While the package projects to raise nearly £26 billion to plug fiscal gaps, and delivering an additional £820 million in funding for the Scottish Government, experts warn that a “smorgasbord” of tax hikes and frozen thresholds risks stifling growth and placing a heavy burden on both businesses and households.

The “stealth tax” on income

A central feature of the Budget is the freezing of personal income tax thresholds until 2030-31. Bruce Cartwright CA, CEO of ICAS, described the move as a “stealth tax” that lacks transparency. “This takes money out of everyone’s pocket,” Mr Cartwright warned, noting that fiscal drag will pull lower-middle earners into higher tax bands, reducing consumer purchasing power and ultimately hurting businesses dependent on disposable income.

While the Scottish Government sets its own income tax bands, the freezing of the UK-wide Personal Allowance affects Scottish taxpayers directly. João Sousa, deputy director of the Fraser of Allander Institute at the University of Strathclyde noted that this “piecemeal approach” is a riskier revenue-raising strategy than headline rate increases, as it hits specific groups hard while creating uncertainty.

Squeezing the labour market

Employers face a dual challenge – a rise in the National Living Wage and a new cap on National Insurance (NI) relief for salary sacrifice pension contributions.

Daniel Hough

The introduction of a £2,000 annual cap on employer NI relief for pension contributions is expected to raise £4.7bn. However, the CBI and RBC Brewin Dolphin warn this will increase the cost of employment and administrative burdens. “Employers may now limit the benefits they pass on to employees,” noted Daniel Hough, wealth manager at RBC Brewin Dolphin, suggesting the measure could discourage pension saving.

Dr Liz Cameron of the Scottish Chambers of Commerce (SCC) cautioned that without targeted relief, these cumulative costs place SMEs “on the brink”.

North Sea industry on a “cliff-edge”

Reaction from the North East has been scathing regarding the Energy Profits Levy (EPL). The transition of the windfall tax into a permanent mechanism has been branded “economically ruinous” by the Aberdeen & Grampian Chamber of Commerce chief executive Russell Borthwick. He warned the industry is being “taxed to death”, predicting the loss of thousands of jobs and terminal damage to the UK’s energy security.

KPMG and the SCC echoed these concerns, describing the decision as a missed opportunity to support the energy transition, leaving the North Sea sector facing a cliff-edge.

Succession and investment blows

Euan Fernie

For business owners planning their exit, the landscape has shifted significantly. The tax relief on disposals to Employee Ownership Trusts (EOTs) has been slashed from 100% to 50%. Ritche Whyte, partner and head of corporate and business advisory at Aberdein Considine, and Euan Fernie, Edinburgh-based accountancy and business advisory partner at MHA, warn this fundamentally alters the financial calculus, making EOTs a far less attractive succession route compared to a trade sale.

Furthermore, while the “mansion tax” surcharge on second homes applies to England and Wales, it has reignited fears regarding property taxation north of the border. Alex Docherty, partner and head of private client tax at Johnston Carmichael, suggest that discussion on property levies in Scotland is likely to resurface.

Retail and the High Street

The Scottish Retail Consortium (SRC) highlighted a growing divergence in business rates. With significant rate relief announced for retail, hospitality, and leisure in England, the SRC warns Scotland risks becoming “substantially less attractive” for investment unless the Scottish Government uses its new funding to match these reliefs in January.

Whisky and alcohol duty

The decision to increase alcohol duty was labelled a “punishing tax” by the SCC, threatening the competitiveness of Scotland’s £7bn whisky industry.

Mark Kent, CEO of the Scotch Whisky Association (SWA), argued the government is ignoring economic reality, noting that the previous duty hike actually reduced Treasury revenue by £150m.

William Wemyss of Kingsbarns Distillery added that the rise hits independent producers particularly hard at a time when the hospitality sector is already struggling to recover.

To read the SWA’s full response click here.

Rural economy and agriculture

Scottish Land & Estates (SLE) warned that the Budget offers little to unlock the economic potential of rural Scotland. Cameron Gillies, head of external affairs at SLE, highlighted that the new mileage-based charge on electric vehicles will fall disproportionately on rural motorists who lack public transport alternatives, potentially discouraging the transition to EVs.

Furthermore, SLE expressed deep concern over changes to inheritance tax on agricultural property; while the ability to transfer the £1m threshold between spouses was welcomed, Gillies warned the wider policy risks placing family farms in jeopardy and threatening UK food security.

To read the SLE’s full response click here.

Looking to Holyrood

Attention now turns to the Scottish Budget on 13 January. With an additional £820m in Barnett consequentials, the Scottish Government faces pressure to support public services while mitigating the competitive disadvantages emerging for Scottish businesses.

The Chartered Institute of Taxation (CIOT) also noted a significant devolution development: the Budget paves the way for the Scottish Parliament to set separate income tax rates for property income from April 2027, further diverging the tax landscape.

Overall, the verdict from Scotland’s professional community is one of caution. As James Paterson, head of tax at BDO in Scotland, concluded, while clarity is welcome, the combination of rising overheads and tax complexity means “businesses will still feel employment costs are a pain point”.