Shona Robison unveiled her budget with a commitment to scrap the two-child benefit cap in 2026.

The Finance Secretary dared Labour not back the measure which the government believes could potentially lift 15,000 children in Scotland out of poverty.

However, the Scottish Fiscal Commission warned it could end up costing more than £200 million and may require cuts in other areas. 

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The body, responsible for providing forecasts for Scotland's taxes, social security, and GDP to ministers, ultimately setting the envelope for the budget, said they had been unable to properly cost the proposal as the Scottish Government did not tell them about the plan until “a week and a day after the deadline for final policy measures.”

An “initial illustrative analysis” by the watchdog suggests it could cost around £150m in 2026-27, potentially exceeding £200m by 2029-30.

Meanwhile, the Institute For Fiscal Studies said they thought the cost could be closer to £300m.

Speaking to journalists in Holyrood, Ms Robison said she did not accept the figures and that the government believed it would come in around £100m. 

"We want to get rid of it because we think it's wrong. We want the UK Labour government to act, and we've called on them to do so, but we think this is an important investment."

Asked why the Scottish Government had decided to spend money mitigating the two-child cap, which will involve money being spent on a technical build and some administration costs, rather than increasing the Scottish Child Payment, Ms Robison said it was because they believed the limit was "inherently wrong."

She added: "But we also know that some of the deep-rooted poverty lies in those larger families who are really struggling. And the impact of this policy being introduced has impacted on the most vulnerable families, and we think we've got to support those families to help them out of poverty.

"So of course, these are choices that we make. We think this is the right choice because it will impact on the poorest families."

 The cap means that across the UK households claiming child tax credit or universal credit are unable to claim for a third or subsequent child.

However, there is an exemption for families where a third child is the result of “non-consensual conception.”

There have long been splits in Labour over the policy.  One of Sir Keir Starmer’s first rebellions as Prime Minister came when in July seven of his backbenchers supported an SNP amendment to the King’s Speech calling for the limit to be axed.

Scottish Labour has previously made their opposition to the cap known, with Anas Sarwar describing the policy as "heinous" and calling for it to be scrapped.

However, he has always argued that doing so depends on the state of the economy.

In the chamber, Ms Robison urged Labour MSPs to back the budget. 

She added: "My challenge to Labour is to work with us. Join us in ending the cap in Scotland. Give us the information that we need but either way, let me be crystal clear, this government is ending the two-child cap."

A Labour source said it was unlikely they would back the Budget Bill when MPs come to vote on it next month. They also pointed out there was no real detail about the mitigation provided by the Scottish Government.  

"There's nothing concrete and until there's some more detail, it sits beside previous broken SNP promises on free school meal deals, and the poverty-related attainment gap," they said.

In their analysis, the Fraser of Allander Institute suggested the Scottish Government had an "eye on the election" with the budget. 

Joao Sousa, Deputy Director of the independent research institute, said: "This was clearly a late addition, and one which has not been included in their own or the Scottish Fiscal Commission’s analysis – though it might cost as much as £200m a year.

"The Scottish Government will be hoping this is brought in UK-wide before they have to fund it – a heavily caveated 2026 was mooted as the start date, but it can take the moral high ground in the meantime."

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Elsewhere in the budget, Ms Robison also increased the Basic and Intermediate rate thresholds of income tax.

That will mean anyone earning less than £30,318 will pay less tax than someone south of the border. 

The minister also announced business rates relief for pubs and restaurants, though nothing for small retail and leisure businesses.

Other key measures in the budget included £2bn for NHS spending, which includes money for new specialist long Covid nurses and improved community support for teenage mental health, as well as replacement hospitals in Airdrie and Fort William, along with a new eye hospital in Edinburgh.

There was also over £15bn for local government, including £289m for the General Revenue Grant, which councils

Ms Robison told MSPs that it meant there was "no reason for big increases in Council Tax next year."

There was also a £768m boost to the affordable homes budget, effectively reversing last year’s £200m cut. Ms Robison said this will see more than 8,000 new homes built or acquired over the coming year.

Education spending increased by 3% with new funding for breakfast clubs in primary schools and a £34m uplift for culture in 2025-26. 

The 2025-26 Scottish Budget outlines a multi-year pay policy for public sector workers, aiming to balance affordability and fairness with the need to attract and retain a skilled workforce. The budget recognizes the significance of public sector pay, noting that it accounts for over half of the entire Scottish resource budget12.

Ms Robison also announced an above inflation public sector pay hike of 9% over three years.

Employers and trade unions will have the flexibility to negotiate how the increase is structured for each pay deal, though there is the expectation that three-year pay deals are agreed.

John Swinney’s government is three MSPs short of a majority and the First Minister needs an opposition party to either back him or at the very least, abstain. 

The budget included new money for island communities, including a dedicated funding increase for the four councils operating ferry services. 

There was also a one-off £20m capital funding for Orkney Islands Council and Shetland Islands Council to bolster inter-island connectivity. 

That could be enough to win over the two Lib Dem MSPs who represent the Northern Isles. 

(Image: PA)

Scottish Liberal Democrat leader Alex Cole-Hamilton welcomed measures such as funding for GPs, dentists and mental health.

But he said: “Let me be clear, this does not guarantee our support. As with all budgets, the devil will be in the detail and we will be looking closely at that.”

Scottish Green finance spokesman Ross Greer said “significant further changes” will be needed before his party can vote the budget through.

Scottish Conservative shadow social security secretary Liz Smith defended the two-child cap, saying it was "fair to people who are struggling and to taxpayers who pick up the bill."

“We believe the two-child cap is necessary and the right approach at this time. The rapidly rising benefits bill is currently unsustainable as a direct consequence of the SNP’s high tax rates and mismanagement of our economy and public finances,” she added. 

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Scottish Labour finance spokesman Michael Marra said the Budget contained “no reform, no vision, no plan.”

He added: “Scotland is going in the wrong direction because of the SNP.

“Almost one in six Scots are on an NHS waiting list, schools falling further behind, a national housing emergency, growth lagging behind the rest of the UK. Every Scottish institution is weaker.

“It is not enough just to try and correct the mistakes made last year by putting back the money that was slashed in the budget itself, or in the cuts chaos of the now annual SNP emergency budget.

“This Budget amounts to more of the same, sending Scotland ever faster in the wrong direction.”

In their assessment, the SFC forecast a 0.3% real-terms decline in resource funding for 2025-26, after accounting for inflation and a substantial increase in social security spending.

The Finance Secretary was helped by the higher-than-expected tax revenue forecasts. The SFC projects income tax revenue to reach £20,477m in 2025-26, a 3% increase from their December 2023 forecast. 

Following the announcements in Rachel Reeves' budget, the Block Grant for capital spending grew by 10.1% between 2024‑25 and 2025‑26, whereas previously it was expected to fall.

The SFC say that day-to-day spending has increased by £1.4bn in 2024‑25 and there is a further increase of £1.5bn in 2025-26.
 
While the SFC says the Scottish Government will receive some compensation from the UK Government for the changes to employer National Insurance Contributions, the larger share of spending on public sector wages in Scotland means the full cost "is unlikely to be covered," which will "increase the pressure from staff costs within individual portfolios."

The Commission’s Chair, Professor Graeme Roy, said: "The Scottish Government has benefited from significant extra funding from Rachel Reeves’ Autumn Budget.

"However, the consequences of much stronger income tax revenues elsewhere in the UK affecting the net tax position, combined with ongoing pressures from a rising pay bill and increased commitments on social security, continue to act as a binding constraint on the Scottish Government’s broader spending decisions.
 
"There is a significant increase in capital spending in 2025-26 allowing the Scottish Government to restart paused capital projects and make some new commitments.

"But day-to-day spending remains constrained with much of the Government’s extra headroom for this year and next taken up by existing commitments and new measures that lock in longer-term fiscal costs."