Holyrood Finance Secretary Derek Mackay has said his budget would boost local services despite Labour claims a reduction in cash for councils would see the "heart ripped out of public services".

The Scottish Government's Finance Secretary said local government services would have an additional £140.6 million spending power in 2017-18 as a result of his proposals.

A u-turn by the SNP administration means councils will be able to keep all the cash raised by changes to the council tax for those in more expensive homes - money which ministers had previously pledged to give direct to schools in a bid to close the educational attainment gap.

Read more: Scottish councils handed £240 million funding rise in Holyrood budget

Instead, the Scottish Government will now hand £120 million from its own funds to headteachers in 2017-18 to do this.

But the Scottish Government's budget document showed the amount of money local government will receive from Holyrood dropping from just under £10.1 billion in this year to slightly less than £9.8 billion in the 2017-18 draft budget.

However, councils will get £357 million of money from the NHS next year, with this to be used to pay for closer links between the health and social care sectors.

Read more: Derek Mackay delivers budget statement

While the budget saw the Scottish Government handed new powers over income-tax rates and bands for the first time, Mr Mackay opted to keep the basic and top rates of the levy the same.

He confirmed the threshold for the 40p rate of tax would only rise by the rate of inflation in Scotland - meaning this higher rate will be paid by those earning £43,430 north of the border compared to those on a salary of £45,000 or above in the rest of the UK.

Mr Mackay said that meant his budget would "not give a substantial real-terms tax cut to the top 10% of income earners".

He told MSPs at Holyrood: "In using the Scotland Act income tax powers for the very first time, we must have a balanced approach.

"Let me be clear, I will not pass the costs of UK austerity on to the household budgets of the lowest-income taxpayers."

Read more: Scottish councils handed £240 million funding rise in Holyrood budget

While he said he "sympathised" with calls for the 50p top rate of income tax to be reintroduced in Scotland for those earning £150,000 a year or more, he stressed he "had to balance that with the risk to our economy".

This approach, he insisted, was "right thing to do for our economy, jobs and public services".

Tory finance spokesman Murdo Fraser said: "When it comes to local government, this budget is quite simply a massive con on the people of Scotland."

He added that the Scottish Government was "actually trying to pull a fast one on Scotland's local services".

Mr Fraser said: "Local councils face a real terms cut in their grant of more than £300 million.

"It's taking away with one hand, in order to give a little back with the other. What a shambles.

Read more: Derek Mackay delivers budget statement

"This is a Scottish Government which wants to make Scotland the highest-taxed part of the United Kingdom. Scots will pay more but in return get a shambolic mess on education and the NHS."

Scottish Labour leader Kezia Dugdale said: "The SNP Finance Secretary has unveiled a budget today that will see the heart ripped out of public services."

She added: "However the Finance Secretary tries to spin it, today's budget means a real-terms cut of £327 million from the SNP government to local services.

"They're making up the difference by holding councils to ransom - forcing them to use their tax powers while they refuse to use theirs.

"They could have asked the richest 1% to pay a little more with a 50p tax but they refuse.

"This budget passes on Tory cuts to the people of Scotland. It makes Derek Mackay no better than a Tory chancellor."

Mr Mackay insisted his budget package "invests in education, invests in social care and invests in local services.".

The Finance Secretary said: "This is a budget for growth and public services, for our environment and our communities.

"It delivers increased investment in education, record investment in the NHS, protects low-income households from tax hikes and supports more and better jobs.

"Overall, it delivers £700 million of additional spending on our economy and public services."

Read more: Scottish councils handed £240 million funding rise in Holyrood budget

Councillor David O'Neill, president of local government body Cosla, said they could "never endorse a reduction to the core local government settlement as announced as part of the budget statement today".

He stated: "It is our understanding that the Scottish Government had significant additional cash for 2017/18 and therefore this decision will impact on services delivered by local government."

Unite regional officer for Scotland William McGonigle said: "This budget takes us further down the austerity road towards social crisis in Scotland.

"Despite having new powers over taxation, the Scottish Government continues to follow Westminster's austerity road.

"They might slow down the journey by tinkering with the higher income-tax bands and council tax, but they're fundamentally going down the same path as the Tories."

Grahame Smith, general secretary of the Scottish Trades Union Congress, said: "The STUC is deeply concerned at the impact of the £327 million budget cut on local authority services and calls on the Scottish Government to reverse the proposed cut as well as giving full freedom to councils to raise, and to be accountable for the raising of, the council tax as they deem necessary.

"The decision not to pass on the Tories' tax cut for the wealthy is welcome but falls far short of the reinstatement of the 50p upper rate that the STUC advocates.

"The Cabinet Secretary could, and should, have raised the basic rate of income tax.

"Far from protecting low-income families, the freeze ensures that they will receive fewer services and have to pay for more."

Read more: Derek Mackay delivers budget statement

Both the Greens and the Liberal Democrats said Mr Mackay should have opted to increase income tax now Holyrood has the power to do so.

Green co-convener Patrick Harvie said: "The Cabinet Secretary said he wants to listen to Parliament - I welcome that.

"But I regret that he doesn't seem to be listening to anyone when it comes to income-tax policy.

"We know the poorest third of our society will see their incomes go down next year while high earners will get a tax cut.

"Those may be UK Government decisions but the Scottish Government now has the power to reverse those affects, and has chosen not to."

Lib Dem leader Willie Rennie welcomed the government's u-turn on the use of council-tax funds but said the budget fell "well short" of what was needed to improve educational attainment levels.

"The First Minister said today that there was acres of common ground between the parties - but can I tell the Finance Secretary that he has miles to travel before we can reach an agreement," he said.

"With our international standing in education slipping and our faltering economy, there is an urgent need to use our brand new powers to raise £500 million for education to get it back to its best.

"That's the way to boost our economy. We need transformation and this is not a transformational budget."

Read more: Scottish councils handed £240 million funding rise in Holyrood budget

As well as the additional £130 million going to teachers, Mr Mackay said the Government would provide £50 million of central funding to help close the attainment gap.

With the SNP having pledged to increase free childcare for three and four-years-olds and vulnerable two-year-olds, the Finance Secretary also promised £60 million for early learning.

"We are prioritising education and this budget provides the resources to match," the Finance Secretary told MSPs.

There will be £470 million of capital funding to help the Scottish Government with its goal of building 50,000 affordable new homes over the lifetime of the Parliament.

Mr Mackay also announced £3 million for a "targeted fare reductions" for rail passengers.

This comes after the Scottish Government has faced calls from Labour to freeze train fares next year after ScotRail Abellio's performance slipped below agreed standards

Mr Mackay said doing this "would compromise the investment programme that is so vital for improving the performance of our rail network."