Scottish Budget 2025/26: Winners and Losers
On 4 December 2024, Scottish Finance Secretary Shona Robison unveiled Scotland’s budget for the upcoming fiscal year. The announcement, delivered at Holyrood, outlined the Scottish Government’s spending plans and budgetary strategies for 2025/26.
In last month’s UK Autumn Budget 2024, Chancellor of the Exchequer Rachel Reeves announced that the Scottish Government would receive £47.7bn in 2025/26 – the largest settlement in real terms since Scottish devolution in 1999. The sum includes a £3.4bn top-up through the Barnett formula, with £2.8bn for day-to-day spending, and a further £610m for capital investment.
In her opening statement, Robison noted that this budget ‘invests in public services, lifts children out of poverty, acts in the face of the climate emergency, and supports jobs and economic growth.’
Below we outline who stands to benefit from these new fiscal measures and who may be negatively affected by Scotland’s spending plans. Read on to learn more.
The winners
NHS Scotland
The 2024 UK Autumn Budget allocated an extra £1.5bn to NHS Scotland this financial year and £3.4bn next year to ensure that essential resources reach frontline services.
The Finance Secretary opened the budget with confirmation that a total of £21bn would go towards Scottish health and social care this fiscal year. NHS services will receive £200m to help reduce waiting times, improve capacity and remove inefficiencies.
Council workers and local authorities
Robison added that the Scottish Government would provide £15bn in funding for local authorities, an increase of more than £1bn.
This includes £289m to provide real-term protection for general revenue. It will also support pay increases for key public service workers like teachers, social care workers, refuse collectors, and real living wages for staff in early learning and childcare starting from April 2025.
The Finance Secretary added that these investments would not result in major council tax increases next year.
Young and low-income workers
People on low income are set to receive a substantial pay rise after Rachel Reeves confirmed that the National Living Wage would increase from £11.44 to £12.21 from April 2025. The National Minimum Wage for 18 to 20-year-olds will also rise from £8.60 to £10.
In an extra win for low-income workers in Scotland, the Finance Secretary confirmed that the Scottish Government wouldn’t introduce any new income tax bands in 2025/26 and that rates would remain frozen for the remainder of this Parliament.
Robison said that the Basic and Intermediate rate thresholds will increase by 3.5% (effectively twice the rate of inflation), enhancing tax support for low- and medium-income earners.
Families on Universal Credit and those claiming benefits
Changes to Universal Credit will reduce the maximum level of debt repayments deducted from monthly payments, benefitting families by approximately £420 per year. Additionally, around 1.7 million families in Scotland will see their working age benefits uprated in line with inflation, resulting in an average gain of £150 in 2025/26. These measures collectively aim to provide relief to households facing ongoing financial challenges.
Robison also pledged to mitigate the two-child benefits cap for families with more than two children claiming financial support. The Finance Secretary said that this measure would help to lift more than 100,000 Scottish children out of poverty.
The arts and culture sector
The Finance Secretary also revealed a sweeping £34m uplift in the arts and culture budget, bringing the total to £100m in 2025/26. She added that, after two years and subject to the regular budget processes, the Scottish government also aimed to deliver a further £20m to the arts and culture sector on top of this sum.
Renewable energy companies
Robison pledged to nearly triple investment in offshore wind farms to £150m next year in a bid to leverage private funding of £1.5bn in infrastructure and manufacturing facilities critical to growing the sector.
The commitment is part of Scotland’s plan to invest up to £500m in offshore wind over the next five years. This significant investment is designed to boost Scotland’s position in the renewable energy market and attract further private sector involvement.
The budget also allocates nearly £125m for Great British Energy and support for hydrogen projects. This funding is expected to stimulate growth for renewable energy companies focused on improving sustainable practices, further diversifying Scotland’s green energy portfolio.
The losers
Wealthy individuals
Rachel Reeves confirmed that Capital Gains Tax will increase from 10% to 18% for those paying the lower rate and from 20% to 24% for those paying the higher rate.
Additionally, the tax treatment of carried interest will be reformed by first increasing the Capital Gains Tax rates on carried interest to 32%. From April 2026, it will move to a revised regime with bespoke rules to reflect the characteristics of the reward.
Farmers
The UK Autumn Budget includes agricultural property relief and business property relief reforms from April 2026 which will significantly impact Scottish farmers. While the highest relief rate will continue at 100% for the first £1m of combined business and agricultural assets, it will reduce to 50% after that threshold.
This reform is expected to affect the wealthiest 2,000 estates each year and may put additional financial strain on farmers exceeding the £1m threshold. Overall, these changes in inheritance tax relief are predicted to raise £2bn.
However, in a contrasting move to the UK Government’s announcements, Robison confirmed significant support for the agricultural sector. Over £660m will be allocated to support the crucial contribution of Scotland’s farmers, crofters and the wider rural economy, a move designed to provide financial relief and support for the Scottish agricultural community amidst the changing tax landscape.
Small businesses
The increase in employers’ National Insurance Contributions announced in the UK Autumn Budget could impact small businesses in Scotland. The employers’ rate will increase to 15% and the Secondary Threshold – the point at which employers start paying National Insurance on an employee’s salary – will reduce from £9,100 per year to £5,000 per year.
The Employment Allowance will increase to from £5,000 to £10,500, protecting the smallest businesses. But these additional financial burdens could hinder growth and investment potential for local enterprises already navigating a challenging economic landscape.
What’s next?
The Scottish Budget contains several key changes that are likely to have significant impacts on individuals and businesses across Scotland. There’s a lot of information to process and it may not be immediately clear how the changes set out in the Budget will affect you. If you have any questions about whether you are a winner or a loser from the Scottish Budget, and how it will affect you and your finances, please get in touch.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Approved by The Openwork Partnership on 05/12/2024