ offices and say, “Look, you need to dust off that bunch of cuts that we were able to avoid implementing last week, because the Scottish Government’s budget has just fallen and the extra £160 million will not be available to us.”

I know that the position in local government is not perfect, and I wish to goodness that it was better. Perhaps if the Labour Party had taken a more constructive approach, it would have achieved as much as we have achieved and would have reversed even more of the cuts.

I hear what Patrick Harvie is saying, but we are talking about not an additional £160 million but an additional £29 million. The rest of the money is underspend that has been found from elsewhere. If the budget fell, surely the Government would come back to Parliament and negotiate. The reality is that the Greens have given away their position for £29 million and have undersold their own hand.

The budget agreement clearly puts an additional £160 million into the local government allocation. I never suggested that all of that was coming from income tax, but that is what is available to local councils, and they would lose that if we changed our position today.

Derek Mackay said that, although there has been significant debate on the new tax powers, it has led to little consensus. I certainly think that it has led to little movement from the SNP—that is undeniable. I do not think that it is enough for the party that is in government to complain about a lack of consensus on the part of others. When asked to justify its position, the SNP repeatedly harks back to a manifesto that it knows did not gain majority support and on which it was not returned to the Parliament with a majority. I want more than a reference—a page number and a paragraph number—to justify the SNP’s position; I want reasons that I can understand. The closest that the Finance and Constitution Committee got to hearing those reasons, when it asked the cabinet secretary for them, was in hearing that the position just about feels right—that was the line that the cabinet secretary used, which is simply not good enough.

I agree with the criticism of the policy of raising the basic rate. Raising the basic rate would increase the tax that is paid by low and middle earners, which is not justified. However, there is no reason to keep only one basic rate from the personal allowance level right up to the higher-rate threshold. There is no reason why we should be limited in that way; we should be more creative. That is what the Greens propose, and we will continue to do so.

I know that there are concerns about the possibility of tax avoidance at the level of the additional rate—the very top rate. I say to the cabinet secretary that there is mixed evidence on the likelihood of that. If he wants to be in a more robust position when he makes that argument in the future, the Scottish Government should commission additional research to find out how it can achieve additional tax income from those who are genuinely the very wealthiest in our society, without creating incentives for tax avoidance.

There is no evidence that generating additional revenue from the higher rate would result in a behavioural effect. It is undeniable that, at local government level and at national Government level, we are going to have to use all our tax powers in a more creative way in the future.

The debate is only going to get more difficult as this session of Parliament wears on, not just because of the expectation of higher inflation, which will reduce the public’s spending power and will give rise to justifiable demands for a more generous pay settlement in the public sector, but because of deeper cuts that are coming down the line from the UK Government, as well as highly dubious proposals for tax cuts from the Scottish Government, such as that to APD.

The debate will get more difficult in future years if the Government is unwilling to revisit its dogged refusal to shift from a status quo tax position. As I said, the Greens will not block the rate resolution tonight, as that would endanger something that is even more important than the issue of tax. However, as the debate goes on in future years, we will need to see a more credible position from the SNP.

16:24  

Patrick Harvie has just given us an interesting explanation of what he is going to do this evening. It will probably be one of the most highly principled abstentions that the world has ever known. However, it is Patrick Harvie’s party that is letting the budget through. He is responsible for that budget and he needs to own it, rather than skulk behind an abstention, believing that that absolves him of any responsibility.

Will Willie Rennie give way?

No.

The Greens have made little impact on the budget. In what must go down as one of the worst negotiations ever, the Greens conceded even before the SNP had offered them a single penny.

Will Willie Rennie give way?

I will not, just now.

Feeling sorry for the Greens, Derek Mackay threw them a few crumbs from the table. They are worth a total of £82—that is £82 extra tax for MSPs like me. Patrick Harvie wanted to charge me an extra £2,000 in tax, but now I will pay an extra £82 a year. That has sent ramifications through my household that you would not believe. People in my household are very worried about where we are going to find that extra £82. That is the radicalism of Patrick Harvie. He should be embarrassed that he is supporting the budget.

Will Willie Rennie take an intervention?

Patrick Harvie should be embarrassed for another reason, too. He promised us that we would have a greener and bolder Parliament—he said that often throughout the election campaign. However, look at the Greens budget deal. Not one single environmental programme has been funded as a result of the changes.

Will Willie Rennie accept an intervention?

I will not, just now.

The deal is not greener and bolder, but grey and timid. Patrick Harvie should be ashamed.

Is Willie Rennie too timid to take an intervention?

I will take an intervention. Go on.

I am grateful to Mr Rennie for finally giving way. In justifying his stance on the budget concession of £160 million of additional funding for local councils—which are, I remind him, responsible for many of the most important local environmental services—can he give an example of any budget concession that comes anywhere close to that in the entire history of devolution? What has his party achieved in the budget negotiations? Not a penny.

Patrick Harvie said that with a straight face.

As we discovered in today’s statement, Derek Mackay already had the money—he was always going to spend it and had no intention of just storing it. Patrick Harvie did not negotiate the extra money: Derek Mackay had it in the first place. That is how Patrick Harvie has been duped by the finance secretary.

Derek Mackay must also be a bit embarrassed and uncomfortable today. I am sure that he has attended many marches, protests, demonstrations and heated debates about powers for the Scottish Parliament—dreaming of the opportunity that would be presented if only we had a few more powers so that we could mark out that brave new world and do things the Scottish way, which would be different from the way of the rest of the United Kingdom. What have we discovered today? We have discovered that Derek Mackay just wants to follow exactly what the Conservatives are doing down south. That is timidity. What he is doing is, by and large, what the Conservatives are doing at Westminster. There will be no real change on income tax. There will be a little bit extra, but not very much more. The reality is that he is following them.

That is not the brave new world that Derek Mackay campaigned for all those years, so he must be disappointed that he has not been able to take the new powers in his hands and do something different, braver or bolder—as the Scottish Parliament deserves. It is a missed opportunity. Brexit is coming down the track, as the SNP repeatedly reminds us, and is bringing with it economic challenges. We have also seen the slipping down the international rankings of our education system, from being one of the best in the world to being just average. Just average is not really the brave new world that I wanted Scotland to be.

We also have large numbers of people—643,000 people—who will be off sick because of mental health problems in their lives, but we have a mental health service that does not meet that need, which has an economic impact of millions of pounds. The education impact and the mental health impact are things that we could have done something about with the budget. Liberal Democrats proposed a significant increase in spending on mental health services. That would help the economy: it would get people back to work and it would mean that businesses would have the skilled workers that they need.

Such an increase in expenditure would undo the damage that Derek Mackay’s Government has done to the college sector through the slashing of 150,000 college places, which affects mature students, women and part-time students, who are deprived of the opportunity to retrain as part of the country’s lifelong learning ambition. As we hear every day, that is affecting the economy, because businesses do not have the skilled workers that they need.

Therefore, I reject the rate resolution. I do not think that it matches the opportunity that Parliament has. I also reject the Conservatives’ belief that the only way to grow the economy is to have a race to the bottom and to have ever-lower tax. The Scottish Government has now joined the race to the bottom on air passenger duty. Its position on income tax is broadly the same. A few years ago—this is perhaps long forgotten by those who are now in charge of the SNP—it wanted a race to the bottom on corporation tax. It said that it would match and even go beyond anything that George Osborne did on corporation tax, and it is now going to do the same on APD.

That is not the way to grow the economy; the way to grow the economy is to invest in the skills and the talents of the people who live here. That will act as a magnet for companies to come and set up their businesses here, which will create opportunities to grow the tax base so that we can invest even more in public services and the wellbeing of the country. I would prefer the Government to adopt that vision rather than the timidity of this grey and timorous budget, and I think that Derek Mackay probably believes that, too.

16:32  

I remind Parliament that I come from Ullapool, which is—according to the Federation of Small Businesses—the most enterprising village in the whole of Scotland.

The rate resolution that we are considering comes at a time of growing uncertainty and sits against a backdrop of Tory austerity, Brexit and high inflation. In these uncertain times, it is vital now more than ever that Scottish taxpayers are given stability. At the same time, we must ensure that enough money is raised through a fair tax system to fund our public services properly. That is what we have been presented with today—99 per cent of Scottish taxpayers will pay no more in tax than they do at the moment. The Government is providing much-needed stability—indeed, the lowest-paid taxpayers will actually pay less in tax by the end of the parliamentary session through the new zero-rate band. In fact, the only people who will have to pay more are those who earn about £123,000 a year. Even then, they will have to pay, on average, less than £10 per month more than they currently pay. We are talking about a tax system that provides fairness and stability in these uncertain times.

I have tried on a few occasions to get an explanation of why the SNP remains attached to the notion of increasing the personal allowance by having an extra zero-rate band. Why is that idea, which benefits high earners as well as low earners, preferable to progressive tax rates? Why not instead have progressive tax rates, and make sure that the benefit goes to those who really need it rather than to everybody?

It would be very hard for me to argue that a universal increase in tax allowance for everyone is a bad thing; I think that it is a great idea.

Let us tackle head on the myth about Scotland being the highest-taxed part of the UK. Only a fool would look at income tax in isolation, and the people of Scotland are not fools. If we look at the combination of income tax and council tax, we see that we pay less in Scotland than people in the rest of the UK pay. Scotland is a great place to live and in which to do business. Taxpayers in Scotland get more for their money; there is a much better deal than there is anywhere else in the UK. Perhaps that is why the Tories think that we pay more.

Scottish taxpayers get free prescriptions while taxpayers in other parts of the UK continue to see the cost of their medicines rise. That is because our Government has made the decision that everyone should be able to access the medication that they need.

Does Maree Todd acknowledge that the Barnett formula funds Scotland more than £1,200 per head of population higher than the rest of the UK is funded? Is it any wonder that those services can be afforded, given that funding settlement?

I am absolutely delighted that we can fund these universal services, which anybody would support.

Our students receive a free university education without the burden of tuition fees because our Government has decided that family wealth or personal finances should not affect whether a person can attend university. Family wealth should not affect life chances. Now, through the most recent budget, this Government will be able to provide an extra £304 million to the NHS, an extra £120 million to tackle the poverty-related attainment gap in our schools and—as has been announced most recently—an extra £160 million for local councils.

I have heard Murdo Fraser express concern—this is the intervention that I expected—that higher taxes will prevent much-needed doctors from choosing to work in Scotland. Having checked with my medical colleagues, I can assure Mr Fraser that medical professionals choose to come and live here because of the quality of our health service, the quality of our medical research and education, and the universal opportunities that exist for their children. High-quality public services make Scotland an attractive place to live and to do business in.

Very few of us live and work in isolation; most of us are part of a family and a community. Someone who has one child going to university will save £9,000 a year by living in Scotland. Someone with one parent who needs personal care could save more than £10,000 by living in Scotland. If they need to cross the Forth road bridge on their daily commute to Edinburgh, they will save more than £500 a year on bridge tolls by living in Scotland.

All the myths that are being peddled prove that the Tories cannot be trusted with Scottish taxpayers’ money and public services. In England, the Tories have created absolute chaos with their ideologically driven austerity policies. Their policies of tax cuts for the rich and privatisation have failed to serve ordinary people and have resulted in the greatest increase in inequality since the days of Margaret Thatcher. Costs have risen, wages and working conditions have fallen and the public services are in crisis.

When the Lib Dems supported the Tory Government in coalition at Westminster, that Government’s ruthless and brutal cuts in welfare were described by the United Nations as “grave and systematic violations” of disabled people’s rights. More recently, it has been revealed that cuts in prison staff numbers have contributed to the current crisis in the prison system and to a situation in which prison staff simply cannot keep control of their prisons. That is what Tory austerity does, and we do not want it here.

Time and again, the Tories come to the chamber and demand more money for public services, more for the NHS, more for infrastructure and more for education. They think that they can stand here today and demand that the Government cut taxes on the richest in Scotland and no one will notice. The people of Scotland are not daft. To spend more money on public services, we need to raise more money. The Tory argument quite literally does not add up. The reality is that those are the very same public services that the Tories would jeopardise with their tax cut for the rich.

It is not just taxes that attract people to a country. People want to be healthy, educated and happy. In Scotland, we are investing in our citizens by investing in healthcare, education, infrastructure and other programmes. In that way, we will create the right environment for people to flourish in, and we will see the increase in productivity that this country needs.

16:38  

I declare an interest as a member of the Institute of Chartered Accountants of Scotland.

The rate resolution that has been proposed today will enable Her Majesty’s Revenue and Customs and employers to know the correct figures to apply to Scottish taxpayers for the tax year commencing on 6 April 2017. At last, it will enable businesses to finalise their 2017 payroll, addressing concerns, which have been raised by ICAS and the Association of Chartered Certified Accountants, that changes to thresholds being introduced barely a month before the new rates come into effect could lead to mistakes being made in the information technology systems.

However, for hundreds of thousands of Scots, these new figures will bring about increases in personal taxation and many of those taxpayers will face additional increases, due to the changes in the multiplier of the council tax bands, which will cause a snowball effect of higher taxes that will create real concerns for many people.

Councils are being forced to cut local services, while council tax increases are being imposed on modest homes in bands E and F, which are often owned by young people starting out on the property ladder or pensioners who have downsized.

Will the member give way?

No. I would like to continue.

Freezing the higher-rate threshold for paying the 40 per cent rate of income tax at £43,000 including personal allowances, as opposed to the UK threshold of £45,000, opens up a differential in the bands between Scotland and other parts of the UK. That will lead to Scots having to pay what I have heard described as “only £400 extra”. I suspect that this is only the start, or the tip of the iceberg.

A cut-off at £43,000 affects hard-working families. Do those who are self-employed, such as joiners, painters and hairdressers—many of whom will be on the borderline between the basic and higher-rate bands—believe that they are getting the best deal for taxpayers in the whole of the UK? I suspect not. Instead, they will feel that any incentive that they had to work hard has been reduced.

Many will feel that staying under the £43,000 threshold is best for them, which will ultimately reduce the Government’s tax take. Also, with regard to auto-enrolment into pension schemes, if employees are caught in this band differential and have to pay more tax, they may have to think carefully about whether they can afford to remain in the scheme, especially as their contributions will rise as we progress through future tax years.

Has the Government thought through the difficulties and confusion that this additional financial burden will cause those employees? I do not think that it has. The Government seems happy to make life harder for Scottish taxpayers, many of whom, particularly those at the margin, face falling over a cliff edge into very choppy financial waters.

Conservatives said at the time of the budget that it was bad for jobs, bad for local government, bad for those who aspire to work hard and bad for producing the level of economic activity that Scotland so badly needs. We knew at that time that making Scotland the highest-taxed part of the UK was not the way to get the revenue and economic growth to provide for good public services. Talented people will take home less than their counterparts in England and Wales, thanks to decisions made in this chamber.

Since the budget, many others have given their views. We have already heard them quoted today, but I would like to repeat some of them. In December, Claire Mack of the Scottish Council for Development and Industry highlighted to the Finance and Constitution Committee here at Holyrood that

“growth is the key element. The growth rate of about 1 per cent ... is about a third of the UK rate, and closing the gap is critical to the country’s economic health.”—[Official Report, Finance and Constitution Committee, 21 December 2016; c 41.]

The steps that the finance secretary took with regard to taxation, causing disparity with our closest neighbour, have also drawn concern. Chartered accountants such as Johnston Carmichael have warned that higher taxes in Scotland could see jobs move elsewhere in the UK. Scottish Chambers of Commerce said that creating a differential between tax bandings north and south of the border will set a “dangerous precedent” and that the SNP Government should instead be focusing on growing the economy as the most sustainable route towards increasing revenues and thus public sector spending.

The Institute of Directors has said that the tax plans would

“send the wrong message and would have a negative impact on the Scottish economy.”

The SNP Government’s response is to close its ears and disregard the views of all those professional groups.

Will the member give way?

No. I want to continue.

The SNP Government might think that higher taxes are justified under the banner of better public services, using as its examples free personal care, free university tuition and free prescriptions. All those benefits existed before this tax differential was created, because of the Barnett formula.

Freezing tax bands and forcing large council tax rises on modest homes is a double whammy of hits in the pocket that will suppress growth and cause our country to fall further behind our friends and neighbours in the rest of the UK.

Will the member give way?

No. I am in my last minute.

I am proud to represent a party that trusts people with their own money rather than a party whose budget has earned such concerns from so many professional bodies. The rate resolution moved today will penalise Scots for living and working in their own country and, as we heard previously, bring in tax rises that are entirely unnecessary, all inflicted on them by this SNP Government.

The last speech in the open debate will be from John Mason.

16:45  

Thank you, Presiding Officer. For the sake of balance, I note that I, too, am a member of ICAS. You will quickly gather that there are different views within that organisation.

I guess that there comes a limit as to what new can be said on the topic. I say that as the last back-bench speaker in the debate. We have a basic divide in this Parliament between those who want better public services and are happy to pay the tax for them and those who want lower taxes and would happily cut public services as a result. On top of that, we have the question of redistribution of income and wealth and the question of how far we can be different from our near neighbours such as England and Ireland and whether people will move between countries if the tax rates are different. A number of those issues create tension among themselves.

I am happy to say that I would be one of those who are comfortable with increasing tax, in general, a bit in order to get better public services. However, I am also very aware of the concern that increasing tax too much could lead to some higher-rate taxpayers moving to England, which would mean less tax and poorer public services. I do not think that any of us wants that, but that is the risk with Labour’s proposal of a 5p differential. I add that I do not think that Alex Rowley answered the question that I asked in my intervention.

The issue of how different we could and should be from England differs with the various taxes. On landfill tax, we do not want waste tourism, so it seems that we are constrained to staying almost exactly the same as down south. On the other hand, property taxes can be allowed to differ a fair bit, as property cannot be moved around very much.

In election after election, Mr Mason has stood on a manifesto of being committed to cutting corporation tax in Scotland to below the UK rate. If he has changed his mind on that, what led him to that decision?

I would like to take this to a slightly deeper level, which is where our party is. The Tories would say, as I understand it, that all tax cuts are good and all tax rises are bad, and Labour seems to be saying the exact opposite. We are saying that we need to look at each tax and each rate. There are some things that we can safely increase and we will raise more tax. There are some things that we could reduce and that will really boost the economy. We are looking at a slightly more nuanced approach than I hear from either of the two extremes in the chamber.

As I mentioned, we cannot really touch landfill tax, but we can touch property taxes. Income tax falls somewhere in the middle, and we really do not know how sensitive people’s behaviour will be to differences between Scotland and England. As I suggested earlier, we had evidence at the previous Finance Committee that there can be differences between the Swiss cantons, which are not that far apart from one another, yet people do not move. We can probably assume that we could have a difference of 1p or 2p compared with the UK and it would have very little impact.

However, how do we get the right balance between the different factors? It seems to me that a key principle is to move gradually as we make changes and move away from the English position. By making Scottish income tax slightly different from England’s, we can see what impact—if any—there is on behaviour, and then we can take it into account next year. That seems to me to be a wise approach. In that respect, I am comfortable with the Scottish Government’s proposal to have a slightly different band from England, which has been pushed slightly further by the Greens.

In the longer term, we should have a much more fundamental change to the system. First, we should combine income tax and national insurance, because both are, in effect, taxes on income, and it will greatly simplify things for employers, employees and HMRC if we combine them. It will also mean that we can do away with what I think is the horrendous 32 per cent marginal rate that low earners face immediately they start paying both tax and national insurance.

Following on from that, I would like us to look at a much more graduated approach with rates of, say, 10, 20, 30 per cent and so on, so that there would not be the current huge jumps from zero to 20 per cent and from 20 to 40 per cent.

However, we cannot do everything with just income tax, and there is also a problem with people incorporating as a business so that they pay corporation tax rather than income tax for the purpose of reducing their overall tax bill. In the longer run, there is a strong argument for income and corporation taxes to be much more aligned in order to cut down on avoidance and, obviously, that would require devolution of corporation tax.

On the question of redistribution, can income be redistributed just by using income tax, or do we also need to tackle high and low wages? Most of us agree with and support a living wage so that we can bring income up at the bottom. Similarly, can wealth be redistributed? Presumably that cannot be done by income tax and it would require devolution of inheritance tax to Scotland. I accept that a lot of members in the chamber might not be happy with the word “redistribution”. However, more members are uncomfortable with the widening gap between the richest and the poorest in our society—that affects both income and wealth.

A final factor that we need to take into account is that council tax will rise for many people—by 3 per cent for many and by another £517 or so for those in the top bands. Therefore, on the assumption that it is better to do things gradually, we are probably going as far as it is wise to do this year, when we take all the taxes together. Even looking at tax on its own, it is clear that there are many factors that need to be balanced out in order to get a sensible solution. Once we look at expenditure as well, the picture becomes more complicated.

Every party in the Parliament says that it wants more spending on this or that service, yet the Conservatives bizarrely want lower taxes as well. We need to be honest with the electorate that, broadly speaking, better services mean more taxes and lower taxes mean poorer services, and we can engage in that way with constituents. Just this week, a constituent said to me, “Thanks for your swift and informative response in relation to mental health funding for children. Personally, I would happily pay an extra 1 per cent income tax if it would mean easing funding, but I fear I am in a minority.” That is the kind of debate that we need to have with our constituents.

Lastly, I reiterate one of my bugbears, which is that the UK should set its budget first, Scotland should be second—once we are clear what the UK position is—and local government should follow from that. Mr Crawford and the Finance and Constitution Committee will look at that area.

I look forward to supporting the Government motion at 5 pm.

16:52  

I agree with Derek Mackay that this is a significant day for the Parliament. Substantial tax-raising powers have been passed down to us and we have to agree the rates in the motion today.

The decision that we have to take as a Parliament is quite substantial, so we should understand the consequences of that decision, as Daniel Johnson outlined. If we set the rates proposed by Mr Mackay, the consequences will be £170 million of cuts for local councils. The problem is not just the cuts that are being proposed in this year’s budget; it is the cumulative effect of £1.5 billion of cuts since 2011. When people see their library or their play scheme under threat of closure in their local communities, or they see their care packages being undermined, they should look at the decision that is being taken today. If Parliament votes at a quarter past five to agree the motion, it will have lost the opportunity to tackle those issues in our communities.

There has been some discussion about powers. Ivan McKee complained that we do not have enough powers in the Parliament and that we should have more. Time after time, I have watched ministers and First Ministers stand up and answer questions by saying, “If only we had more powers in this Parliament, we could deal with these issues.” We now have substantial tax-raising powers and it strikes me that at the opportunity to use those powers and stand up to defend local communities, the SNP Government has gone weak at the knees. Derek Mackay complained about the reduction in the block grant, but what is the point in complaining about that if he will not use any of the levers at his disposal to raise more money to allocate in his budget?

In addition, there are contradictory positions playing out among SNP members. Gillian Martin said that she thought that people would be prepared to pay more tax. That position is at odds with the situation that Derek Mackay outlined.

In his contribution, John Mason seemed to say that there could be different tax rates in different countries and that that would not impact on behaviour, and then to argue against that position.

Kate Forbes gave us the example of CEOs not having to pay any more tax. Later, Anas Sarwar intervened to talk about the £53 million of cuts in Glasgow City Council’s budget.

I am totally puzzled by the Greens’ approach to the matter. Patrick Harvie and the Greens have consistently argued that action should be taken on top-level taxpayers, and Patrick Harvie again outlined that position in his speech. However, it seems that, in the budget negotiations, when Derek Mackay brought forward his £220 million, £190 million of that was a slush fund and only £30 million was being raised through additional measures for taxation.

It strikes me that the Greens were bought off very cheaply. I do not understand how they could say that they did not think that the tax changes were enough and that they were unhappy with them and could not vote for them, but that they would abstain to allow them to go through. Surely it would be better to reject the motion and get to a position at which we can produce a more robust package.

I say again that, if we were to do that, Anas Sarwar and his colleagues would not be talking about just £53 million; they would be talking about £70 million of cuts in Glasgow.

I am sorry that we have puzzled Mr Kelly in securing the budget concession. I remember that he voted for that budget amendment when it came to the committee, as well. If we had taken that approach of demanding a perfect budget now, what would that have achieved? The Labour Party does not seem to have achieved very much out of the process.

What strikes me about Mr Harvie’s approach is that it would surely be better to vote against the motion and reopen the negotiations. Instead of there being the £53 million of cuts that Anas Sarwar outlined, there might be the opportunity to use the progressive taxation powers to diminish the level of cuts further and produce budgets that can defend local communities.

To sum up, there is an opportunity for us at quarter past 5. This is a time to be bold as a Parliament and to look at the powers that are at our disposal to raise more money so that we can defend our local communities, stand up for local people and make a real difference. Ultimately, the people send us to the Parliament to make a difference. Do not let people down at quarter past 5. Reject the motion and reopen the budget discussions.

16:58  

Much of the debate has quite rightly focused on the SNP’s new income tax policy, which will make Scotland the most expensive and highest-taxed part of the UK in which to do business and to work. My colleagues have explained that that new tax policy will increase the income tax burden for more than 370,000 hard-working people in Scotland, including police officers, nurse consultants and teachers.

Will the member take an intervention?

Not now.

At a time when the economy desperately needs more job creators, entrepreneurs and highly skilled workers—all of whom would expand the tax base and contribute to higher Government revenue—those individuals will now pay higher tax in Scotland than people in other parts of the UK will. The SNP tax increase on jobs and take-home pay comes at a time when the economy is close to recession, and it will further damage economic growth in Scotland.

To better understand the challenges that the economy faces, Mr Mackay should read the labour market trends report that the Fraser of Allander institute published last week. It makes clear the urgent need for Scotland to close the growth gap with the rest of the UK in order to avoid future reductions in public spending in Scotland and highlights concerns that we have raised many times in the chamber. Scotland’s growth rate is less than a third of the UK’s growth rate, and we are lagging behind the rest of the UK on all the key indicators of employment, unemployment and economic activity.

Employment levels have come down 20 per cent in the past year and Scotland has the highest rate of economic inactivity of any region in the UK.

It is not only past and current performance that causes us concern. Based on the Scottish Government’s own forecast for economic growth up to 2020, Scotland’s economy is forecast to grow at a lower rate, in every year, than that of the rest of the UK.

Let me be clear that we are not talking down Scotland: we are highlighting the significant damage that SNP policies have inflicted on the economy over the past decade. The tax increase is just the latest example of the SNP’s complete lack of understanding of how the economy works. Earlier today, Mr Mackay showed that he actually was listening to the Scottish Conservatives when he addressed some of our demands on business rates. He should also take heed of the recommendation, set out in the Fraser of Allander institute report, that closing the growth gap

“must be a key priority

for the Scottish Government and that

”This requires clear policy actions to boost growth and create jobs”.

He should also listen to business leaders across Scotland who are calling for action to grow the economy. Scottish Chambers of Commerce has made it clear that

“growing our economy rather than increasing taxes will provide the most sustainable route towards boosting tax revenues and ... public ... spending”.

As my colleagues have said, you cannot tax your way to prosperity.

That is why we reject measures that will make Scotland the highest-taxed part of the UK. Indeed, as Murdo Fraser has said, where circumstances permit, we would also consider lower taxes to make Scotland more competitive and to expand the economy. That leaves the Scottish Conservatives as the only party in this chamber to oppose higher taxation in Scotland, compared with the rest of the UK. We are the only party fighting to keep our economy competitive, the only party on the side of hard-working families and the only party that will use tax policy as a means to stimulate the economy.

It was not always this way. The SNP once agreed with our approach. In fact, in a debate on this very subject last year, John Swinney, in agreeing not to increase the tax burden in Scotland, said:

“This Government is on the side of working people. ... We will not increase their taxes; we will ... protect household incomes.” [Official Report, 11 February 2016; c 116.]

How things have changed. The SNP has now clearly marched to the left to join its comrades in the Green Party to deliver a high-tax, anti-growth, pro-independence budget. Mr Mackay has sacrificed sound tax policy in order to keep the pro-independence vote together. We really should not be surprised by that change. After all, Mr Mackay is merely following the priorities set out by the First Minister when she declared that

“the issue of independence transcends the issues of national wealth, the economy and balance sheets”.

The party that is supposedly stronger for Scotland has caved in to the demands of a party that received just 6 per cent of the votes—and, as a result, it has now placed the Scottish economy at a competitive disadvantage compared with the rest of the UK.

This is an unnecessary and dangerous tax increase. It is unnecessary because it turns out that Mr Mackay could have funded his spending plans without the tax Increase—from the magic tree of funding from which he is somehow able to conjure up extra funding whenever it is required, even if it is not set out in the budget. The increase is dangerous because it sends out a clear message that, under this SNP Government, Scotland has become less competitive.

I will conclude with the following quotation from the SNP website, which explains its tax policy. It says:

“If just seven per cent of top rate taxpayers change their tax arrangements the Scottish Government could lose £30 million in revenues in a single year, putting the funding of our public services at risk.”

We agree with that risk analysis. If you increase tax rates in Scotland, there is a danger that you will dilute the tax base and end up with lower Government revenues.

For all the above reasons, later today we will vote against the motion to increase tax in Scotland.

Thank you. I call the cabinet secretary to wind up the debate. Cabinet secretary, you have until quarter past 5 if you need it.

17:04  

Thank you, Presiding Officer.

This has been a very useful debate, and a lively one at many points, and the vote that we will have this evening is, of course, a significant and historic one as we use the new powers in the Scotland Act 2012 to set the rates and bands of income tax. However, I say gently to Dean Lockhart that the Conservatives are going to have to do a bit better than just refer to the Mackay magic money tree as the answer to every economics or budget question that is posed to them by other members.

From the Government’s point of view, this has been a serious debate about the delivery of stability and economic stimulus. We recognise that there are challenges in the economy that we want to address. We must raise the necessary revenue if we are to be able to invest in our quality public services. We have outlined a range of actions in the draft budget and beyond that can support the economy and deliver the sustainable economic growth that is right for our country.

In having this debate, it is important that we now make the decision and move forward, to give taxpayers and companies the certainty that they require. Alison Harris made a useful point about the implementation of our tax proposition. I have engaged with the UK Government and HMRC to ensure that the decision will be appropriately implemented, and I have been given reassurances in that regard. The member made a fair point about the principle of putting the decision out there as quickly as possible.

Alex Rowley also made a fair point when he talked about Adam Smith’s principle of taxation that is proportionate to the ability to pay, with certainty, efficiency and convenience.

It is right that we have this debate and make a decision. I think that the proposition that we have put forward on income tax is the best deal for Scotland on tax and services, and that it will deliver on our social contract, whereby we invest in things that are important to the people of Scotland, such as the national health service, for which there is further investment, free personal care, free prescriptions, free education and the expansion of childcare.

On the other side of the balance sheet, on tax, we are protecting low and middle-income taxpayers, we are not passing on the Tory tax cut for the richest, and we are ensuring that 99 per cent of people pay no more, based on their current income level. I think that that is a fair proposition.

A Conservative member, Gordon Lindhurst, asked about assumptions in the budget proposition. The estimates on income tax have, of course, been viewed by the Scottish Fiscal Commission, which has said that our assumptions are reasonable.

As many members said, in the context of all our tax powers, including land and buildings transaction tax and, at the local level, council tax, it is simply not accurate to say that Scotland is the highest-taxed part of the United Kingdom. When we look at everything in the round—even just in terms of tax, without considering the other social investments that the country makes—we can see that it is not true to say that.

The cabinet secretary mentioned increased spending in the NHS in Scotland. I remind him that £355 million of the £380 million increase in NHS expenditure last year came from Barnett consequentials. Does the cabinet secretary agree that the Barnett consequentials are essential in funding public services in Scotland?

The member has heard me say that our total budget will pass on Barnett consequentials for the NHS. Our position in the Scottish Parliament elections was that we were offering the NHS more than any other party was offering. The question for the Conservatives is where they will find the £107 million of cuts that they will need if they are to pay just for their income tax position, before they get to anything else.

Willie Rennie made a fair point about the need for the Parliament to be responsible. He also made an important point about Brexit. Brexit brings huge economic risks, which the UK must face. It is right that we make the right interventions and understand the impact on our economy of the reckless actions of a UK Tory Government that is led by hard-right Brexiteers.

In contrast, Patrick Harvie, who has worked constructively with this Government, said that we should build the country that we want to be. I agree that we should use our powers to do that, unlike the Labour Party, which, rather than end austerity, simply wants to pass it on to basic-rate taxpayers and some of the least well-off in our society—and the Tories are hammering the less well-off in our society, particularly through their welfare changes. Our package is the right one, which will support a greater number of people.

The Labour Party is going to oppose the Scottish rate resolution today. The process is not one whereby we can just go away and think about things a bit more, as Labour members have suggested, and then keep bringing motions back to the Parliament. We need certainty in the system. Indeed, Alex Rowley talked about the need for certainty, so that councils and other providers can get on with delivering quality public services, as Patrick Harvie said.

It is not just the £900 million in the draft budget that would be at risk; the rate resolution is about an £11.9 billion contribution to our public services. That is what the Labour Party and others are putting at risk by opposing the Scottish rate resolution this evening.

It is interesting that something of a trend is emerging. I look with interest at local authorities—Labour-led authorities—that say that they do not have enough resources and which are proposing to freeze the council tax. That tells an interesting story about resources at the local level, with the extra hundreds of millions of pounds of resources that this Government has put in to support local services.

The Tories’ position is the most interesting one. They have reverted to type—in essence, criticising and opposing devolution and divergence.

On council spending, does the cabinet secretary agree that it is quite rich to hear stories from the Labour Party about reductions in council budgets when it is in coalition with the Tories in Stirling and has just introduced a budget for the next financial year that has £3 million of additional spending?

I agree with Bruce Crawford that there has been a great deal of hypocrisy from the Conservatives that has been exposed over the course of the debate, not least with one Tory member after another talking about further spending commitments that they would like to see while wanting to cut tax at the same time—not tax in general, but tax for some of the richest people in our society.

The Conservatives have spoken about wrong choices, but this Government believes that raising revenue to spend on our quality public services is the right choice. The Conservatives believe that Westminster knows best and that we should just toe the line on that and on every other financial and tax position.

This Government will not be passing on the Tory tax cuts. We are making different choices. We are diverging because we believe in our public services and a fairer and better society, while the Tory party squanders tens and hundreds of millions of pounds on its own pet projects.

Council tax south of the border, where the Conservatives are in control, has been rocketing, in contrast to what has happened in Scotland over the past nine years. We had a firm freeze and now have the up to 3 per cent position, and have been able to invest in our public services at the same time.

The Tories talk about Governments putting their hands in people’s pockets. We took our case to the electorate during the Scottish Parliament election and secured a mandate to take our proposition further. I respect that I have to find consensus in the chamber if the rate resolution—and therefore the budget—is to pass. That is what we have done: we have found a consensus so that we can raise the necessary revenue to invest in our public services.

It is quite shameless of the Conservatives to hammer the less well-off in society, particularly with their welfare changes. We have a fair and balanced approach that supports our economy, gives certainty and makes tax decisions that are based on ability to pay. That approach will secure, this evening, £11.9 billion-worth of investment for Scotland’s public services while getting the balance right. For all those reasons, 99 per cent of taxpayers will pay no more based on their current level of income, with no tax hike and no change to the tax rate, so we are supporting those on low and middle incomes. We will also keep other measures, such as the additional rate, under review so that that we do not jeopardise income for our public services and continue to engage with taxpayers, businesses and others to ensure that we deliver the right conditions for economic growth while delivering fairness.

I suggest that we do not put that £11.9 billion-worth of investment in our public services at risk. The chamber can use these historic new powers this evening as we build a fairer society—one in which we deliver a contrasting tax proposition that does well for Scotland, opposing what the Tories have done in Westminster and making the right decision with our tax powers in Scotland for our people.

That concludes the debate on the Scottish rate resolution. We move straight to the question on the motion. Before I put the question, I advise members that, under rule 9.16.7, we cannot move to stage 3 proceedings on the Budget (Scotland) Bill unless we have agreed a Scottish rate resolution.

The question is, that motion S5M-03912, in the name of Derek Mackay, on the Scottish rate resolution, be agreed. Are we agreed?

Members: No.

There will be a division.

For

Adam, George (Paisley) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Allan, Dr Alasdair (Na h-Eileanan an Iar) (SNP)
Arthur, Tom (Renfrewshire South) (SNP)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Campbell, Aileen (Clydesdale) (SNP)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Constance, Angela (Almond Valley) (SNP)
Crawford, Bruce (Stirling) (SNP)
Cunningham, Roseanna (Perthshire South and Kinross-shire) (SNP)
Denham, Ash (Edinburgh Eastern) (SNP)
Dey, Graeme (Angus South) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dornan, James (Glasgow Cathcart) (SNP)
Evans, Mairi (Angus North and Mearns) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
Fabiani, Linda (East Kilbride) (SNP)
FitzPatrick, Joe (Dundee City West) (SNP)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
Freeman, Jeane (Carrick, Cumnock and Doon Valley) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Grahame, Christine (Midlothian South, Tweeddale and Lauderdale) (SNP)
Harper, Emma (South Scotland) (SNP)
Haughey, Clare (Rutherglen) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Hyslop, Fiona (Linlithgow) (SNP)
Kidd, Bill (Glasgow Anniesland) (SNP)
Lochhead, Richard (Moray) (SNP)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Angus (Falkirk East) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Mackay, Derek (Renfrewshire North and West) (SNP)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Martin, Gillian (Aberdeenshire East) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Matheson, Michael (Falkirk West) (SNP)
McAlpine, Joan (South Scotland) (SNP)
McDonald, Mark (Aberdeen Donside) (SNP)
McKee, Ivan (Glasgow Provan) (SNP)
McKelvie, Christina (Hamilton, Larkhall and Stonehouse) (SNP)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
Paterson, Gil (Clydebank and Milngavie) (SNP)
Ross, Gail (Caithness, Sutherland and Ross) (SNP)
Russell, Michael (Argyll and Bute) (SNP)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Stevenson, Stewart (Banffshire and Buchan Coast) (SNP)
Stewart, Kevin (Aberdeen Central) (SNP)
Sturgeon, Nicola (Glasgow Southside) (SNP)
Swinney, John (Perthshire North) (SNP)
Todd, Maree (Highlands and Islands) (SNP)
Torrance, David (Kirkcaldy) (SNP)
Watt, Maureen (Aberdeen South and North Kincardine) (SNP)
Wheelhouse, Paul (South Scotland) (SNP)
White, Sandra (Glasgow Kelvin) (SNP)
Yousaf, Humza (Glasgow Pollok) (SNP)

Against

Baillie, Jackie (Dumbarton) (Lab)
Balfour, Jeremy (Lothian) (Con)
Beamish, Claudia (South Scotland) (Lab)
Bibby, Neil (West Scotland) (Lab)
Bowman, Bill (North East Scotland) (Con)
Briggs, Miles (Lothian) (Con)
Burnett, Alexander (Aberdeenshire West) (Con)
Cameron, Donald (Highlands and Islands) (Con)
Carlaw, Jackson (Eastwood) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Chapman, Peter (North East Scotland) (Con)
Cole-Hamilton, Alex (Edinburgh Western) (LD)
Corry, Maurice (West Scotland) (Con)
Davidson, Ruth (Edinburgh Central) (Con)
Dugdale, Kezia (Lothian) (Lab)
Fee, Mary (West Scotland) (Lab)
Findlay, Neil (Lothian) (Lab)
Fraser, Murdo (Mid Scotland and Fife) (Con)
Golden, Maurice (West Scotland) (Con)
Grant, Rhoda (Highlands and Islands) (Lab)
Gray, Iain (East Lothian) (Lab)
Greene, Jamie (West Scotland) (Con)
Griffin, Mark (Central Scotland) (Lab)
Hamilton, Rachael (South Scotland) (Con)
Harris, Alison (Central Scotland) (Con)
Johnson, Daniel (Edinburgh Southern) (Lab)
Kelly, James (Glasgow) (Lab)
Kerr, Liam (North East Scotland) (Con)
Lamont, John (Ettrick, Roxburgh and Berwickshire) (Con)
Lennon, Monica (Central Scotland) (Lab)
Leonard, Richard (Central Scotland) (Lab)
Lindhurst, Gordon (Lothian) (Con)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Macdonald, Lewis (North East Scotland) (Lab)
McArthur, Liam (Orkney Islands) (LD)
McNeill, Pauline (Glasgow) (Lab)
Mitchell, Margaret (Central Scotland) (Con)
Mountain, Edward (Highlands and Islands) (Con)
Mundell, Oliver (Dumfriesshire) (Con)
Rennie, Willie (North East Fife) (LD)
Ross, Douglas (Highlands and Islands) (Con)
Rowley, Alex (Mid Scotland and Fife) (Lab)
Rumbles, Mike (North East Scotland) (LD)
Sarwar, Anas (Glasgow) (Lab)
Scott, John (Ayr) (Con)
Simpson, Graham (Central Scotland) (Con)
Smith, Elaine (Central Scotland) (Lab)
Smith, Liz (Mid Scotland and Fife) (Con)
Smyth, Colin (South Scotland) (Lab)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Stewart, David (Highlands and Islands) (Lab)
Thomson, Ross (North East Scotland) (Con)
Tomkins, Adam (Glasgow) (Con)
Wells, Annie (Glasgow) (Con)
Whittle, Brian (South Scotland) (Con)

Abstentions

Finnie, John (Highlands and Islands) (Green)
Greer, Ross (West Scotland) (Green)
Harvie, Patrick (Glasgow) (Green)
Johnstone, Alison (Lothian) (Green)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Wightman, Andy (Lothian) (Green)

The result of the division is: For 61, Against 55, Abstentions 6.

Motion agreed to,

That the Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2017-18 are as follows—

(a) the Scottish basic rate is 20%, charged on income up to a Scottish basic rate limit of £31,500,

(b) a Scottish higher rate of 40%, charged on income above that Scottish basic rate limit and up to a Scottish higher rate limit of £150,000, and

(c) a Scottish additional rate of 45%, charged on income above that Scottish higher rate limit.

As the motion on the Scottish rate resolution has been agreed to, we can move to stage 3 of the Budget (Scotland) Bill, which will take place on Thursday.