The Scottish Government could freeze tax thresholds in a bid to generate more cash in December’s budget.

First Minister John Swinney yesterday refused to rule out the measure which would see workers dragged into paying more tax as their wages increase with inflation. 

Reports over the weekend suggested Chancellor Rachel Reeves is considering a similar freeze in a bid to raise £7 billion to help plug a £40bn funding gap in the public finances she claims was left by the last Conservative government.

That is despite previously describing a freeze as “picking the pockets of working people”.

The Labour frontbencher will set out her tax and spending plans on October 30, with the Scottish Government’s budget coming on December 4.

Speaking to journalists after a speech in Edinburgh, the First Minister was asked if he could rule out freezing tax thresholds in Scotland.

“I’m not going to rule anything in or out about the budget,” he said. “We’ve obviously got a process to go through which is hugely influenced by the outcome of the UK Budget process.

“What I will say is that there is a clear interaction between where the UK Government is, what choices it faces, and the issues that we are wrestling with.

“And obviously we’ll consider all these issues in the period up until December 4 when we set our Budget.”

Rachel Reeves and John Swinney (Image: Andrew Milligan/PA)

In last year’s Scottish budget, the threshold at which people start to pay the lower bands of income tax rose in line with inflation but the threshold for when taxpayers in Scotland start paying the higher rate of 42% remained at £43,662.

That was the fourth SNP budget in a row where the higher rate was frozen.

In 2016/17, just over 300,000 taxpayers, around 12% of all Scottish taxpayers, were paying at least the higher rate of income tax. However, in 2024/25, this has risen to nearly 650,000 around 22% of taxpayers.

Mr Swinney also warned Labour against looking to raise revenue through increasing national insurance contributions for employers, without compensation for public bodies.

He said any increase would mean public bodies – such as the NHS or councils – paying a higher tax bill.

“I can see where the UK Government is going, but I am simply making the point that if they are going to go there, they’ve got to be open with people that they’re either increasing public expenditure to take account of that or they’re essentially undermining public expenditure by the back door.

“Because if employers’ national insurance contributions go up in the United Kingdom then that will have to be paid for by public sector bodies.

“And unless public expenditure goes up to an extent to compensate for that and more we’re actually no better off as a consequence.”

In the run-up to the general election, both Sir Keir Starmer and Ms Reeves pledged to "not increase taxes on working people".

It was a promise in the party’s manifesto.

Meanwhile, Ms Reeves has insisted the Cabinet is united on the budget.

Several ministers were reported to have written to the Prime Minister to express concern about the scale of cuts being demanded in some areas.

Speaking to the PA news agency, Ms Reeves said the final settlements had been confirmed but acknowledged it had been “right for all Cabinet members to want to get the best settlement for their departments”.

She added that settling departmental budgets was “an important achievement and shows the determination of this Government to get a grip of the public finances, and shows that we are as one, united in fixing the mess that the Conservatives left for us”.

Ms Reeves insisted her Budget would be “honest” about the state of the public finances and what needed to be done to put them “on a firm footing” while doing “everything within our power” to protect living standards and the NHS.

The health service is one of the few departments expected to come out as a winner from the Budget process, with reports suggesting it will receive a significant real-terms increase in funding as the Government stakes its popularity on cutting waiting lists.

But Government sources said reports of an increase of between 3-4% were not accurate.