The Scottish Government Finance Secretary Shona Robison this week unveiled her Budget for 2025-26.
The main points included:
The Scottish NHS will receive a record funding settlement of £21 billion in the next financial year.
An investment of £321 million in Scotland’s enterprise agencies supporting emerging tech, including AI and robotics, and programmes like the Techscaler initiative.
Scottish councils will receive a record funding settlement. An incease of more than £1 billion will take their total funding to over £15 billion.
Income tax rates in Scotland have been frozen until 2026.
The Scottish Government will mitigate the impact of the two-child benefit cap. “Be in no doubt that the cap will be scrapped,” said Robison.
Increase in the culture budget of £34 million.
Robison pledged £786 million for affordable housing.
The Scottish National Investment Bank will receive £200 million in 2025/2026.
REACTION:
Stephen Montgomery, Director of the Scottish Hospitality Group: “The hospitality sector is a vital part of Scotland’s economy.
“Whilst we welcome the Scottish Government’s offer of 40 percent business rates relief for a part of the industry, it is on a significantly more restricted basis than elsewhere in the UK and affords those above a rateable value of £51,000 absolutely nothing for a fourth year in a row – at a time when all licensed hospitality businesses need support.
“The reality is that this amounts to little more than a drop in the ocean given the spiralling costs faced by bars, restaurants, and hotels across Scotland.
“As a sector that contributes more than £6billion to Scotland’s economy every year and a further £3billion through the supply chain – as well as one in ten of its jobs – any closures and cutbacks by hospitality businesses will be felt in every community, which is why government support is more vital than ever.
“Moving forward, the Scottish Government must now commit to scrapping the punitive businesses rates system completely, and to work closely with Scotland’s hospitality industry to introduce a fairer replacement ahead of revaluations in 2026.”
Garry Tetley, Tax Partner at Deloitte: “There were no increases in Scottish income tax rates or new tax bands this year. Inflationary adjustments in the lower rate bands will result in small tax savings of up to £14.51 for taxpayers at all levels, but wage inflation will push many taxpayers into higher rate bands.
“While the starter rate band will increase by 22.6% and the basic rate band will increase by 6.6%, the higher rate threshold remains at £43,662 for a fifth year running. This is still significantly lower than the UK higher rate threshold of £50,270 which has been frozen until 2027/28.
“Employees earning between these thresholds also pay 8% national insurance, which results in a combined marginal tax rate of 50% in this income bracket for those living in Scotland. The advanced rate (45%) threshold and the top rate (48%) threshold are also frozen at £75,000 and £125,140, respectively.
“Lower earners in Scotland continue to pay less tax than those in the rest of the UK (the maximum saving is £28.27); the breakeven point for 2025/26 is £30,318.
“The Scottish government’s devolved powers for personal taxes are limited to setting the bands and rates of income tax for non-savings non-dividend income, such as salaries, profits and pensions. Income tax on savings and dividend income, capital gains tax and national insurance are all set by the Westminster government. Most of these rates and thresholds are the same in 2024/25 and 2025/26, with the exception of employer’s national insurance and certain capital gains.
“The commitment (for the rest of the Parliament) not introduce any new bands or increase the rates of Scottish Income Tax and uprate the starter and basic rate bands by at least inflation provides stability. However, the continued divergence from the rest of the UK means that top talent earning higher salaries will continue to face higher tax bills in Scotland.”
Susan Love, Strategic Engagement Lead for Scotland at the global accountancy body ACCA (The Association of Chartered Certified Accountants): “Following the difficult decisions announced in the Chancellor’s October budget, no one expected today’s Scottish budget announcement to be anything other than challenging, despite the additional £3.4bn of Barnett consequentials.
“Overall, the Scottish budget announcement recognised the concerns from the business community, providing some measure of certainty on future tax plans, while setting out a clear priority for spending focused on alleviating child poverty …
“Businesses in Scotland fighting to attract talented professionals to Scotland will be relieved to see a pause in further divergence with the rest of the UK on income tax, and a commitment to maintain current bands for the duration of the Scottish parliament.
“While fiscal drag has remained in place for some taxpayers, those on the basic and intermediate rates will see a 3% threshold increase which offers a welcome boost to pay packets of lower earners.”
PwC Scotland’s Regional Market Leader Jason Morris: “Many will be heartened to hear the Scottish Government laying out a plan that demonstrates a commitment to maintaining Scotland’s place at the heart of the UK’s transition to green energy, helped by the reinvestment of £300m in ScotWind revenues. However, there could be question marks over whether the funding is focused in the right areas.
“The attraction of investment into Scotland’s renewables infrastructure and supply chain in the coming years is crucial, so the commitment of £150m to the offshore wind sector – with a view to leveraging private sector investment – is welcome news.
“Our recent Green Jobs Barometer showed that, of the UK’s nations and regions, Scotland had the highest proportion of green job adverts during 2024, with more than 28,000 vacancies. So while the £25m pledged to support the Green Industrial Strategy by focusing on the creation of green supply chain roles is encouraging, consideration must be given to ensuring we have the appropriate pipeline of skills and talent to successfully fill these roles.
“There is an opportunity here for the Scottish Government to work with the country’s higher education establishments to ensure the £2bn pledged to Scotland’s colleges, universities and skills development programmes is utilised to foster a skilled workforce that is fit for our growing green economy.”
Joao Sousa, Deputy Director of the Fraser of Allander Institute: “This was a Budget with an eye on the election, but storing up risks. And crucially, what was left unsaid was just as consequential as what Shona Robison mentioned in her speech.
“The Scottish Government will be hoping many of the headlines will focus on the measure with most political impact – the promise to mitigate ‘as far as possible’ the impacts of the two-child limit. This was clearly a late addition, and one which has not been included in their own or the Scottish Fiscal Commission’s analysis – though it might cost as much as £200m a year. The Scottish Government will be hoping this is brought in UK-wide before they have to fund it – a heavily caveated 2026 was mooted as the start date, but it can take the moral high ground in the meantime.
“There were also announcements of growth in health spending and the affordable housing budget, although as we have said frequently, how and where the money is spent is just as important.
“There was also an announcement of non-domestic rates relief for the hospitality industry, which may seem the same as that announced in England at first glance, but is actually much narrower. It only applies to the smallest premises – many of which will get full relief anyway – and retail and leisure premises are excluded. And ScotWind monies will be called upon less than previously pencilled in, although some of the usage will still be for day-to-day spending – not exactly “the kind of long-term investment it should be spent on” that the Finance Secretary espoused.
“But the most surprising decision was to not account for the shortfall increase in employment costs due to the increase in employer National Insurance Contributions, and which we only learned from the Scottish Fiscal Commission’s documents. This is a significant and certain permanently higher cost that will come in on 1 April, setting up a possible need for further emergency measures during the course of the next financial year – leaving us wondering whether any lessons have been learned from going into a new year without fully setting aside budget cover for what are known costs, as highlighted by the recent Audit Scotland report.”
Chief Executive of Scottish Financial Enterprise Sandy Begbie: “Scottish Financial Enterprise has consistently urged the Scottish government to take action on the growing income tax divergence between Scotland and the rest of the UK, and these changes are therefore a welcome, if modest, step in the right direction.
“But these changes fall short of recognising that Scotland’s current tax regime is simply not working. As the Institute for Fiscal Studies has pointed out, higher income tax rates in Scotland have led to less rather than more money for public services, while also deterring investment and harming economic growth, and our tax regime remains complex, disproportionate and uncompetitive.
“That is why we need to see continued action from the Scottish government to further reduce income tax divergence between Scotland and the rest of the UK over the coming years, as well as a renewed commitment to work with the business community to deliver the sustainable economic growth our country so desperately needs.
“Measures to boost capital investment are also to be welcomed as a means of unlocking and attracting investment, but these now need to be delivered at pace to deliver a measurable impact for our economy. Our sector stands ready to work with the government to achieve these ambitions.”
Sara Thiam, Chief Executive, Prosper: “The Finance Secretary had limited room for manoeuvre in this Budget and we therefore welcome some of the announcements that she made – such as the investments in the offshore wind industry and affordable housing, and the rates reliefs for some businesses.
“The commitment not to introduce any new bands or increase the rates of Scottish Income Tax for the rest of the Parliament will be welcomed by employers to support recruitment and retention and incentives to work, and avoid exacerbating pressures on wages.
“However, it is disappointing that funding for growing the economy seems to have been reduced again and that the funding for universities and colleges does not go far enough to strengthen their stability, competitiveness, and skills, research and innovation delivery.
“We welcome the steps that the Finance Secretary announced on public sector productivity and reform, which must be a higher priority going forward. However, we had hoped to hear more for her on support for third sector organisations, many of which face great cost pressures and play important roles in communities and public service delivery.”
Euan Fernie, partner at accountancy firm MHA in Edinburgh: “At times, this budget felt like a case of being blinded by figures with the finance secretary flitting back and forth between savings and absolutes. More detail will emerge, however, there is a need for clarification on what was new funding and what has previously been announced.
“While talking about agriculture and the previous years’ funding that had been retained, it was not clarified whether this year’s funding would be ring-fenced, something that was suggested recently by Chancellor Rachel Reeves would not be the case.
“In theory, the Scottish Government could spend it on whatever they want, they don’t have to spend it on the farming community, however, that may come out in the detail. Hopefully the Scottish Government will continue to support Scottish farming to the fullest extent possible …
“From a personal tax point of view, the low-level tax band expansion allows the Scottish Government to continue saying the majority of taxpayers in Scotland pay less tax than in England albeit by a small amount, while the rest pay substantially more than our English counterparts.”
Stewart Miller, CEO of the National Robotarium: “This significant £321 million investment from the Scottish Government to support emerging tech represents a critical step in securing Scotland’s position at the forefront of the global robotics revolution.
“As demonstrated by our pioneering work at the National Robotarium, robotics and AI technologies are already transforming industries from healthcare to offshore energy, and this additional commitment will accelerate Scotland’s ability to compete in a market projected to reach £223 billion by 2032. With the UK currently lagging behind other G7 nations in robotics adoption, this investment sends a powerful signal about Scotland’s ambition to lead rather than follow in the next wave of technological innovation …
“The timing of this support is crucial. Our experience shows that when we combine world-class research facilities with industry collaboration and skills development, we create powerful economic multipliers that generate high-value jobs and attract international investment. At the National Robotarium, we’ve already demonstrated how strategic investment in robotics can catalyse innovation, supporting successful startups and industry-funded projects that address critical challenges across health and social care, energy, and manufacturing. This new funding will help ensure Scotland can scale these successes, building the robust domestic capability needed to compete in the global marketplace while solving some of society’s most pressing challenges through technological innovation.”
Heather Thomson, Interim CEO of The Data Lab: “We welcome the investment in enterprise agencies, supporting emerging tech, including AI, and programmes like Techscaler, to support new-to-market innovations in Scotland. With the rapid and continuing advancement of technologies, including data and AI and its applications, Innovation Centres across Scotland are supporting companies to navigate these tech developments, advancing groundbreaking ideas, and accelerating these projects into new markets.”
Karen Meechan, CEO of Scotland’s tech trade body, ScotlandIS: “It is reassuring to see the finance secretary commit to supporting Scotland’s pursuit of long-term growth. By highlighting AI and robotics the finance secretary has identified two crucial emerging areas of the tech sector, but it’s important to recognise that our industry is broader than just these two areas. From green data centres and connectivity specialists to cybersecurity and climate tech, Scotland has an enormous amount to offer and it’s important that our sector receives support which is commensurate with our overall economic contribution.”
David Phillips, associate director and head of devolved and local government finance at the London-based Institute for Fiscal Studies: “The Scottish Government has trumpeted a Budget providing record levels of funding for the NHS and councils, universal winter payments for pensioners, and starting the process of ending the two-child cap in universal credit in Scotland.
“And comparing the amount the Scottish Government plans to spend on public services in 2025-26 with the plans for this year set out in its Autumn Budget Revision suggests a significant increase of 5.3% in cash terms, or 2.9% after accounting for inflation.
“However, this excludes £1.3 billion of funding that Budget documentation implies that the Scottish Government still has to allocate to services this year. Accounting for this would leave day-to-day spending on public services next year essentially flat in real terms between this year and next, falling by 0.3%.
“Depending on how this is allocated across services, the increases next year for Health and Local Government highlighted by Finance Secretary Shona Robison may end up being rather smaller, and other portfolios may find themselves joining Rural Affairs in seeing cuts to day-to-day spending.
“The £1.3 billion still to allocate is less than the additional funding that has become available over the last 2 months. This means, despite previously suggesting it had already accounted for the top-up to its funding announced in the UK Budget in its financial planning for the current financial year, the Scottish Government is, in effect, planning to carry forward £400 million for use in future years. If it can, it would be wise to carry forward more than this, to improve the tight future funding situation.
“A reduction in drawdowns of income from offshore windfarm licenses this year has helped fund the deployment of £326 million for capital investment next year. Together with a substantial boost in capital funding from the UK government, Scottish Government investment is now set to increase by almost 12% in real terms next year.
“However, capital funding is set to fall by close to 5% in real terms in 2026-27 and remain at these lower levels for the following 3 years. More likely – as in the rest of the UK -, next year will see an underspend on capital budgets in Scotland, allowing some top-up to investment spending in subsequent years
“Overall, the tax policy changes announced today raise a modest £54 million for public spending in Scotland next year. Much more important for the budgetary situation, though, was a significant downgrade in the forecast net income tax position this year and over the next few years.
“Whereas last December the Scottish Fiscal Commission’s forecasts implied Scotland’s income tax revenues would exceed the corresponding block grant by over £1.7 billion in 2025-26, its new forecasts imply net revenues of just £0.8 billion – a £0.9 billion reduction equivalent to around 2% of the Scottish Government’s day-to-day spending.
“A similar downgrade in the forecast net position this year of £0.7 billion from £1.4 billion to £0.7 billion, if borne out, will mean the Scottish Government has to start repaying the difference to the UK government in 2027-28, squeezing budgets in the latter half of this decade.
“More generally the more challenging longer-term funding outlook would mean that finding money for the Scottish Government’s pledge to remove the two-child limit in universal credit at an annual cost of around £200 – £300 million would likely require cuts to some other areas of spending or tax rises.
“In this context, while the Scottish Government’s new Tax Strategy sets out clear plans for income tax rates and thresholds for the remainder of the parliament, which provide clear guidance to taxpayers, it would severely limit its options if it needed to raise additional revenue. Beyond that, the Tax Strategy is full of good intentions to engage with others to improve tax policy and delivery, but little by way of concrete proposals or sense of what destination the Scottish Government is aiming for.”