The Scottish Budget on Tuesday, January 13, to be delivered by Finance Secretary Shona Robison, will reflect a challenging fiscal environment and limited room for manoeuvre.
This Budget is later than usual, reflecting the timing of the UK Government’s Autumn Statement in November and the time required to assess its implications for Scotland’s public finances.
The UK statement emphasised fiscal discipline, with no changes to headline income tax rates or corporation tax. However, income tax and National Insurance thresholds were frozen for an extended period, meaning that as earnings rise, more individuals will pay tax or move into higher bands over time.
While these decisions do not directly set Scottish tax policy, they influence the overall funding environment in which the Scottish Budget is prepared. The Scottish Government’s spending plans are shaped largely by the block grant it receives from Westminster, which is calculated using the Barnett formula.
Following the UK Budget, the UK Government confirmed that Scotland is expected to receive an additional £820 million in Barnett consequentials by the end of the decade; £510m of which will be for resource funding and £310 million for capital funding.
While this is a meaningful sum, it should be viewed in context against the Scottish Government’s overall annual budget, which is approximately £60 billion.
Alan Stewart, Partner
While this is a meaningful sum, it should be viewed in context against the Scottish Government’s overall annual budget, which is approximately £60 billion.
Independent analysis suggests that underlying spending pressures have continued to exceed recurring revenues in recent years, placing constraints on future fiscal flexibility. This adds to the difficulties faced by the Finance Secretary who has to balance the budget every year although use can be made of the Scottish Government’s borrowing powers and non-recurring funding sources, such as reserves or one-off revenues.
The Scottish Government has consistently highlighted child poverty, climate commitments, economic growth, and the sustainability of public services as key areas of focus. The UK Government’s decision to remove the two-child cap on benefits will also free up funding that had previously been allocated by the Scottish Government to mitigate the policy, creating some additional headroom ahead of the Budget.
From a personal taxation perspective, confirmation has been given that income tax rates and bands will not increase in the forthcoming Scottish Budget. However, without changes to thresholds, some taxpayers may still see higher liabilities over time as earnings increase.
Businesses in the retail, hospitality, and leisure industries may also be looking to see some easing of business rates to help with their operational costs.
"As ever, the detail of next week’s Budget will matter. Once announced, individuals and businesses will need to assess how the final measures interact with their wider financial position, particularly where tax planning and longer-term decisions are concerned."
