Budget boost for Scotland: £3.4bn added to block grant

The new money will be made up of a £2.8bn increase in the resource budget and £610 million for capital investment.

Scottish Finance Secretary Shona Robison welcomed the increase, calling it a "step in the right direction," but warned that around £500m would need to be spent on covering Ms Reeves' hike in employers’ national insurance contributions.

The rate will rise by 1.2 percentage points, from 13.8% to 15% from April next year and the secondary threshold — meaning the level at which employers start paying the tax on each employee’s salary — will also be reduced from £9,100 a year to £5,000.

Employment allowance — which allows companies to reduce their NI liability — is to increase from £5,000 to £10,500.

The Chancellor told the Commons that she did not take the decision lightly but that the measure would raise £25bn a year for the government and help tackle the £22bn “black hole” left by the Tories.

As expected, Ms Reeves also tweaked the government's fiscal rules, allowing her greater flexibility to borrow, resulting in what the Office for Budget Responsibility (OBR) called “one of the largest fiscal loosenings of any fiscal event in recent decades”.

The Chancellor said increasing borrowing by an average of £32.3bn would allow her to spend around £70bn annually over the next five years.

“The only way to improve living standards, and the only way to drive economic growth is to invest, invest, invest,” Ms Reeves said.

“There are no shortcuts, and to deliver that investment, we must restore economic stability and turn the page on the last 14 years.”

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Ms Reeves also announced that tax on non-draught alcoholic drinks would increase by the rate of inflation, prompting criticism from the Scotch Whisky Association, who described it as a "hammer blow" for the industry. 

Mark Kent, chief executive of the group said: “It will damage the Scotch whisky industry, the Scottish economy, and undermines Labour’s commitment to promote ‘Brand Scotland’.” 

Scottish Secretary Ian Murray defended the alcohol duty rise, telling journalists: “We have to balance the books in terms of public spending and indeed settling and stabilising the economy.”

While he accepted the rise had “obviously not been welcomed by the whisky industry”, Mr Murray insisted: “The inflationary increase is the right thing to do in these particular circumstances.”

Darren Jones, Chief Secretary to the Treasury, also defended the decision, saying that "more people having money in their pocket in the UK means they'll hopefully buy more Scotch whisky as well."

There was also criticism from the energy sector, as the Chancellor, as expected, hiked the windfall tax on the profits of oil and gas giants to 38%, extending it to March 2030.

OEUK said it was a "difficult day" for the industry, though there was some recognition that some of the investment allowances would be retained.

In other measures, the Chancellor also announced that the £70m rural growth deal for Argyll and Bute will go ahead.

However, there was uncertainty over some of the previously announced recipients of Levelling Up Funding. 

Mr Jones said the Ministry of Housing, Communities and Local Government and Scotland Office would confirm "on a project by project basis what the budget decisions mean today."

"As a general rule, projects that were already up and running or were in flight are being supported, and the announcements we've made in the budget today are obviously confirmed, but there will be, I'm sure, further project detail that will need to come out in due course."

Ms Reeves also confirmed funding for a green hydrogen project in East Renfrewshire. 

In a surprise move, the Chancellor also froze fuel duty on petrol and diesel for another year.

Meanwhile, VAT on private school fees will, as expected, come in from January next year.

The Chancellor announced a £2.5 billion increase in capital gains tax by increasing the lower rate from 10% to 18% and the higher rate from 20% to 24%.

She also confirmed changes to inheritance tax, including bringing pension pots within the tax from April 2027, and reducing reliefs for agricultural and business property, raising a total of £2 billion a year.

The main rate of corporation tax is to remain at 25% until the next election

A flat rate of duty will be applied on all vaping liquid from October 2026 alongside an additional one-off increase in tobacco duty. 

Draught duty will be cut by 1.7%, knocking a "penny off a pint" in the pub.

Departmental spending increases will be capped at 1.5%, lower than expected. That means some unprotected ministries including the Home Office and Department for Transport will have their budgets squeezed.

There was, however, a substantial increase in Government spending, driven, in part, by £11.8bn compensation for those affected by the infected blood scandal and £1.8bn for postmasters wrongly convicted because of the Post Office's faulty Horizon software.

Ms Reeves told MPs: “This is a moment of fundamental choice for Britain.

“I have made my choices. The responsible choices. To restore stability to our country. To protect working people.

“More teachers in our schools. More appointments in our NHS. More homes being built.

“Fixing the foundations of our economy. Investing in our future. Delivering change. Rebuilding Britain.”

Asked whether she would be “clobbering people year after year” with further tax rises, Ms Reeves told the BBC: “First of all, I made a commitment today that we will only hold one budget a year.

“That’s very different from the previous government who kept coming back every few months with more tax increases, more changes.

“We’re not going to do that, so we will do an annual budget because that will give businesses and families confidence.

“But no, this Budget, the first budget of this Parliament (was) to wipe the slate clean under the Tories’ mismanagement, to fill the black hole that they left for the new Government, and we’ve now done that and we can move forward with confidence.”

Mr Sunak accused Ms Reeves of “fiddling the figures".

“The reason the Chancellor has increased borrowing and increased taxes is because she has totally failed to grip public spending," he said.

Ms Robison praised the Chancellor for the increased investment in public services, infrastructure and tackling poverty.

"This budget is a step in the right direction, but still leaves us facing enormous cost pressures going forwards," she said.

She added: “One Budget doesn’t change 14 years of austerity. That is going to take time and sustained investment in public services.”

The increase in spending will provide a temporary boost to GDP, the Office for Budget Responsibility (OBR) said. 

However, they warned this will “fade to zero” within the next five years.

The UK economy will by 2% next year before falling back to around 1.5%.

They also warned that the Budget measures will also add to pressure on inflation, which they forecast to rise to 2.6% in 2025 “partly due to the direct and indirect impact of the Budget”.

The OBR said average mortgage rates were expected to rise from an average of 3.7% to 4.5% over the next three years, slightly above previous projections.

Paul Johnson, the director of the Insititute for Fiscal Studies (IFS) described the budget as a series of "gambles."

"The first gamble is that a big cash injection for public services over the next two years will be enough to turn performance around, and that many of the temporary spending pressures won’t persist.

"If she’s wrong about that, and spending pressures don’t dissipate after two years, then to avoid cutting unprotected areas she may well need to come back with another round of tax rises in a couple of years’ time – unless she gets lucky on growth."

He said a lot "hinges on how well the government spends the money."

MPs will now spend a number of days debating the budget, before voting to approve them.