PUBLIC sector workers will get a bigger pay rise next year after the Finance Secretary lifted the pay cap

And income tax will rise slightly in Scotland for the highest earners to reduce cuts to public services as Derek Mackay revealed his budget.

Mr Mackay has increased tax for higher and middle earners and introduced a new intermediate tax rate but said most people will pay less tax than before.

He delivered his budget and increased the higher rate of tax by a penny and set a new intermediate rate which increases par of the previous basic rate also by a penny.

He said the changes will raise an extra £164m for public services.

Glasgow City Council however is still looking at cuts of tens of millions of pounds.

The Finance Secretary also announced the lifting of the 1% public sector pay cap to allow a rise of 3% for the lowest paid and smaller increases for higher paid staff.

Staff earning below £30,000 would see a 3% increase. For those above that there will be a limit of 2% with a cash cap of £1600 on those earning £80,000 or more.

The new tax proposals mean additional rate tax payers will see an increase from 45% to 46% for above £150,000.

Higher rate payers those earning above £44,273 will pay 41% tax above that level.

A new intermediate rate for earnings between £24,000 and £44,273 limit will pay 21% and the basic rate of 20p paid on income between 13,850 and £24,000.

He introduced a new starter rate of 19p for wages between the rate at which tax is paid, £11,850 and £13,850.

Mr Mackay said no one earning less than £33,000 will pay any more in tax than they do at present instead he said they would pay less.

He said people on that level would pay less in tax than if they lived anywhere else in the UK.

He said councils would receive more cash than last year and could have an increase in available funding if they take the opportunity to increase council tax by the maximum 3%.

He said he has protected budget for councils in cash terms but council still face a cut of almost £60m unless they raise council tax.

He added: “Local authorities have the option to increase the council tax by up to 3%. If they choose to do so they will raise an additional £77m which could secure a real terms increase in local government funding.”

With other financial pressures Glasgow City Council was looking at a cut of around £50m next year.

That is expected to be lower now but still in the tens of millions of pounds.

The council is also likely to have to find cash for a pay rise for thousands of workers which could cancel out any reduction in cuts.

Mr Mackay said spending on health would increase by £400m and money for tackling poverty with a £50m poverty fund.

Opposition parties said the budget didn’t deliver for people or public services.

Labour Scottish leader, Richard Leonard, said the actual cut to council services across Scotland was in the hundreds of millions of pounds.

He said: “Derek Mackay says he knows that councils were worried about a potential £300m cut, and that is true.

“But what he is doing is cutting day to day spending in real terms by £135 million when councils need an additional £545 million just to stand still.

“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.”

The Tories said the SNP had broken a manifesto promise not to increase tax.

Adam Tomkins, Conservative MSP for Glasgow, said: “If we learned one thing from today’s budget, it’s that you can’t trust the SNP.

“Last year Nicola Sturgeon pledged to freeze the basic rate of income tax to protect those on low and middle incomes - today that promise is in tatters.

“Today the SNP let those people down, and voters in Glasgow and across Scotland will struggle to believe a word Nicola Sturgeon and the nationalists say ever again.”