DEREK Mackay has snubbed calls from business to close the tax gap between Scotland and England by setting bills for the middle-class around £1400 higher than south of the border.

In his third draft budget, the Finance Secretary announced the salary at which Scots pay the 41p higher rate of income tax would be frozen for a second year at £43,430.

The threshold for 2019/20 is far short of the new £50,000 level announced for England and Wales by Chancellor Philip Hammond in October.

The difference means around 300,000 high earning Scots will pay significantly more income tax than their English counterparts next year.

Someone in Scotland earning £51,000 will pay around £1500 more than their equivalent south of the border from April.

The Conservatives said the SNP had made Scotland the highest taxed part of the UK, threatening businesses and investment.

Tory MSP Murdo Fraser said: “This is the price of living in the SNP’s Scotland.”

Mr Mackay must now persuade one of the other parties, or a handful of individual MSPs, to support the budget in order to get it passed at Holyrood in February.

The Scottish Greens, who supported the minority SNP administration in the last two budgets, said Mr Mackay’s had failed to offer anything on local tax reform, its precondition for enteriong budget talks.

Green MSP Patrick Harvie, who wants a fundamental overhaul of local government funding and a replacement for council tax, said Mr Mackay had offered “not a word” on that agenda.

However the last budget was effectively passed with the support of the two LibDem MSPs for Orkney and Shetland in return for a £10.5m investment in ferries, showing it is possible to secure the finance bill through without the Greens through 'pork barrel' spending.

The Finance Secretary later dared LibDems to vote against a budget that would include money for ferries.

Mr Mackay, who is tipped as a future leader, said his budget was essentially provisional and liable to be rewritten in the New Year because of Brexit, especially if there was No Deal.

He said his tax plans meant Scotland would “continue to be the lowest taxed part of the UK”.

He said: "Tax rates will remain the same. As a result 99 per cent of all taxpayers will see no increase in the tax they pay."

The Finance Secretary said he will increase the starter and basic rates of income tax by inflation in 2019/20.

The Scottish Tories dismissed it as a "pay more, get less" Budget. 

Elsewhere, Mr Mackay said £435m will be pumped into the social security system – including £100m to continue to “mitigate” the impact of the so-called Bedroom Tax and UK welfare reforms.

He said education will receive a real-terms boost in investment over the next financial year, with almost £500m set aside to expand early learning and childcare, alongside more than £180m to raise attainment in schools.

Mr Mackay said the Scottish Government will continue “to deliver a public sector pay policy that lifts the 1% cap on public sector pay”.

This will provide a 3% pay rise for all those earning £36,500 or under – higher than inflation.

Meanwhile, the pay bill will be capped at 2% for all those earning between £36,500 and £80,000.

For those earning £80,000 or more, rises will be capped at £1,600.

He added: “However I must disappoint my colleagues and say that ministerial pay will once again be frozen at 2009 levels.”

Mr Mackay confirmed a planned pilot of a new tax on out-of-town businesses would not be explored, following widespread opposition from business leaders.

But he announced a £50m funding pot to “support our town centres to diversify and develop”.

He said the Budget would allow him to increase funding for local government, providing total support of £11.1bn. 

This provides a "real terms increase in the total local government settlement of over £210m," Mr Mackay said.