Scottish Budget for 2025-26: A pivotal moment to align fiscal policies with the needs of individuals and businesses

As Scotland anticipates the forthcoming Scottish Budget on 4 December 2024, stakeholders are keenly observing how the recent fiscal changes announced in the UK’s Autumn Budget will influence Scotland's economic landscape.

The UK Budget allocated an additional £3.4 billion to the Scottish Government through Barnett consequentials, presenting both opportunities and challenges for policymakers.

This funding offers a valuable opportunity to invest strategically in essential areas like infrastructure, education, healthcare, social care, and transport. When allocated effectively, these investments can strengthen Scotland’s economic foundation and create long-term benefits for businesses and communities alike.

Income Tax Alignment

A primary concern among individuals and businesses is the divergence between Scotland's income tax rates and those of the rest of the UK. Currently, Scotland's higher income tax rates have led to perceptions of it being a 'high tax' region, which some businesses argue hampers their ability to attract top talent.

Business Competitiveness and Employment Costs

The UK Budget's increase in the national minimum wage and employers’ National Insurance Contributions (NIC) is set to raise operational costs for Scottish businesses. This escalation may limit wage growth, deter new hiring and potentially lead to redundancies in key sectors. To mitigate these effects, the Scottish Government might consider measures such as targeted tax reliefs or support programmes aimed at sectors most affected by these changes.

Long-Term Tax Strategy

The UK Government's commitment to capping Corporation Tax at 25% and maintaining investment allowances has been welcomed by businesses seeking fiscal stability. In response, there is a call for the Scottish Government to develop a comprehensive tax strategy for devolved taxes that mirrors this long-term approach. Such a strategy would provide businesses with the certainty needed to plan and invest confidently.

Engagement with Business Leaders

Active engagement between the Scottish Government and entrepreneurs is crucial for shaping policies that foster growth and address barriers to business expansion. Understanding the fiscal levers that influence business decisions can lead to more effective policymaking and strengthen the relationship between the government and the business community.

Investment in Skills and Key Sectors

Targeted investments in skills development programmes and support for sectors poised for growth can stimulate job creation and attract private sector investment. Allocating resources to education, training and sector-specific initiatives could enhance Scotland's economic resilience and adaptability.

Business Rates Reform

With Scottish business rates currently higher than those in England, reforming this system could provide relief to brick-and-mortar businesses, particularly in retail, leisure, and hospitality sectors. Adjusting business rates to more equitable levels may help these sectors manage increased employment costs and remain competitive.

Energy sector and sustainability

In the upcoming Scottish Budget, the government may focus on boosting funding for the renewable energy industry, enhancing energy transition initiatives, including help to develop workforce skills and investing in digital and electrical infrastructure. Such measures would help support Scotland’s goal to lead in renewable energy.

Planning and Infrastructure Development

Streamlining the planning process is essential to encourage investment in projects that promote growth, create jobs, and boost housing, especially in major university cities. Aligning with the UK Government's focus on infrastructure development could provide an economic boost for Scotland.