MORE than 1m Scots face higher income tax bills than their English counterparts, after the SNP announced sweeping reforms to help cope with dismal economic growth forecasts.

Finance Secretary Derek Mackay trebled the number of Scots who will pay more than their equivalents in the rest of the UK in 2018/19 by creating extra bands and hiking rates.

A new “intermediate” tax band of 21p will apply to those earning more than £24,000, while the higher rate will be raised from 40p to 41p and the top rate from 45p to 46p.

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To help the low paid, a new starter rate of 19p is also being introduced.

The result is a widening tax gap with the rest of the UK that will see Scots earning over £26,000 paying more than if they lived south of the border, with those earning less seeing a small saving.

The Conservatives accused the SNP of reneging on its 2016 manifesto promise to freeze the basic rate of income tax to protect all 2.2m of the low and middle earners who paid it.

The changes will raise an extra £164m to help offset Westminster cuts and make up for depressed revenues caused by a faltering economy hamstrung by low productivity.

The government scrutiny body, the Scottish Fiscal Commission, predicted a “subdued” economic outlook, with anaemic GDP growth averaging below 1 per cent until 2022.

Mr Mackay said his Budget would build a fairer Scotland, support business, and protect services despite the most challenging economic backdrop since devolution began in 1999.

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To the applause of SNP MSPs, he announced it would mean lower bills for 55 per cent of Scots relative to the rest of the UK next year.

"Scotland is not just the fairest taxed part of the UK but, for the majority of taxpayers, the lowest taxed part of the UK,” he said.

However the fine print later revealed any benefit would be £20, or 38p a week, at best.

Using new devolved powers, Mr Mackay changed the Scottish income tax regime relative to the rest of the UK for the first time earlier this year, with a lower threshold for the 40p higher rate of tax meaning around 350,000 high earners paying up to £400 more in 2017/18.

However the changes in next year’s budget are far more extensive, with 800,000 people who currently pay the 20p basic rate facing a higher bill from April, meaning a total of 1.15m Scots will pay more than if they lived elsewhere in the UK.

The new system involves a starter rate of 19p levied on the first £2000 of income above the personal allowance of £11,850; a basic 20p rate up to £24,000; an intermediate rate of 21p up to £44,273; a higher rate of 41p up to £150,000; and a 46p additional rate above that.

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The Institute of Chartered Accountants in Scotland calculated that a Scot earning £15,000 would be £20 a year better off than an English counterpart, while Scots earning £30,000, £60,000 and £90,000 would be worse off by £40, £755 and £1055 respectively.

Following help for first-time housebuyers in England and Wales in last month’s UK budget, Mr Mackay also announced extra help for those in Scotland.

The threshold for paying land and building transaction tax will be raised for first time-buyers from the standard £145,000 to £175,000, saving them up to £600.

Also mirroring the UK budget, Mr Mackay capped the rise in business rate poundage at the lower CPI rate of inflation.

He also lifted the 1 per cent pay cap for central government and quango staff, with a 3 per cent rise for those earning below £30,000 and a 2 per cent rise above that, up to £1600.

The uplift is expected to set a benchmark for other public sector pay rises for teachers, nurses and council workers.

However councils complained bitterly that they faced a £153m real terms revenue cut next year, making a 3 per cent rise in council tax bills is almost inevitable.

Mr Mackay said the block grant from Westminster had been cut by £2.6bn in real terms over ten years, with £500m in revenue being lost in the next two years.

He said: “In order to mitigate UK budget cuts, protect our NHS and other public services, support our economy and tackle inequality in our society, we have decided to reform income tax in Scotland.

“By raising an additional £164m of revenues to support our investment plans we can deliver on our commitment to the NHS in full, with £400m of extra spending on health without having to reduce spending on police and fire services, social care or education.

“These measures combined with our investment in the NHS, the economy, infrastructure, education and essential public services ensure that in the year ahead Scotland will be the fairest taxed part of the UK, providing the best deal for taxpayers.”

Tory finance spokesman Murdo Fraser said: “This Nat tax will hit nearly half of Scottish workers in the pocket.

"That is a tax on aspiration, a punishment for daring to work hard, and a direct breach of the promise made by the SNP in its election manifesto.

“Today, every single SNP member of the Scottish Government has broken that promise to the Scottish people. That will not escape the notice of voters, who will never believe a word the Nationalists say again.

“The message from this budget is clear: don’t be ambitious, don’t be hard working, and don’t be successful in the SNP’s Scotland.

“If you are, the SNP will penalise you for its own failure to grow the economy.”

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Tory Scottish Secretary David Mundell added: "It is for Holyrood to decide how to use its new income tax powers, but I am deeply disappointed the Scottish Government has decided to pursue tax hikes. By making Scotland the highest taxed part of the UK the Scottish Government risks damaging, rather than growing, our economy."

As a minority administration, the government will need the assistance of at least one other party to pass its budget in February.

The Scottish Greens, the SNP’s partners in the 2017/18 budget, welcomed the adoption of their key policies on a progressive tax system and higher public sector pay.

However co-convener Patrick Harvie gave notice that there was still a great deal of haggling to be done in the coming weeks, as he attacked the government over its council funding.

He said the “real terms cut” was “unacceptable”, adding: “The Scottish Government still has work to do to present a budget that we can support when it reaches the Stage One vote at the end of January."

Scottish Labour leader Richard Leonard said councils needed £545m “just to stand still".

He said: “That's an effective cut of almost £700m to our lifeline services. These cuts are not numbers only evident on a spreadsheet. They represent lifelines. They represent lives."

Councillor Gail Macgregor of the local government body Cosla said: "The reality is that this is not a flat cash revenue settlement for local government. It is a cut of £153m for essential local government services."

"There are serious financial challenges that lie ahead in several areas and there is no doubt that these will have an impact on the essential services that councils deliver. A particular issue is public sector pay if this is not fully funded."

Scottish LibDem leader Willie Rennie said the “modest tax increase” in the Budget was a missed opportunity to invest more heavily in public services.

“It does not do enough to meet the long term needs in the economy,” he said.

The independent thinktank Reform Scotland said the tax rises were “a mistake” and “an unnecessary risk” could lead to a reduction in revenue as people took steps to avoid them

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Chairman Alan McFarlane said: “An over-reliance on any single tax, in this case income tax, means that the risks to any changes outweigh the potential benefits, and could result in raising less money than expected. For tax reform to be a meaningful option for future Scottish governments, there is a need to return to a wider discussion about how and where taxes are raised in line with the services they are used to fund.”

The Chartered Institute of Taxation said the changes added an unwelcome complexity to the tax regime, and could see middle earners paying a higher marginal rate than those on higher salaries, and slash eligibility for the marriage allowance.

The Fraser of Allander Institute said the extra taxes raised less than 1 per cent of the £40bn budget but made Scotland’s tax regime look “quite different from that in the rest of the UK”.

The Federation of Small Businesses in Scotland said the tax rises took Scotland into “uncharted waters”, with a “real concern” they could cut household spending.

The Scottish Chambers of Commerce welcomed the measures for business but said it was concerned “even slight increases in tax rates” could deter outside investors.

Scottish Retail Consortium director David Lonsdale said: “The implications for consumer spending – a mainstay of our economy – from the £164m uplift in the income tax take remains to be seen, but less money overall in consumers’ pockets is likely to cause shoppers to carefully consider what purchases they can afford.”

John O'Connell, head of the TaxPayers' Alliance said the tax rises would make Scotland “a less attractive place to live and work”.

He added: “With wage growth stagnating and the cost of living on the rise, it beggars belief that politicians in Scotland have decided to take even more of people's money. The income tax burden is already too high."

John Dickie of the Child Poverty Action Group said: “With over one four children growing up in poverty in a country as wealthy as Scotland it is a welcome step forward that the draft Budget makes the case for use of tax powers to harness that wealth to prevent poverty.”

Jenny Stewart, head of government and infrastructure for KPMG in Scotland, said: “The tax rises will put even greater pressure on Ministers and public sector bodies to show that every pound of public spending is being well spent and services provided in the most efficient way.”

“On spending, Mr Mackay has given a clear indication of the Scottish Government’s priorities by choosing where to spend more money and where to spend less. In all areas, public bodies will need to think carefully about how they transform service delivery to cope with budget and demand pressures – and, in doing that, take advantage of the digital age.”