13 January 2026
The Scottish Government’s Budget and Spending Review published today contains its tax and spending plans based on forecasts produced by the Scottish Fiscal Commission (SFC).
The Scottish Government’s Medium-Term Financial Strategy published in June 2025 identified significant gaps between spending and funding over the next four years. Since then, there has been a modest increase in funding because of decisions by the Scottish and UK Governments, as well as forecast changes. With limited growth in funding, the Scottish Government is using the flexibilities at its disposal to smooth funding over the next four years of the Spending Review as well as seeking ambitious savings, including through public service reforms, efficiencies, and cuts to the public sector workforce.
The Scottish Government will increase the Income Tax basic and intermediate rate thresholds in 2026‑27, reducing revenues by £50 million in 2026‑27. It has also announced further freezes in the higher rate, advanced rate, and top rate thresholds in 2027‑28 and 2028‑29. The combined effect of the threshold changes is an increase in revenues of £72 million in 2027‑28 and around £200 million from 2028-29 onwards. UK Government policy changes, including its reversal of plans to restrict eligibility for Personal Independence Payment, have also increased the Scottish Government’s funding.
The Scottish Government is using various tools to manage its budget and balance day-to-day and capital funding across the next four years. This includes borrowing, using the Scotland Reserve, transferring some funding from day‑to‑day spending to capital investment, and using £476 million of Crown Estate revenues (which mostly come from the ScotWind leasing programme) to support both capital and day‑to‑day spending.
Day-to-day spending will grow by an average of 1.1 per cent after adjusting for inflation each year to 2030-31. The Scottish Government’s decision to reduce capital funding in 2025‑26 leads to the real terms increase in 2026‑27 being 2.9 per cent. Thereafter there are real terms cuts to funding for investment in all future years.
To help support spending across all portfolios, the Government has announced wide-ranging efficiency savings, workforce reductions and public sector reforms. The publication of these portfolio plans is welcome and builds on commitments made last June. But delivering on these plans will be key to managing future spending pressures.
In addition, the Government still faces the potential for continuing pressures on public sector pay and further growth in demand-led social security payments, as well as the longer-term pressures associated with an ageing population and net zero targets.
The Commission’s Chair, Professor Graeme Roy, said
“The Scottish Government’s Spending Review is a welcome step towards multi-year planning. However, there is still room for providing more detail on spending decisions to allow the public sector to plan for the medium term.
Underpinning the Spending Review are ambitious plans for efficiency savings and reducing the public sector workforce. If and how these plans are delivered will have implications for future public services and shape the fiscal context beyond May’s election.”
ENDS