Scottish Budget 2025 to 2026: Your Scotland, Your Finances - a guide

Scottish Budget 2025 to 2026: guide

The Scottish Government is accountable to the Scottish Parliament and to the people of Scotland for its use of public money. 

Devolution allows the Scottish Parliament to decide how much money to spend on different policy areas, including: 

• schools 

• hospitals 

• policing 

• certain social security benefits 

• the economy 

• climate change 

• the environment 

Delivery in these areas involves a range of partners including local government, public bodies and the third sector. 

Each year the Scottish Government publishes a balanced budget that sets out the spending plans for the new financial year. The annual Scottish Budget covers each financial year, which runs from 1 April until 31 March.  

The new Scottish Budget was presented to Parliament on Wednesday 4 December 2024. This details Scottish Ministers’ spend proposals for the year ahead and the Scottish Parliament will scrutinise this information through the Scottish Budget Bill. 

The Scottish Government plans to introduce the Bill on 18 December 2024, where it will be scrutinised by the Scottish Parliament. 

The Scottish Budget for 2025 to 2026 has been set at £63.4 billion. A detailed breakdown of spending plans is available on the Scottish Government web site. 

The 2025 to 2026 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 to 2026 block grant settlement only represents an increase of around 1% in real terms against the latest 2024 to 2025 allocation. 

The Budget seeks to balance the immediate pressures of the current financial landscape while delivering our four priorities for the people of Scotland: 

• eradicating child poverty 

• growing the economy 

• tackling the climate emergency  

• ensuring high quality and sustainable public services.  

How the Scottish Budget Works 

The Scottish Budget is a living process that takes place all year round. 

It begins with the publication of the Medium Term Financial Strategy (MTFS), normally in May each year. The MTFS sets the medium-term context for annual budget decisions by presenting the outlooks for funding and spending over a five-year period and the Government’s overall strategy for ensuring the sustainability of public finances. There was no MTFS in May 2024 because of the UK Government General Election. It is expected to return in 2025. 

The Programme for Government is published at the start of each Parliamentary year and sets out the Scottish Government’s objectives and top priorities.  The budget then sets out how the objectives of the Scottish Government will be funded. This year’s Programme for Government: Serving Scotland, outlines key priorities across various sectors to support economic recovery, address inequality, and promote sustainability. 

Spending decisions are informed by forecasts by the Scottish Fiscal Commission (SFC). The SFC provide forecasts of the Scottish economy, tax receipts, social security expenditure and an assessment of Scottish Government’s projections of borrowing twice yearly – once at the MTFS and once at Budget. 

To help understand how the budget might affect different people in Scotland, the Scottish Government also produces the Equality and Fairer Scotland Budget Statement (EFSBS) An additional publication on ‘Distributional Analysis’, shows that our tax and social security system is “progressive” - the higher a household’s income, the greater the share of their income they pay in tax, and the less they receive in social security. 

The Scottish Government sets out its spending plans in the Scottish Budget and the introduction of a Budget Bill each December. Once the Budget Bill is introduced to Parliament, it goes through 3 stages before coming into effect: 

• Stage 1: debate on the general principles of the Bill 

• Stage 2: changes to the Bill are suggested by Scottish Government Ministers 

• Stage 3: MSPs decide on any further changes proposed by Scottish Government 

• Ministers vote on whether to pass the Bill. 

The Budget is then amended during the year via the Autumn and Spring budget revisions. This supports financial scrutiny and allows the Scottish Parliament to authorise any changes to the Budget Act. 

More information on the Scottish Budget process is available. 

How the Scottish Budget is funded 

The Scottish Budget is funded through a combination of the Scottish block grant (annual funding from the UK Government), taxes raised in Scotland and limited borrowing powers. 

The Scottish block grant is annual funding from the UK government, which is effectively a share of funds raised through UK-wide taxes. This is calculated using the Barnett formula, which allocates the Scottish Government a share of total comparable UK spending on devolved areas based on Scotland’s share of the UK population. This usually sits just below 10%. This funding is received as a whole for Scottish Ministers to determine how best to utilise the funds. 

This funding is then added to the devolved tax income raised in Scotland to fund spending on devolved public services in Scotland. 

The Fiscal Framework is an agreement between the Scottish and United Kingdom governments, which details how Scotland must manage its funding. This includes limits on borrowing powers and on the use of a reserve to transfer funding between financial years. The agreement also details the arrangements for the adjustments made to the Scottish block grant, to account for the devolution of certain tax and social security powers – these are called ‘Block Grant Adjustments.’ 

An updated Fiscal Framework was agreed in August 2023 by the Scottish and UK Government. 

2025 to 2026 Scottish Tax – Raised in Scotland, Spent in Scotland 

The Scottish Parliament has the power to set the rates and bands of Income Tax paid by Scottish taxpayers on non-savings and non-dividend income. This is income earned through employment, self-employment, pensions or property. 

Scottish Income Tax is collected by HMRC and the money raised through the tax is then transferred to the Scottish Government. 

There are three taxes in operation that are fully devolved and are set by the Scottish Parliament. These are: 

• Non-Domestic Rates (NDR), often referred to as ‘business rates,’ are a tax paid on non-residential property. Current NDR rates 

• Land and Buildings Transaction Tax (LBTT) is a tax payable on land and property transactions in Scotland over a certain value. Current LBTT rates 

• Scottish Landfill Tax (SLfT) is a tax on the disposal of waste to landfill. The tax provides a financial incentive to reduce the amount of waste going to landfill. Current SLfT rates 

Our animated video, ‘Raised in Scotland. Spent in Scotland.’ summarises how tax revenues contribute to the Scottish Budget. 

Approach to Taxation 

Scotland's Tax Strategy: Building on our Tax Principles sets out our approach to taxation, building on our Framework for Tax published in 2021. The priorities set out in the Tax Strategy will enable us to deliver tax policy which considers the whole tax system, informed by a programme of evidence and evaluation. Our approach to taxation is also founded upon engagement with stakeholders. This allows us to understand and consider a wide range of views, including from the general public, when designing tax policy. 

Our progressive tax policies are designed to support those on lower and middle incomes, and our Tax Strategy sets out how we aim to provide a more stable tax system which allows taxpayers to better manage their finances and helps businesses to plan and make investment decisions with confidence.  

The priorities included in the Strategy will ensure Scotland’s tax system continues to raise the revenues needed to support Scotland’s economy, invest in vital public services, including the NHS and eradicate child poverty. 

Proposed Scottish Income Tax policy for 2025 to 2026 

Proposed Bands	Band name	Rate (%)
£12,571*- £15,397	Starter Rate	19
£15,398 - £27,491	Scottish Basic Rate	20
£27,492 - £43,662	Intermediate Rate	21
£43,663 - £75,000	Higher Rate	42
£75,001 - £125,140**	Advanced Rate	45
Above £125,140**	Top Rate	48

* assumes individuals are in receipt of the Standard UK Personal Allowance. 
** those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000. 

2025 to 2026 Scottish Budget 

Total spending plans, at a glance 

The approximate planned expenditure for each group of policy areas (known as portfolios) across the Scottish Government is shown below. 

Each portfolio supports Scottish Ministers in the delivery of our Programme for Government, and national outcomes for Scotland as set out in the National Performance Framework 

Scottish Government Portfolio	Total Expenditure
Health & Social Care  Finance & Local Government  Social Justice  Education & Skills  Justice & Home Affairs  Transport  Deputy First Minister, Economy & Gaelic  Rural Affairs, Land Reform & Islands  New Zero & Energy  Constitution, External Affairs & Culture  Crown Office & Procurator Fiscal Service	£21.7 billion  £16.9 billion  £8.2 billion  £4.2 billion  £4.2 billion  £4.0 billion  £1.3 billion  £1.1 billion  £899.6 million  £375.7 million  £249.1 million

The Scottish Budget also includes funding for the Scottish Parliament and for Audit Scotland, which totals around £149 million. 

Key Policy Measures 

This Budget will centre on this government’s priorities to: 

• eradicate child poverty 

• grow the economy 

• tackle the climate emergency 

• ensure high quality and sustainable public services. 

Through this Budget we will: 

• deliver a record investment of £21 billion in health and social care, including an increase in our capital spending power of £139 million from 2024-25. 

• 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; 

• commit 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; 

• provide £768 million for affordable homes, enabling over 8,000 new properties for social rent, mid-market rent and low-cost home ownership to be built this coming year; 

• restore a universal winter heating payment to every pensioner household; 

• develop the systems necessary to effectively scrap the impact of the two child cap in 2026; 

• raise the basic and intermediate tax thresholds by 3.5%, effectively twice the rate of inflation; 

• allocate £25 million to increase the number of jobs available in the green energy supply chain here in Scotland; 

• deliver £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; 

• maintain £4 million of support to reflect the higher costs of delivering services in our island communities. This Budget also provides enhanced revenue support for ferry services operated by councils, along with £20 million one-off capital funding for Orkney Islands Council and Shetland Islands Council to enable them to sustain and improve inter-island connectivity; 

• invest in early learning and childcare. Our investment of almost £1 billion will ensure that all staff in the sector are paid at least the real living wage from April. It will also support the ongoing provision of 1,140 hours of affordable, high-quality early learning and childcare services to all 3- and 4-year-olds, and eligible 2-year-olds; 

• deliver a £34 million uplift to the culture budget this year; 

• take forward concrete action on climate change, including £40 million of funding to local government for a climate emergency fund. 

This Budget is also affordable, and sustainable. We have balanced the Budget every year for the past 14 years in government, and this Budget will be balanced as well. 

It is because of our prudent management of the public finances that this Budget can afford to allocate over £300 million of ScotWind revenues to investments in Scotland. The benefits of this will be felt by local communities directly, right across the country, for generations to come.