BUSINESS leaders have warned against “opening the floodgates” to higher taxes, after Holyrood passed the biggest changes to Scotland’s fiscal regime since devolution.

MSPs voted 70 to 56 to pass the final stage of the 2018/19 budget, which introduces a five-band system for income tax, and bigger bills for 1m people relative to England.

The changes came on the same day Scotland’s employment and unemployment rates were both worse than the UK’s for the first time in a year.

The Office of National Statistics reported the jobless total in Scotland rose 14,000 to 124,000 between October and December, a rate of 4.5 per cent, compared to the UK's 4.4.

Meanwhile employment fell in Scotland by 20,000 to 2.63m, a rate of 74.3 per cent.

UK employment rose in the last quarter to 75.2 per cent.

Finance Secretary Derek Mackay said the tax changes - which mean higher bills for those above £33,000 - had been done "in a fair and proportionate way which will deliver hundreds of millions more for the public services of Scotland”.

Liz Cameron, chief executive of Scottish Chambers of Commerce, said some budget changes were welcome, but warned: “Our members are experiencing recruitment difficulties at record highs. We would question any changes to the tax system which have the potential to further exacerbate this issue, as well as unintended knock-on consequences which may arise from Scotland being seen as less competitive than the rest of the UK.”

The Federation of Small Businesses added: “In these economically uncertain times, [the budget] must not open the floodgates to a host of Scottish supplements, charges and levies. “A clear majority of those in business are against moves to change Scotland’s income tax. Ministers need to keep a close eye on the effects of this move and be ready to change tack if we start seeing unintended consequences for the Scottish economy.”

Citing the employment figures, Tory MSP Murdo Fraser said the budget did nothing to address the “woeful” state of the Scottish economy.

He said: "This is a budget which should have put growing the economy first. It should have been a budget for growth. Instead it is a budget for cuts in public services and higher taxes."

Labour’s James Kelly said: “The reality is that we need bold and radical action in order to address the issues that we face across the country.”

Lib Dem leader Willie Rennie described the budget as "a missed opportunity" in areas such as education and mental health.

Having helped the SNP pass the budget, the Greens said scrapping council tax would be a red line for supporting the 2019/20 budget, with “initial steps” required in this parliament.