Scottish ministers “don’t have the money” to end the two-child cap on benefits set by the UK, Nicola Sturgeon has said.

Speaking at First Minister’s Questions, Scottish Labour leader Richard Leonard called for Holyrood to mitigate the UK Government policy, which limits tax credits and Universal Credit to a family’s first two children.

Mr Leonard said the cost of doing so would represent 0.2% (£69m) of the budget announced by Finance Secretary Derek Mackay on Wednesday.

“This Parliament has the power to mitigate the two-child cap and that would immediately benefit 3,780 families across Scotland, some by over £2,500 per child per year,” he said.

“The urgent issue for these families is not which parliament sets social security policy, it is whether their kids go to bed hungry tonight and whether they can clothe them tomorrow morning.”

Scottish Budget
Derek Mackay announced the Scottish Budget for 2019-2020 at Holyrood on Wednesday (Andrew Cowan/Scottish Parliament/PA)

The First Minister said all of the resources had been used within the budget but asked Mr Leonard to suggest where in the budget money might be taken from if funds were to be made available.

Ms Sturgeon: “This government does everything it can to mitigate UK welfare cuts. We’re spending in the region of £100 million every year to do that.

“The fact that we cannot mitigate every cut is not a lack of political will, it’s a fact of basic arithmetic.

“We don’t hold the budget for reserved areas of welfare so every penny of mitigation has to come from another area of our responsibilities.

“We’ve used our tax powers and we’ve allocated all of the resources at our disposal.

“Of course, there’s many other things that I would love to have the money to do so if Mr Leonard wants us to spend money on other things, he has to come to us.”

The Scottish Labour leader said the Scottish Government could choose to raise the tax on higher earners to raise additional investment.

The rate for people earning between £43,431 and £150,000 is currently set at 41%, with a 46% top rate on income of more than £150,000.

The higher rate threshold has been frozen – unlike in the rest of the UK where the threshold will go up to £50,000 from April next year.

Ms Sturgeon said raising tax on higher earners could result in lost revenue.

“We are asking already higher-rate taxpayers in Scotland to pay a bit more than they would if they lived elsewhere in the UK, that is fair and reasonable,” the First Minister said.

“All of the assessment, all of the modelling suggests that because of behavioural changes, if we were to raise the top rate – and we have raised the top rate – but if we were to do it more, then that could lose us revenue.

“Even if Richard Leonard doesn’t agree with that, even if I don’t agree with that, if that’s what the Scottish Fiscal Commission says, then we don’t have that money to spend.

“Anybody who knows anything about budgeting must know that.”