Scottish Budget 2024/25: A need to balance the books meant tough decisions

Finance Secretary and Deputy First Minister Shona Robison delivered her first Scottish Budget on 19 December 2023, setting out the Scottish Government’s initial spending and tax proposals for 2024/25.

With the need to balance the books, they faced some difficult financial and political decisions, and Ms. Robison described it as the "toughest" Budget since the creation of the devolved Scottish Parliament in 1999.

The UK Chancellor’s Autumn Statement last month resulted in a projected £540 million extra government funding being available to the Scottish Government. However, this is against a backdrop of a projected £1.465 billion Scottish funding deficit for 2024/25 - caused mainly by the impact of inflation on expenditure, unbudgeted public sector pay deals, and policy announcements (such as a freeze in council taxes), and £100 million additional funding to the Scottish NHS to cut waiting lists.

Key outcomes from the Scottish Budget 2024/25

Changes to income tax for Scottish taxpayers

There is a distinct lack of Christmas cheer for all Scottish taxpayers after it was announced they would be shelling out more to plug the government’s funding gap.

Most of the additional tax take will come from the freezing of the lower tax bands which will pull more taxpayers into paying tax at higher rates as their salaries increase.

There was also the announcement that the Scottish Government is introducing a new tax band in 2024/25. While English and Welsh taxpayers will start to pay income tax at 45% on income above £125,140, Scottish taxpayers will now start paying at this rate on income between £75,000 and £125,140.

Those taxpayers in Scotland earning above £125,140 in 2024/25 will also see their tax rate increase from the current 47% to 48%, which is 3% above English and Welsh taxpayers.

What this will mean for increasing Scottish competitiveness and the ability to attract entrepreneurs and higher paid professionals to Scotland from other parts of the UK is unknown. To mitigate the effect of tax increases, one might expect to see higher rate taxpayers taking more interest in trying to reduce the tax they pay through increasing pension payments, incorporating self-employed businesses to make use of lower dividend tax rates, and companies introducing employee share schemes as part of an employment package to attract key workers.

Ms. Robison stated that the Scottish Government believes those with "the broadest shoulders" should pay a higher tax rate. With the new tax bands and the higher rate threshold being frozen at £43,663 compared to £50,270 in England and Wales, it looks as though Scottish taxpayers will be asked to foot the cost of much of the Scottish Budget deficit.

Changes for Scottish businesses

In the Chancellor’s Autumn Statement, it was announced that the Retail, Hospitality and Leisure (RHL) scheme will be extended for a fifth year into 2024-25, retaining the existing scope and providing eligible properties with 75% relief, up to a cap of £110,000 per business.

Many businesses were calling for the Scottish Government to replicate the 75% discount on business rates, however they will have been left disappointed with the Scottish Budget announcements.

The Scottish Budget will freeze the basic Property Rate at 49.8p in the pound which is charged on properties with a rateable value up to and including £51,000. However, only the hospitality sector in island communities will get additional relief from non-domestic rates at 100%. There were, therefore, no additional immediate reliefs for most of the retail, hospitality, and leisure industries.

There was little within the Scottish Budget to help promote and sustain long term growth of the Scottish economy.

Changes to Scottish public services

The Scottish Finance Secretary announced extra funding for the health service, social security benefits, policing and for the fire service. However, cuts were made to rural affairs, higher education funding, and the housing budgets. The biggest political battleground is likely to be over confirmation of a freeze to council taxes in 2024/25.

Although Ms. Robison announced that this will be fully funded by compensation given to the local authorities of up to an equivalent of a 5% rise in council tax, many local authorities had plans to increase council tax by a higher figure. How this will impact on local services will be subject to much political debate.

The Scottish Government put the social contract with the people of Scotland at the heart of their Budget for 2024/25. It will be interesting to see in the coming months if the Scottish public agree with these priorities or will begin to react negatively over the tax increases and Budget cuts which will impact many of the Scottish population.