Scottish Budget presents huge challenges for SNP

Scotland's Finance Secretary Shona Robison is under pressure to embark on wide-ranging reforms as she prepares to set out her draft Budget for next year.

Spending watchdog Audit Scotland warns that the NHS is unsustainable in its present state, local authorities want more cash and autonomy, and unions say education is threatened by a lack of teachers.

There are also calls for the SNP to replace the council tax with a new system and to restrict access to "freebies" such as state-funded university tuition.

Robison said the Budget would focus on eradicating child poverty and "tackling the climate emergency" while improving public services and growing the economy.

Her tax-and-spending bill will be scrutinised in the Scottish Parliament over the winter before a vote in February, when she will need support from outside the ranks of the SNP minority administration for it to become law.

The UK government says an extra £3.4bn is available to Robison for this Budget, which covers 2025/26, as a result of decisions made by Chancellor Rachel Reeves in her October Budget at Westminster.

That's because the lion's share of Scottish government funding comes in the form of an annual lump sum from the Treasury known as the block grant, calculated using a formula designed in the 1970s by a Labour politician, Joel Barnett.

But much of the increase has already been swallowed up by Scottish government decisions to raise salaries for public sector workers who, according to the Fraser of Allander Institute at Strathclyde University, are both more numerous per head and, "on average, paid more in Scotland," than those elsewhere in the UK.

The institute's annual budget report says that despite the increases in funding, the settlement for 2025/26 "is still tricky" and the finance secretary "will have limited room for manoeuvre".

Other pressures include the SNP's decision to fund a partial reversal of Reeves’ restriction of winter fuel payments for pensioners, and the impact of Labour’s decision to increase employers' national insurance contributions.

There are also calls for Robison to spend some £220m replicating relief from business rates - a form of property tax - announced by the chancellor for retail, hospitality and leisure firms in England.

"Given that there's no difference in the challenges being faced either side of the border, we think it's really incumbent on the Scottish government to pass on that 40% rates relief," says Stacey Dingwall, head of policy and external affairs for the Federation of Small Businesses Scotland.

Ms Dingwall says the Scottish government also needs to keep its promise to reset relations with business after a net loss of 20,000 small Scottish firms in 2023.

Scotland's total budget last year amounted to some £60bn. The UK government says the block grant for 2025/26 will be £47.7bn.

Ms Robison must balance the books every year as the devolved administration has only limited powers to borrow money.

The remainder of her budget is raised by taxes administered in Edinburgh, such as income tax, land and buildings transaction tax (formerly known as stamp duty), and business rates.

Since devolution in 1999, the Scottish government has been responsible for a wide range of public services, including health, education, policing, justice and housing.

Control of defence, foreign affairs, currency and immigration remains with the UK government.

But, in the quarter of a century since the establishment of the modern Scottish Parliament, extra powers over welfare and taxation have been transferred from London to Edinburgh.

That has seen devolved social security spending jump from £192m in 2018/19 to £5.1bn in 2023/24, according to the Fraser of Allander Institute.

The sharpest divergence from Westminster welfare policy came through the introduction in 2021 of a weekly benefit for low income families, currently £26.70 per child, known as the Scottish Child Payment.

"It is definitely making an impact," says Chris Birt, associate director of the Joseph Rowntree Foundation, who would like the budget to include more investment in social housing; better funding for social care and childcare; and council tax reform.

"Most people don't give a monkey's if services are provided by UK government, Scottish government, health board, council, whatever, they just want that support to be there," says Mr Birt.

"We definitely need to have a much more radical discussion about how we support people, not how we worry about our institutions."

As well as divergence from Westminster on welfare, there has also been a shift on tax policy.

At present anyone earning more than around £29,000 per year in Scotland pays more income tax than their compatriots in England.

Those earning below that threshold pay slightly less, in a system which is now more complex than anywhere else in the UK.

Ms Robison must also consider what to do with council tax after last year's shock decision by then First Minister Humza Yousaf to reintroduce a freeze of the levy.

An extension of that freeze in this year's Budget would be, if anything, an even greater surprise, throwing Yousaf's successor, John Swinney, into a bitter battle with local authority leaders.

It is therefore considered unlikely.

Over their 17 years in power at Holyrood, the SNP have also maintained and expanded the provision of a wide range of state-funded benefits, including personal care for the elderly, university tuition, prescriptions, and bus travel for the youngest and oldest Scots.

Some critics, including Alison Payne, research director with the think tank, Reform Scotland, say this is a poor use of a limited pot of cash.

"Where budgets are tight and you have dwindling resources, you need to have a conversation about whether it is better to target what support you have to those who need it most," says Ms Payne.

But it is the National Health Service which provides the biggest headache for Robison. Not only does it account for 40% of her Budget but it is under extraordinary pressure.

The public spending watchdog, Audit Scotland, says the country's current healthcare delivery model is not sustainable, with a "worsening financial position" and "ongoing performance issues."

Here too there is a call not just for increased funding, or tinkering with existing policy, but for fundamental reform, potentially up to the point of stopping some services.

Ahead of the budget, Scottish Labour said "every institution in Scotland" had "been left weaker by SNP mismanagement and waste."

The Scottish Conservatives accused the SNP of having "failed Scotland by making people pay more while getting less".

Scottish Liberal Democrat leader, Alex Cole-Hamilton, said the SNP "would have to pull out all the stops" to persuade his party to support the budget.

The Scottish Greens said they wanted to see "a progressive budget that invests in tackling the climate crisis and lifting children out of poverty".

The Alba Party urged Swinney to reject any proposals from parties "that want to rip up the social contract that Alex Salmond delivered whilst in office".

Taken together it is all a huge challenge for Robison and her boss, John Swinney, who has promised to guide Scotland out of "a long, dark winter" into the "warmth of spring".