Ross Stupart

As Scotland’s election looms in May, the Scottish Government’s draft budget announcement will make the cross-party negotiations required to secure budget agreement particularly interesting.

The Scottish Finance Secretary, Shona Robison’s reaction to the UK November 2025 budget was clear, stating that the UK Budget ‘failed to deliver’ for Scotland. That is despite an extra £820m being made available via the block grant, and the UK government’s decision to remove the two child cap releasing £155m back into Scotland’s budget, which can be used now for other purposes.

The key question is therefore whether this almost £1bn extra will allow the Scottish Government to balance its budget, make the spending decisions it needs, and reduce the need to borrow? Or will they need to consider measures to increase the Revenue Scotland tax take to balance the books?

Scottish Government ministers have already pledged not to increase the rates of Scottish income tax, or increase the number of Scottish income tax bands. This leaves the band thresholds open to play with if there is a desire to mitigate the tax burden on some taxpayers, or increase the tax burden on higher earners, which has been a trend in past budgets.

With the backdrop of an election, and the Scottish Spending Review Framework committing to focus spending on addressing child poverty, climate change, economic growth and delivering high quality sustainable public services, it would seem unlikely that Scottish Government spending is going to be substantially reduced. This means there will need to be increases in the tax take and / or reallocating spending between departments or projects.

What could the Scottish Government announce on 13 January to meet its objectives and win the hearts and minds of voters, bearing in mind it has limited powers over tax policy:

• The £155m released from the UK child cap budget decision has already been committed to other child poverty policies. This could be redeployed by simply increasing the Scottish Child Payment, or used to fund specific projects.
• Increase the starter rate and basic rate taxable income thresholds by inflation, while freezing the intermediate, higher, advanced and top rate thresholds. This would help meet the Scottish Government’s commitment to most taxpayers in Scotland to pay less tax than their UK peers. Tax revenues could rise by stealth for those who move beyond the basic rate threshold of £27,491.
• The funding issues of universities and colleges in Scotland have been well publicised, so something needs to be done to ensure the sustainability of our world class further education system. Therefore, the introduction of some form of means testing for funded further education places would not be surprising, given the cost associated with funded university places, now believed to be in the region of £900m.

What could be considered to support Scotland’s economy?

• Residential construction activity remains low, which is hurting the construction sector and putting pressure on housing stock supply. Consumer behaviour is also changing, with younger generations preferring to rent rather than buy. We therefore need to find a way of incentivising housebuilders to build for investors to acquire build to rent stock. This could come in the form of alleviating the burden of the additional dwelling supplement for Land & Buildings Transaction Tax, or perhaps providing some form of LBTT (Land Building Transaction Tax) relief on the acquisition of land or buildings that will be repurposed for rental housing.
• The business rates revaluation, due in April 2026, appears, according to the Scottish Hospitality Group, to have a disproportionate impact on hospitality venues. This industry is hugely important to Scotland, but is struggling with rising employment and business rates costs. A form of rates relief for hospitality businesses could go a long way to ensuring sustainability of an industry that contributes significantly to the public purse.
• To gain control of an escalating welfare bill, the government could consider redeploying some of this funding to attract investment which could create productivity and jobs. Scotland still has a productivity gap compared to the rest of the UK, and a disproportionate reliance on the public sector and public purse. Providing incentives for businesses to establish themselves in Scotland, while providing a proportion of jobs, with associated training, to those who are out of work will upskill and increase Scotland’s workforce. This would increase the number of taxpayers while decreasing the welfare bill.

The Scottish Government has limited tax policy levers to play with, given the limitations on the devolution of powers. This will very likely mean the 13 January budget is primarily about spending policy choices, as there is not a lot of room for manoeuvre to create more tax receipts in the short term.

Many would like to see spending dedicated to projects that will be catalysts for future productivity and increasing the tax base. The likelihood is that this draft budget will be similar to previous draft budgets, with minor alterations to tax thresholds, and some shuffling of the spend between pots. We are anticipating little in the way of groundbreaking initiatives that will move the productivity dial for Scotland for the future.

Ross Stupart is RSM UK’s regional managing partner for Scotland