What is likely to be included in the Scottish Budget?

Finance Secretary Shona Robison will announce the Scottish Budget in the Scottish Parliament. 

Despite the UK Government saying it is providing the largest funding package in the history of devolution, Ms Robison has warned that the Scottish Government is currently facing an “extremely difficult and challenging” financial situation. 

What is the budget?

The Budget is the Scottish Government’s tax and spending plans for the next financial year, which will run from 1 April 2025 until 31 March 2026. 

Measures included in the budget cover areas such as raising or lowering taxes, as well as decisions around spending on devolved areas such as health, schools and other public services. The government may also set out proposals for new taxes, welfare benefits, public services and infrastructure projects.

When will the budget be announced?

The Scottish Budget will be announced on Wednesday 4 December shortly before 3pm in the Scottish Parliament. Opposition MSPs will then be given about an hour to respond in the chamber.

How much money is available?

Rachel Reeve’s delivered the UK budget which added £1.5 billion to resources available for the Scottish Government for the coming year. This is also supplemented by an additional £1.9 billion for 2025/26 - giving a total of £3.4 billion. For the coming year, the UK government will provide a block grant total of £47.7bn.

However, the Fraser of Allander Institute said the majority of the £3.4bn is likely to have already been allocated, including at least £750m for public sector pay deals.

SNP ministers have also warned they could face a shortfall of about £200m in public sector staffing costs due to the UK Government’s changes to employers’ National Insurance contributions. Ms Robison is likely to mention this in her statement to the chamber.

How could the Scottish Government raise more money? 

The UK Chancellor Rachel Reeves unveiled plans in October to raise taxes by £40 billion - a historic high - which will mainly impact businesses. 

In Scotland, Shona Robison does not have as many levers to pull, however, she can raise certain taxes to change the spending picture for next year. 

Income Tax

After the block grant from the UK treasury, the biggest money raiser for the Scottish Government is through income tax. 

The gap in last year’s budget was filled by the SNP raising income tax on higher earners with an extra tax band and a freeze on tax thresholds. 

 The result has been that Scottish income taxpayers earning over £28,850 per annum pay more income tax than in the rest of the UK. 

The Institute for Fiscal Studies (IFS) has since said that increased income tax on the highest earners may have led to reduced revenue as this created less of an incentive to earn in Scotland compared to the rest of the UK. 

The Finance Secretary has told Holyrood's finance committee that her 12-member Tax Advisory Group is looking for high levels of compliance and a system that is “fair, understandable and easy to navigate”.

Since Humza Yousaf raised taxes,  his successor John Swinney, and his deputy Kate Forbes have shifted in their language by focusing on measures that help business to grow the economy. Tomorrow will be the real test on whether this has influenced tax plans or not. 

Council Tax

Local taxes are another area which the Finance Secretary could turn to in her budget.

It is understood that council tax will not be frozen as the government does not want to drive away council leaders and third sector organisations after the surprise freeze last year from Humza Yousaf. This would mean that local authorities would set their own levels of council tax. 

The Convention of Scottish Local Authorities (COSLA) has been clear that it does not wish council tax to be frozen again, arguing that increases are required to “protect vital services”. 

Non-dom rates 

Another local tax is non-domestic rates.  The UK Budget included a business rate relief of 40% for Retail, Hospitality and Leisure (RHL) businesses in England next year, following a 75% relief in the current year. This has resulted in Barnett consequentials for the Scottish budget in 2025-26 of £147 million.

The Scottish Government did not follow suit this year, however, they have been under pressure to pass on similar reliefs south of the Border.  Yet, the Fraser of Allander Institute (FAI) suggests providing the equivalent relief in Scotland will be more expensive, estimating it would cost roughly £220 million to replicate this English policy.

What else is likely to be in the Budget? 

Winter Fuel Payment

One policy revealed in advance of tomorrow’s budget is the decision to have a more generous Scottish winter fuel payment (the Pension Age Winter Heating Payment) in place in time for next winter.

Social Justice Secretary Shirley-Anne Somerville has announced that every pensioner household in Scotland will receive a winter fuel payment next year. Those in receipt of qualifying benefits like Pension Credit will get £200 or £300 depending on their age, while all others will get £100.

We are still waiting on the exact details, however, we know the UK government block grant addition to Scotland’s budget will reflect the Chancellor’s decision to means-test the payment in England and so will not fully cover the costs of the proposed Scottish equivalent.

The Scottish Government will therefore need to find the money to fund this more generous version of the benefit from its own resources, meaning less money available for other parts of the Budget.

Public Sector Pay 

There have been calls on the government to better pay for public sector workers. Last year’s Budget was silent on this, with Parliament only being notified well after the Budget had passed of what the internal pay increase assumptions had been (3%). This proved to be an inadequate assumption given the requirement for an emergency budget statement (for the 3rd year in row) in September to fund public sector pay deals and ward off industrial action.

The recent Finance and Public Administration Committee pre-Budget report stated that they would “strongly urge” the Scottish Government to produce a Pay Policy each year and set out “realistic growth assumptions”. 

A recent Audit Scotland report also urged for public sector reform. Audit Scotland stated how important reform is to fiscal sustainability, while noting that “there is no evidence of large-scale change on the ground.”

This is an area the Finance and Public Administration Committee has been interested in, and will no doubt be looking for evidence in the Budget and accompanying documents that will assuage its concern “about the Scottish Government’s lack of strategic approach to managing Scotland’s public finances.”

The Scottish Government has stated that it’s key priorities are in eradicating child poverty, growing the economy, improving public services and protecting the planet. These areas are likely to get increased investment but how what this will look is still uncertain.

Getting the green light on the Budget: cross-party deal needed 

As the Scottish Government is currently a minority administration, they need to reach an agreement with another political party to get its budget and tax plans approved. 

After John Mason was expelled from the SNP, the party now has only 62 MSPs and in order to pass a budget, they need to get a true majority of 65. 

Therefore the party needs 3 MSPs to get their spending plans over the line. However, and this is fundamental, there are hints the 4-MSP-strong Scottish Liberal Democrats could abstain which would allow the budget to go through as it would reduce the number of people voting against their plans. 

If they do get support, the most likely bed fellows are the Scottish Liberal Democrats and the Scottish Green Party. Both have focused on the issue of “independence spend” as being the deal breaker in any negotiation – the Liberal Democrats saying they will not support a Budget that includes independence spending, and Greens saying they will only support a Budget that includes independence spending.

This is despite the fact that nobody really knows how much is spent on this Budget line. Indeed, there was no Budget line that included any reference to independence planning in the 2024-25 Budget. According to campaign group Scotland in Union, the spend on independence in the Scottish budget has been £3.5 million since 2021. 

Timescale for scrutinising and approving plans

It will be after Christmas before the budget receives a full green or red flag. 

Bilateral meetings between Scottish Ministers and non-governing political parties have been ongoing for some weeks now. Committees will now consider how the Scottish Government has responded to their pre-budget reports, before the debates in the Chamber and votes on the Budget Bill and income tax rate resolution in the new year. This is expected in late January or early February.