What to look out for in the UK budget for Scotland

There have been many reports around expected tax rises and spending cuts in this announcement and Ms Reeves has said she has now identified a £40 billion funding gap she needs to fill. 

Many of the decisions announced at 12.30 tomorrow (Wednesday 30th October) will impact Scotland, so let’s take a look at what we know already and what we might expect from the Budget for those north of the Border. 

What can we expect in terms of tax? 

 The chancellor is expected to increase employer contributions to national insurance (ENI) by at least one percentage point, impacting Scottish workers. Ms Reeves is also expected to use Wednesday's Budget to lower the threshold for when employers start paying the tax - with the two measures combined to raise about £20bn.

Capital gains tax, inheritance tax and pension tax are not devolved to Holyrood so any changes made here would apply in Scotland. What we know so far is that these may rise. 

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Reports suggest capital gains tax, paid on the proceeds from selling an asset, could go up. Changes could be applied to shares or other chargeable assets. Ms Reeves is also reportedly considering changes to inheritance tax, which could include extending the number of years someone has to stay alive after passing on wealth as a gift from seven to 10 years.  

Fuel duty, which is included in the price motorists pay for petrol at the pump, is also one to watch out for north of the border as any change would affect the whole of the UK. The tax on motor fuels was frozen by the Tories between 2010 and 2022, and then cut by 5p to 52.95p per litre, where it remains.

Changes to tax allowances for the oil and gas industry - an important one for the sector in the North East of Scotland - would apply across the country as well.  Industry bosses have been lobbying to prevent any stop to investment allowances as they say this would accelerate the sector’s long-term decline and lead to job losses and imported energy. 

From January, the Government plans to remove the VAT exemption and business rates relief for private schools to enable funding for 6,500 new teachers in state schools. The head teacher of one of Edinburgh’s biggest private schools - Stewart Melville - warned there is  "absolute fear" from parents about fee increases once the changes take effect next year.

Cuts that would impact Scotland 

Any decisions made by the UK Government on benefits impacting those unable to work due to long-term illness will impact those in Scotland. Labour plans to cut £3 billion from the welfare bill which could see up to 45,000 Scots lose as much as £4,681 a year, according to new figures from the House of Commons Library. 

Ms Reeves is expected to  announce a shake up to the Work Capability Assessment (WCA) in tomorrow's budget as she is reportedly set to announce that she will push ahead with Tory reforms to tighten up the evaluation of how a person's health or disability affects their ability to work. While the Scottish government has devolved power over disability benefits, changes in Universal Credit and statutory sick pay would apply throughout the UK. The Department of Work and Pensions (DWP) has estimated that the overhauling of the WCA for benefits like Universal Credit and Employment and Support Allowance could impact around 450,000 people across the UK.

And it’s not just reserved powers to look out for. Any budget changes to departments such as health, education, justice and transport (all devolved) will affect Scotland as they get a fixed share of money from Westminster. 

More school buildings and council housing has already been confirmed for England. Some £1.4 billion has been announced already to rebuild crumbling schools, as well as a tripling of investment in free breakfast clubs, £1.8 billion for the expansion of Government-funded childcare, and £44 million to support kinship and foster carers. Money for the NHS and prisons is also expected to rise. These increases would feed through into the block grant to Holyrood. However, it is then up to MSPs to decide where funding is allocated. 

Perks in the UK budget for Scotland? 

There could be an end to the two-child limit on family benefits. Although it would come at a significant cost for the UK Government, the policy has caused a lot of outrage and discomfort for the Labour party. 

As another offer of positivity, the chancellor could look at increasing statutory minimum wage. Yet as employers face higher costs for National Insurance Contributions - ladling them with another cost might not be tempting. 

The Scottish Government budget comes next 

After the Chancellor has presented her budget speech tomorrow afternoon, the Office for Budget Responsibility will hand the Scottish Government a figure it can expect to receive in the block grant from Westminster for 2025-2026. 

Scotland’s Finance Secretary Shona Robison will then have until December 4 - when the Scottish Government budget is due - to allocate that and consider other sources of revenue such as Scottish income tax so that she can lay out her financial plan for the coming year. 

As a minority administration, the Scottish Government must win over support from opposition parties by February 2025 to pass its budget. If they do not, an early election could be called.