Scottish Budget 2025 to 2026

Chapter 1 Progress for Scotland

1. Introduction: Fiscal context

The 2025‑26 Scottish Budget is set against continued and unprecedented challenges to the public finances. The last 14 years have been characterised by economic turmoil and hardship for many. Prolonged Westminster austerity, the economic damage of Brexit, the COVID‑19 pandemic, the war in Ukraine, and the energy crisis and inflation shock have placed a cumulative pressure on public and household finances over recent years. This Government has been clear with the Scottish Parliament and the public on the extent of challenges – which will not be addressed in a single budget.

Whilst the funding announced at the UK Autumn Budget was a step in the right direction, it was only small progress in the face of the ongoing cost pressures we face. On our resource funding position, the 2025‑26 block grant settlement only represents an increase of around 1% in real terms against the latest 2024‑25 allocation.

At the same time, the drivers of spending growth to ensure the safe delivery of public services and social protection – supporting higher than inflation pay deals, social security investment, demand pressures on the health service – remain significant. There are also further costs and significant new risks to be managed. The UK Government has announced that they will increase employers’ National Insurance Contributions in 2025‑26, which will create additional pressures for the public sector, businesses and the third sector across Scotland. The anticipated cost for public services and organisations delivering public services under agreements is well in excess of £700 million. We will continue to press HM Treasury to fully fund this cost. The Scottish Government will take decisions on the allocation of any consequentials when we receive formal confirmation from HM Treasury.

Looking beyond 2025‑26, whilst we welcome the UK Government’s commitment to hold multi‑year spending reviews, there is no certainty over future funding levels and whether recent growth will be sustained into future years. Indeed, the Office for Budget Responsibility (OBR) note that resource spending in 2025‑26 will only grow by an average of 1.3% in real terms in the years after.^[1] As the Institute for Fiscal Studies note, this is likely to result in “uncomfortably tight settlements for future years”, impacting our future funding.^[2] In Scotland, the investment in social security benefits and payments is forecast to grow by almost £1.5 billion above the funding provided by UK Government by 2029‑30.

On capital, it is welcome that the position appears to be more positive and our block grant position has grown around 7% in real terms on our 2024‑25 position. This is however only restoring funding to 2023‑24 levels in real terms. The latest OBR forecasts following the UK Government’s Autumn Budget also show that by 2028‑29 our UK capital funding is set to increase in real terms by 12.6% in comparison to 2024‑25. This represents a significant change in the UK Government’s capital investment plans but remains insufficient to meet our infrastructure investment needs. We still face significant pressures due to the level of high inflation experienced in the construction sector, which has permanently increased the cost of delivering infrastructure. Across the public sector, there remain significant maintenance backlogs that lead to more inefficient, reactive – rather than preventative – repairs. This Government is committed to using all the levers at our disposal to support the investment required at this Budget, which includes the intention to utilise our full capital borrowing powers in 2025‑26.

Despite the fiscal challenges of recent years, this Government has continued to balance the public finances. We remain committed to doing so as we deliver the 2025‑26 Budget.

2. Delivering for Scotland

This Budget will protect and build on the substantial investments that this Government has already delivered for the people of Scotland. It will protect the social contract at the heart of this Government’s approach: continuing free prescriptions; ensuring that no Scottish student pays tuition fees; access to free bus travel for almost 2.3 million people. It will continue to deliver a social security system based on dignity and respect and an NHS free at the point of use.

But, it will go further, renewing and reinvesting in Scotland. In doing so, it will focus resources across the four priorities set out in the Programme for Government:

• eradicating child poverty
• growing the economy
• tackling the climate emergency
• ensuring high quality and sustainable public services

In total, this Budget will deliver almost £64 billion of funding in 2025‑26 towards these and to ensuring that we continue to protect the policies at the heart of our social contract, including delivering funding for a universal Pension Age Winter Heating Payment, supporting pensioners with their heating bills.

As a result of the progress made to reach a balanced budget in 2024‑25, this total investment will include over £300 million of ScotWind revenues in 2025‑26. We are now in a position to invest ScotWind revenues in a range of projects for longer term benefits for Scotland – to deliver our ambitions to tackle climate change, invest in growing the economy and to create jobs, and to drive forward reform.

Eradicating child poverty

Eradicating child poverty is this Government’s top priority.

The Child Poverty Action Group estimates that because of our policies, low‑income families will be cumulatively £28,000 better off by the time their child turns 18 compared to families across the UK. Our own analysis, published in February, estimates around 100,000 children will be kept out of relative poverty in 2024‑25^[3].

But too many families and households are still struggling and we must ensure that the generational cycle of poverty is broken. We will continue to invest in a range of activity which supports the three drivers of poverty reduction: increasing income from social security and benefits in kind; increasing income from employment; and reducing the cost of living.

We are supporting people through increasing income from social security and benefits in kind by having a social security system that invests in people – prioritising tackling child poverty, creating a fairer Scotland, supporting disabled people to lead full and independent lives, and deliver support that tackles the root causes of inequality. Our investment in social security continues to form a core part of our approach to tackling child poverty to help low‑income families with their living costs. Our total investment in social security is expected to support around 2 million people in 2025‑26.

Our efforts to tackle child poverty are undermined by the social security policies of the UK Government, not least the two child cap. This limit prevents parents from claiming child tax credit or universal credit for more than two children. That’s why in the coming financial year we will develop the systems necessary to effectively scrap the impact of the two child cap in 2026. To that end we have provided funding to develop the delivery mechanism in this Budget and will seek to accelerate the timetable if at all possible.

Successful delivery is contingent on key departments in the UK Government, principally the Department of Work and Pensions, providing the necessary agreement and co‑operation. Our challenge to the UK Government is that if they will not scrap the two child cap at source then they should not be the barrier to us successfully offsetting it in Scotland. This new support could be worth over £3,500 per year to families hit by the cap and, once implemented, could help to lift thousands of children out of poverty in Scotland and reduce the depth of poverty faced by many more. The IFS estimate that if this was mirrored across the UK, mitigation could keep 500,000 children out of poverty by the time it is set to roll out in full.

We are also ensuring more people are supported to work and have stable incomes. It is an economic and social imperative to tackle labour inactivity, supporting people into jobs and helping them progress. This Budget will continue to invest in all‑age employability services delivered through our No One Left Behind Approach, prioritising parental employability support and specialist support for disabled people across all 32 Local Authority areas.

People across Scotland need to have warm, safe and affordable places to live. This is critical to tackling child poverty with too many families still in temporary accommodation. We will ensure that families have secure and affordable homes through our Affordable Housing Supply Programme, with our own analysis estimating that lower social rents benefits approximately 140,000 children in poverty each year.

To further reduce living costs for families, we will continue to ensure children and young people can access their free bus entitlement. This will also support people to fully access work opportunities and education. This Budget will also provide significant investment in energy efficiency measures to eradicate fuel poverty by reducing heating bills.

In this Budget we will:

• invest £768 million for the Affordable Housing Supply Programme in 2025‑26, boosting affordable housing supply across Scotland and enabling housing providers to deliver at least 8,000 homes for social rent, mid‑market rent and low‑cost home ownership. This investment will help tackle the housing emergency while contributing towards our target of 110,000 affordable homes by 2032
• invest almost £800 million more in 2025‑26 in social security benefits compared to 2024‑25. This will bring our total expenditure on devolved benefits to over £6.9 billion for 2025‑26, £1.3 billion more than would have been spent by the UK Government if these benefits had remained reserved. This will include:
  • uprating all benefits in line with September 2024 CPI inflation
  • committing to matching the UK Government by raising the earnings threshold for Carer Support Payment and Carer’s Allowance to £196, which means carers can earn an extra £45 a week whilst receiving these benefits
  • investing in a package of benefits and payments only available in Scotland totalling £644 million in 2025‑26, including the Scottish Child Payment with 356,000 children now forecast to be eligible
• fund the Network Support Grant and concessionary travel schemes by £464 million, continuing to ensure bus services are not withdrawn from our most vulnerable communities and continuing to provide free bus travel for those aged under 22, as well as older people and those with eligible disabilities. We will extend free bus travel to asylum seekers and provide free inter-island ferry travel to children and young people under 22
• continue to invest around £1 billion through the Local Government settlement in continuing to deliver high quality funded early learning and childcare for 3 and 4 year olds, and eligible 2 year olds
• provide £21 million to ensure Early Learning and Childcare and Children’s Social Care staff in private and third sector commissioned services are paid at least the Real Living Wage by April 2025
• provide £8 million investment for the continued development of flexible, affordable childcare for priority families in our Early Adopter Communities, giving families opportunity to seek employment, further improving the living standards for them and their families
• work with local government to deliver on our commitment to expand free school meals provision for Primary 6 and 7 children in receipt of the Scottish Child Payment – supporting circa 25,000 pupils access nutritious and healthy food, backed by investment of £37 million in 2025‑26
• deliver up to £3 million for a Bright Start Breakfasts pilot, which will test the delivery of free breakfast clubs and kick start more breakfast delivery across Scotland. This Budget also continues our investment in additional initiatives to ease the financial pressure on families and learners, such as the School Clothing Grant and the Educational Maintenance Allowances (EMA) which support more young people aged 16 to 19 to continue their learning
• continue to support students with free tuition and provide packages of support for vulnerable higher education students, through bursaries for eligible students, and Education Maintenance Allowance for 16‑19 year olds from low‑income families. This ensures that those who need it most can access and stay in education, improving their life chances and economic outcomes
• invest over £300 million in energy efficiency and clean heat measures which also help to reduce household energy bills on a lasting basis and reduce the cost of living for households
• continue to invest in our employability programmes, providing £90 million to drive our commitment to reduce child poverty through supporting those already in work, help more people back into work and address long term economic inactivity

Growing the economy

Boosting fair, green economic growth is central to the delivery of all our priorities. It improves living standards and outcomes for the people of Scotland and helps increase the tax revenues that enable the delivery of high‑quality public services.

Last year, we made the most of every resource available to us to grow and transform the economy through investment of more than £5 billion across government. This included kickstarting our commitment to invest up to £500 million to facilitate the development of the offshore wind sector and anchor our offshore wind supply chain in Scotland.

The outlook for the Scottish economy is more positive, with the Scottish Fiscal Commission forecasting that overall economic conditions have improved relative to 2023, with growth picking up in the first half of the year and forecast to continue to strengthen into 2025.^[4]

Despite this, the economic outlook is fragile and factors like Brexit and the energy price shock continue to weigh heavily on growth.

Investment in economic renewal is therefore key to our approach. We are focused on Scotland’s long‑term growth and prosperity, with our investments targeted to enable us to make the most of our nation’s many economic opportunities. This is a Budget that will set us up to prosper over these coming years, with public money used to support and encourage higher levels of private investment in key sectors, including energy. We are backing entrepreneurs and innovators, emerging tech including Artificial Intelligence (AI) and robotics, and investing specifically to support growth in local economies.

We can only build a more productive and innovative economy if we invest in infrastructure that delivers high quality public services, build more affordable homes for the families of children living below the poverty line and make decarbonisation a reality. This Budget therefore prioritises major capital investment in the foundations of our economy, such as housing, transport, digital connectivity, and delivering critical infrastructure for a green and growing economy.

Crucially, this will be supported by revenues from ScotWind, illustrating our commitment to ensuring that these revenues are deployed to areas that will have long‑term positive impact in Scotland.

Our strategic investment in offshore wind in 2025‑26 is designed to catalyse private investment in the infrastructure and manufacturing facilities critical to the growth of the sector, as part of our total investment of up to £500 million over five years which is expected to leverage £1.5 billion in private sector investment, supporting thousands of jobs, and helping deliver a sustainable supply chain. This will provide the certainty the market needs to invest further in Scotland’s offshore wind sector, from ports and infrastructure to supply chain manufacturing, maximising economic benefit for all of Scotland for generations to come.

This Budget also ensures that enterprise and innovation are at the heart of our economic strategy, and through investing in an expanded Enterprise Package we will grow our start‑up economy and contribute towards our ambition of establishing Scotland as a top performing start‑up economy. We will also continue to support Scotland’s best start‑ups with world‑class mentoring and commercial education delivered via our Techscaler network.

A stable tax system provides businesses with the confidence to plan and make investment decisions, supporting the conditions needed for a growing economy. In line with our tax strategy, for the remainder of this Parliament, we will provide certainty on our largest source of tax revenue and will not increase the number of bands, or the rates, of Scottish Income Tax. We will also work with businesses across Scotland to understand the cumulative impacts of tax on competitiveness.

This Budget will also continue to support businesses and communities through the non‑domestic rates (NDR) system. This will ensure that over 95% of non‑domestic properties continue to be liable for a lower property tax rate than anywhere else in the UK and that over 100,000 properties are taken out of rates altogether.

The Budget will support small businesses by freezing the Basic Property Rate, which is charged to properties with a rateable value up to and including £51,000, at 49.8p. This delivers the lowest such rate in the UK for the seventh year in a row and is expected to save ratepayers £9 million compared to an inflationary increase which would have delivered a Basic Property Rate of 50.6p. Together with the Small Business Bonus Scheme, this freeze to the Basic Property Rate will protect over 200,000 small properties.

We have listened to the concerns of stakeholders, particularly those in the hospitality industry, who are facing significant financial pressures as a result of staff shortages, high energy prices and the cost‑of‑living crisis. This Budget will maintain the Small Business Bonus Scheme – the most generous small business rates relief in the UK.

It will also offer 40 per cent non‑domestic rates relief in 2025‑26 for hospitality premises liable for the Basic Property Rate (with a rateable value up to and including £51,000), capped at £110,000 per business. Additionally, we will continue to offer 100 per cent non‑domestic rates relief in 2025‑26 for hospitality premises located on islands, as defined by the Islands (Scotland) Act 2018, as well as specified remote areas, capped at £110,000 per business.

Finally, and importantly, the creative industries and rural and visitor economies are vital to growing our economy. They also sustain many of our rural and island communities and ensure the benefits of economic growth are felt across Scotland. This is a Budget that recognises not only the economic benefits of the cultural sector through the creation of new jobs and economic growth but also the significant impact that culture has on people’s lives and wellbeing. A revitalised multi‑million pound Rural Tourism Infrastructure Fund will work side‑by‑side with local partners to identify and complete strategic projects that will improve infrastructure, enhance the visitor experience and encourage increased visitor spend in our rural communities.

In this Budget we will:

• invest a further £200 million (net) to the Scottish National Investment Bank, to ensure continuation and advancement of work to create jobs, support innovation and attract investment. This builds on major investments by the Bank this year such as Ardersier Port
• provide a significant investment in our total infrastructure package totalling over £7 billion. This investment will include:
  • almost tripling our investment in offshore wind to £150 million, advancing our commitment of up to £500 million over five years to support the offshore wind sector
  • expanding Regeneration funding to £62 million to invest in communities across Scotland, including Place Making Lochee in Dundee, Abroath Courthouse Community Centre, Social Entrepreneur Centre in Possilpark, Spartans Youth and Education Building in Pilton, and Glance Urquhart Public Hall in Drumnadrochit and Stranraer town centre regeneration
  • £100 million for the continued rollout of our digital connectivity programmes across Scotland
  • almost £1.1 billion for rail services, rail infrastructure and the maintenance of the network, keeping our country and economy moving. It will allow us to take forward enabling works to replace Scotland’s train fleets and advance our decarbonisation plans, including completion of enhancement and electrification of the East Kilbride line
  • over £237 million invested in maintaining and improving our ports and harbours as well as ensuring that our ferry fleets are resilient to maintain connectivity to our island and rural communities
  • over £550 million investment in critical safety, adaptation, maintenance and improvement priorities for our trunk road network, with £157 million of that progressing major trunk road projects, including the dualling of the A9 and improving the A83
• continue to invest over £2 billion in Scotland’s colleges, universities and skills development programmes in recognition of their contribution to driving economic growth. We are protecting the right to free tuition and driving forward our commitment to Widening Access to encourage more learners to enter, sustain and progress in work
• provide £321 million for the Enterprise Agencies to deliver our programme of support to help Scottish businesses to start and scale, be more productive, and access finance and attract investment. This critical support will enable these companies to develop new products and services, enter new markets and positively impact on their communities
• fund the Enterprise Package by £15 million to expand support for female entrepreneurs and boost the economic impact of universities, and fund the development of business clusters in advanced manufacturing and deeptech
• provide a £34 million uplift for culture, taking the total incremental increase to date to £50 million, reaching the halfway point in our promise to increase funding to culture and the arts by £100 million more a year by 2028 ‑29 . This will improve the resilience and sustainability of our cultural sector’s contribution to growing our economy
• continue to support our island communities to be resilient and successful. Investing more than £6 million in our National Islands Plan. It will deliver community‑led infrastructure projects designed in partnership with islanders to ensure that we address the issues that are most important to them
• provide a fund of £2 million for Visit Scotland to promote Scotland’s connectivity, internationally and to encourage visitors to consider lesser known destinations and the ‘hidden gems’ that our diverse country has to offer
• increase funding across the board from Gaelic Medium Education through to out of school activity and MG ALBA. This will support speaker communities across Scotland, and be a significant boost to economic growth and regeneration in areas of low population
• revitalise and expand the Rural Tourism Infrastructure Fund (RTIF), which will provide critical economic support to tourist hotspots across the country such as Aviemore, Glencoe and Moray
• continue progress towards a bonds issuance, as set out in our Scottish Government Borrowing publication

Tackling the climate emergency

This Budget supports our commitment to scale up renewable energy, restore Scotland’s natural environment, expand our public transport and active travel networks, and support a step change in how we heat our homes. Our investments in tackling the climate emergency will be used to create positive impact, particularly for our growing economy. In 2025‑26, we are committing £4.9 billion of investment with a positive benefit for climate.

Scotland’s biggest contribution to tackling the global climate challenge is, of course, our vast renewable energy resources, our innovation and expertise. Our ambition is for Scotland’s green energy to be central to the decarbonisation of transport and industry at home and abroad, and for our expertise and innovation to be providing climate solutions that are made in Scotland and sold to the world.

The economic opportunities for Scotland are significant. That is why this Budget is investing in measures to tackle the climate emergency in a way that maximizes opportunities to create jobs and provide new economic opportunities for businesses and communities.

Alongside this, to achieve our climate targets, we must support households and communities to reduce their emissions in a way that can save money for households, businesses and the public sector. Our investment in energy and clean heat measures will reduce energy bills for households and businesses on a lasting basis. We will invest in low carbon public transport and active travel, which is fundamental to transitioning to net zero and protecting our planet

Halting and reversing the biodiversity decline on our landscapes and seas is critical in sustaining our natural environment, through our investments in peatlands and woodlands. This Budget also recognises the critical contribution Scotland’s farmers and food producers can make to reduce emissions and deliver biodiversity improvements, returning £20 million of savings utilised in previous Scottish Budgets to the sector through a new transformation scheme; the remainder of these savings will be returned as capital funding in 2026‑27.

In this Budget we will invest:

• over £300 million for the Heat in Buildings Programme, maintaining 2024‑25 levels of investment. This will accelerate energy efficiency upgrades in homes and businesses across the country
• £ 188.7 million in a range of active and sustainable travel measures to make it easier for people to walk, wheel or cycle on everyday journeys and access resilient and efficient bus services
• over £54 million in a range of low carbon programmes, including:
  • continuing to support the electrification of buses via Scotzeb 2
  • supporting local authorities to expand Scotland’s charging network with a fund specifically targeting rural and island communities where there is a shortage of viable charge points
  • a renewed freight facilities grant
  • programmes to support HGV decarbonisation
  • the Transport Just Transition Skills Fund
• almost £ 90 million to protect, maintain and increase our woodlands and peatlands, which will restore more than 15,000 hectares of degraded peatland and ensure the creation of more than 11,000 hectares of woodland across Scotland
• £ 15 million for flood protection
• £ 25 million to support the energy transition, creating jobs across the supply chain
• £ 40 million funding for a climate emergency fund led by local government to target local priorities, funded fully from Scotwind
• over £6 60 million to support Scottish farmers, crofters, land managers and rural communities, helping them to become more sustainable and driving forward work to protect and restore nature and to mitigate and adapt to climate change
• £ 11.4 million in the Community and Renewable Energy Scheme (CARES) budget to support an increase in community owned energy projects, and to provide development funding and support to help communities develop early ideas for projects. This will increase the accessibility of community energy projects and help endure communities see the benefits of our energy transition
• £7. 7 million for Grangemouth to help secure a long term and sustainable future for the site.
• £ 18 million in Nature Restoration Funding

Ensuring high quality and sustainable public services

Public services are an integral part of our daily lives and we remain committed to protecting these through the Budget, building on many years of investments by the Scottish Government. High quality, sustainable public services are crucial in progressing our ambitions of eradicating child poverty, growing the economy, and tackling the climate emergency.

While we have seen success in our public services – the best performing core A&E departments in the UK, record levels of young people progressing on to positive destinations, police recorded crimes at one of the lowest levels since 1974 – we have to do more. We must ensure our public services are able to respond to the challenges we face now and in the future and take forward reform through our 10‑year Public Service Reform programme to ensure the long term financial sustainability of our public services.

Health and Social Care

Health and Social Care services in Scotland are an essential pillar of our public services. We are committed to ensuring that people have access to high quality healthcare when they need it. This Budget will therefore prioritise a significant investment in our health and social care portfolio of £21 billion, including an increase in our capital spending power of £139 million from 2024‑25.

We will work with our partners to ensure that increased investment in our health and social care portfolio delivers on our objectives to improve health outcomes – this includes almost £ 200 million to reduce waiting times and help reduce delays in discharge from hospital. This will help deliver a range of initiatives, including supporting a frailty unit linked to every A&E department to support community re‑enablement, and expanding the hospital and home programme to meet 20% of Scotland’s NHS bed base by December 2026.

These recovery interventions aim to reduce waiting times to ensure that no one is waiting longer than 12 months for a new outpatient appointment or inpatient or daycare treatment by March 2026.

Our commitment to renew our NHS means we will also be seeking to start the work in 2025-26 on delivering new acute facilities. That includes replacing Monklands Hospital in NHS Lanarkshire, replacing the Belford Hospital in NHS Highland, and delivering a new Eye Pavilion elective centre in NHS Lothian.

We will increase capacity and access to Primary Care to shift the balance of care to preventative and community‑based support and substantially reduce delayed discharges by working with local health and social care partnerships.

This work will support further shifts in care from acute to primary and community, investing to help stabilise and enhance primary care to increase preventative activity. One example of these efforts will be to move 20,000 optometry patients out of hospital pathways by December 2026.

Action to support priority groups is a key part of our partnership plans between local government and NHS boards, which will be supported by national policy action on areas including mental health, primary care, public health, drugs and alcohol, all of which will support broader priorities, including eradicating child poverty.

We will provide funding to meet our commitment to fund the real living wage for social care staff. By 2025‑26, this government will have provided almost £2.2 billion investment for social care and integration – delivering on our 2021 Programme for Government commitment to increase social care spending by 25% over this Parliament two years ahead of our original target.

Local Government

Local government is of critical importance to delivering high quality public services. This Budget recognises the importance of local government and has provided local authorities with a package of funding reaching over £15 billion in 2025‑26. This ensures that local government will receive a real terms uplift to the General Revenue Grant on the 2024‑25 Budget allocation and the core local government capital grant will be increased to £556 million.

This Budget also increases the dedicated funding available to the four councils operating their own ferry services to £ 50.3 million, to ensure existing services are maintained while creating resilience to invest in improved connectivity for the future.

Alongside our enhanced revenue support funding, this Budget provides one off capital funding of £20 million for Orkney Islands Council and Shetland Islands Council to enable them to sustain and improve inter‑island connectivity in the way that best meets local needs, whether ferries, flight or fixed links such as tunnels and bridges. It further continues the enhanced £4 million of funding for the differential cost of operating services on islands, in lieu of a formal review of the Special Islands Needs Allowance, for the six councils which benefitted from that funding in 2024-25.

Education, Transport and Justice

This Budget will invest in enabling reform of our schools and lifelong learning systems, supporting the delivery of national infrastructure that will bolster our education system and ensure a vision for Scottish education which encourages all learners‑ regardless of age‑ to achieve their potential. We are delivering modern, state‑of‑the‑art schools through our £2 billion Learning Estate Investment Programme. We are funding increased provision for additional support for learning and we will work with Local Authorities to deliver our shared commitment to maintain teacher numbers, whilst continuing to invest in the Scottish Attainment Challenge.

Through our investments in transport, this budget will create a sustainable, inclusive, safe and accessible transport system which is critical to ensure that everyone in Scotland can access work, leisure and tourism, education and public services including healthcare.

This Budget will also maintain our commitment to supporting and providing practical and emotional support to victims, survivors and witnesses of crime. Our investment in community justice services will continue our shift to the use of more community‑based sentences to help prevent some of the detrimental impacts of prison, which can be particularly acute for children with a family member in custody and help reduce reoffending.

In this Budget we will provide:

• £16.2 billion for Health Boards to deliver front line and other key services. This includes funding to honour our commitments to fair pay settlements for our health workforce
• for those suffering from Long Covid, additional £4.5 million to deliver new specialist support across the country for Long Covid, ME, Chronic Fatigue, and other similar conditions. We will also work with Public Health Scotland to take forward a Respiratory Audit Programme, to inform how services for people with respiratory conditions are cared for
• £3 million to expand the number of Dental trainees in Scotland, to ensure we are training the health staff necessary for the long‑term success of NHS services
• £4 million for the hospice sector, and from 2025-26 we will align the support we provide for pay uplifts in the Hospice sector to the outcomes of the NHS Agenda for Change negotiations. This will ensure that hospices will get the additional funding needed to see their healthcare staff match pay increases with NHS staff
• £125 million to ensure adult social care staff in private and third sector commissioned services are paid the Real Living Wage by April 2025
• commit Learning Estate Investment Programme funding to enable work on the following education premises:
  • Orkney Islands – Kirkwall ASN Centre
  • Shetland Islands – Brae Campus
  • Hazelhead Campus to support a new green school
  • Mull Campus
• over £2.6 billion towards public transport, which will support our bus, rail and ferry services – including enabling works to replace Scotland’s train fleets and procuring new ferries which will support island economies and connectivity
• a total budget of nearly £1 .1 billion to ensure our trunk road network is safe, resilient and efficient, including £112 million to progress the dualling of the A9
• a £158 million uplift to support the Education and Skills Portfolio, including funding to:
  • reform our education bodies
  • additional investment to maintain teacher numbers
  • additional investment in Additional Support for Learning
  • further support delivery of 47 modern, state of the art schools through our Learning Estate Investment Programme by 2027‑28
• investment in our capital infrastructure to deliver vital public services, which includes:
  • continuing work to deliver on Dunfermline Learning Campus
  • £347 million in our prison estate to continue progress to deliver HMP Glasgow and HMP Highland
• £22 million for maintenance across our culture estate, including for the National Gallery of Scotland, National Museum of Scotland and Historic Environment Scotland and a further £8 million to support the Citizens Theatre Glasgow

3. A fiscally sustainable Scotland

Sustainable public finances are essential to delivering on our priorities in the years ahead. It is vital that the UK Government provides clarity on future funding for the Scottish Budget, providing certainty and the necessary foundations to enable us to plan for the future. We welcome the UK Chancellor’s intention to announce the outcome of her multi‑year spending review in the late Spring recognising it will underpin the Scottish Government’s medium term plans. At the same time, we are clear that the Scottish Government needs to act within the levers at its disposal to support a fiscally sustainable future.

As set out in the 2023 Medium Term Financial Strategy^[5], the approach of this Government is supported by three pillars:

• ensuring public money is fully focused on delivering government objectives, underpinned by necessary reform and prioritisation to maximise impact
• focusing on economic policies and actions with the greatest potential to grow and strengthen Scotland’s economy
• ensuring a strategic approach to tax policy, which considers the longer‑term impacts of our tax choices and competitiveness

This Budget progresses action across all three pillars, with focus in 2025‑26 on doubling down on reform and efficiencies across our public sector.

We intend to build on our approach by publishing our Fiscal Sustainability Delivery plan next year, alongside a revised Medium Term Financial Strategy. This will support fiscal transparency and contribute towards providing stable ground for longer‑term financial planning. We are considering options for a Scottish Government Spending Review in 2025, following the conclusion of the UK Government’s multi‑year Spending Review in late Spring.

The Scottish Government is committed to giving Parliament and industry stakeholders as much certainty as possible in relation to our infrastructure investment pipeline. Once the UK Government publishes their Spending Review in Spring 2025, we will have clarity over our UK capital funding envelope for the upcoming five years. This will enable us to review our capital plans in light of the new spending envelope.

Public Service Reform

This Budget prioritises spending towards bringing about the greatest progress on our priorities, whilst progressing vital work to deliver reform of our public services. Our Public Sector Reform (PSR) programme is vital to improving outcomes and achieving sustainable public finances in the longer term. To do that we will focus on early interventions and prevention, moving our system to working with people and communities, understanding their needs and giving them what need to thrive. There is considerable work in this area, as set out in our update to Parliament on PSR progress.

We are delivering on our Programme for Government commitment to taking a whole family approach to delivering support, increasing the impact of our work. This approach, and the actions we are taking alongside this Budget, will support local partners to deliver services that are more responsive to the needs of the families who use them.

This will require collaboration between local, national government and partners, building on the commitments we made in the Verity House agreement a year ago, and the work done since then. We will agree how we can use the funding we put into communities fundamentally differently, pooling money to better deliver common outcomes and reduce poverty, and reshaping how we measure and report impact. This flexibility will be available to all areas who can commit to working with us to change the way we deliver services to families, and who can commit to monitoring that impact on our priority outcomes. Early engagement has already identified tens of millions of existing funding that could be used differently to support this approach. Between now and the start of the Budget year this work will continue, and no funding that supports family outcomes is out of scope for this work.

We must also be efficient and effective in how we deliver public services. We have set out a 10-year programme of PSR to Parliament, with a strong focus on the data, levers and workforce that will drive efficiency. To enable this work, we will deliver an Invest to Save fund in 2025‑26, backed by up to £30 million of funding recognising the need to catalyse efficiency, effectiveness and productivity projects as part of the PSR programme.

We will integrate progress on PSR into the forthcoming Fiscal Sustainability Delivery plan.

Health and social care reform is key element of our approach. Our health and social care services are showing signs of strain in meeting current service demand, with forecasts showing increased demand in future. There are significant challenges for us to navigate collectively in delivering health and social care in Scotland in the years ahead. Aligned with our PSR programme, reform to the delivery of health and social care, as well as a focus on improving population health, prevention and early intervention is a necessity for the future of the NHS. This will improve access to and the quality of our services, and tackle the productivity challenge.

Public sector pay and workforce

The Scottish Government is proud to support our public services and we are committed to maintaining high quality services that people in Scotland need. The most valuable and important asset is our public sector workforce. Spending on workforce pay now accounts for over half of the entire Scottish resource Budget. That reflects the importance we place on having a highly skilled and remunerated workforce.

The 2025‑26 Public Sector Pay Policy sets pay metrics that are fair, sustainable and realistic within a multi‑year pay envelope of 9% over 2025‑26, 2026‑27 and 2027‑28 set against an expected inflation forecast of 7%, ensuring a level of pay restoration. We will provide flexibility for employers to configure three‑year proposals within the 9% pay envelope, provided they have a fiscally sustainable approach. The Policy acknowledges the updated fiscal context following the UK Budget and latest Bank of England inflation forecasts.

Scotland’s public sector is relatively larger and better paid when compared to the rest of the UK. The larger size of the workforce is both in terms of the share of the economy and share of total employment. As the Scottish Government’s Budget is primarily dictated by the levels of spending in the rest of the UK and with relatively more public sector workers in Scotland, as well as higher pay for public sector workers in Scotland on average, this places a structural pressure on our budgets. Actions to support public bodies to workforce plan effectively, including providing guidance on redeployment, will be developed as part of the forthcoming Fiscal Sustainability Delivery plan.

Stability and certainty in our tax system

We have published Scotland’s Tax Strategy: Building on our Tax Principles alongside this Budget. This builds on our Framework for Tax and as a core part of our Medium Term Financial Strategy, sets out our approach to tax over the medium term across the devolved and local tax system.

In line with our tax strategy, for the remainder of this Parliament, we will provide certainty for our largest source of tax revenue and will not introduce any new bands or increase the rates of Scottish Income Tax.

We will also maintain our commitment that more than half of taxpayers will pay less Income Tax in Scotland than in the rest of UK in 2025‑26, and until the end of this Parliament.

Our tax policy decisions in this Budget continue to deliver our progressive approach in Scotland, while raising substantial revenue to support the delivery of our public services, asking those with the broadest shoulders to contribute more. On Income Tax, the Scottish Fiscal Commission estimates that our choices since devolution will raise up to an additional £1.7 billion in 2025-26 compared with if we had matched policy in the rest of the UK.

Our 2025‑26 tax policies are set out in full in the following chapter.

Footnotes

1 Office for Budget Responsibility (2024), Economic and fiscal outlook – CP 1169 (obr.uk) – October 2024

2 Institute for Fiscal Studies (2024), Autumn Budget 2024: initial IFS response | Institute for Fiscal Studies – October 2024

3 Scottish Government (2024), Child poverty cumulative impact assessment: update – February 2024

4 Scottish Fiscal Commission (2024), Fiscal and Economic Forecasts – December 2024

5 Scottish Government (2023), The Scottish Government’s Medium‑Term Financial Strategy – May 2023