Analysis: The Scottish Budget 2026

Crowd-pleasing headline measures such as raising income tax thresholds on the basic and intermediate rates, a range of initiatives to support families, and tax increases on the super-rich all show the SNP Government playing to the gallery ahead of polling day in May and attempting to steal a march on opponents.

 

In reality, raising income tax thresholds will put only a very small amount of extra cash in the pockets of people in the lower half of the income distribution, but that hardly matters; it punctures the key opposition attack line that people are more heavily taxed in Scotland than in other parts of the UK and it sends a signal that the Scottish Government is listening to those on low and middle incomes struggling with the cost-of living. The SNP can now go into an election pointing out that most people in Scotland actually pay less tax than in England. 

 

But if we look under the bonnet of the Scottish public finances the picture is a lot less rosy.   With a flatlining economy, lowered revenue forecasts, a sharply rising public sector wage bill, and a structural deficit, huge pressures remain. The Finance Minister has only limited room for manoeuvre and has had to make some unpalatable cuts as well as kicking some difficult decisions down the road beyond the elections.

 

Shona Robison’s trick yesterday was to downplay speculation about pre-election giveaways and keep her powder dry (in stark contrast to the debacle of the last UK Budget, which had unravelled before the Chancellor had even stood up in the Commons thanks to inept pre-briefing).  By keeping expectations low and remaining tight-lipped about the Budget’s headline measures, the Scottish Government was able to spring a couple of surprise announcements yesterday that left their opponents off-balance and grappling for a convincing news line.

 

The main announcement for business was a substantial £320million package of Non-domestic Rates relief, including support for the hard-pressed hospitality and retail sectors. The measure has received a cautious welcome from business organisations, but they have pointed out that it does not address the underlying flaws within the rating system, even though it offers some immediate and much-needed respite to those most disadvantaged by existing arrangements.  

 

Breakfast clubs in primary schools were another key announcement that will support businesses as well as families. Pre- and after-school childcare has been a casualty of the squeeze in local authority spending in many parts of Scotland over recent years, with private providers unable to meet demand from working parents. Breakfast clubs in primary schools will be a gamechanger for parents who cannot currently leave for work until after drop-off.

 

For employers, an expansion of the workforce and improved labour market participation could potentially help them address skills shortages and support their ongoing efforts to get people ‘back to the office’ post-pandemic. It’s a win-win, for parents, employers and the economy more widely, demonstrating that effective policies need not have huge price tags.  

 

While the big questions around the sustainability of Scotland’s public finances remain unanswered by yesterday’s budget, the SNP may feel it landed as well as it could, given the tight constraints. Notwithstanding that budgets have a habit of biting back once commentators have had a chance to digest them properly, the headline measures announced yesterday are designed to appeal to the voters the SNP needs to motivate in May.

 

Incumbency is very double-edged for a government that has been in power a long time. The SNP may have Reform to thank for their current lead in the polls as voters disillusioned with Labour’s UK performance and disaffected Tories drift away from their traditional political homes -- but presenting themselves as ‘the least worst option’ is a lacklustre offer to a weary and sceptical electorate.

 

No doubt John Swinney will play to his strength as an experienced safe pair of hands over the coming months, but he also needs to be seen as Scotland’s champion, attuned to public needs and sentiments. Yesterday’s budget attempted to reposition the SNP in that keenly contested centre ground, but it papered over a lot of cracks that will become ever-more apparent during the forthcoming election campaign and beyond.