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Scotland is set to receive an additional £820 million over the course of the next three years, as revealed by Chancellor Rachel Reeves in the recent UK Budget statement. Among the significant policy changes, Reeves announced the removal of the two-child benefits cap for Universal Credit claimants, a move intended to relieve financial pressure on families. However, the Budget also includes measures that will lead to more Scots paying income tax and National Insurance contributions, alongside new charges on pension savings.
Reeves emphasized the importance of spreading investment benefits evenly across the United Kingdom during her announcement, describing her proposed tax adjustments as “pragmatic.” Prior to the Budget, the Scottish government had called for greater investment in public services and measures to ease the cost of living. In response, SNP Westminster leader Stephen Flynn criticized the Budget, arguing that families are once again burdened by cuts, tax rises, and increasing costs impacting both households and public services.
Several key decisions within the Budget will directly affect Scottish residents. These include the extension of a freeze on National Insurance thresholds until 2028, removal of exemptions on certain pension contributions from 2029, reductions to green energy levies designed to lower household energy costs, and the continuation of the fuel duty freeze until September 2026. Additionally, there will be a new charge based on mileage for electric and plug-in hybrid vehicles starting in 2028, and Universal Credit’s standard allowance will see a 6.1% increase. The Chancellor also confirmed funding of £20 million each for the Inchgreen dry dock in Inverclyde and Kirkcaldy’s town centre and seafront redevelopment projects.
Another critical aspect affecting Scots is the extension of the freeze on UK income tax thresholds until 2030. Although Scotland manages its own income tax rates, the freeze on the personal allowance threshold—the income level at which tax begins to be paid—will have an impact north of the border. This means that as people’s earnings increase, more individuals will cross into taxable income brackets. This change not only reduces take-home pay but also causes an automatic deduction from the block grant transferred to the Scottish government, as the UK Treasury adjusts for projected tax revenues.
The Budget also resolved to abolish the two-child benefits cap, a longstanding policy limiting Universal Credit and tax credit claims to the first two children, which was originally introduced by the Conservative government and maintained by Labour. In announcing this, Reeves stated: “We do not believe that the solution to a broken welfare system is to punish the most vulnerable children.” The Scottish government supports this decision and plans to introduce a Two-Child Limit Payment to affected families from March. It is anticipated that scrapping the cap will save the Scottish government around £155 million in the next financial year, though independent analysis predicts some offsetting costs in subsequent years due to increased eligibility for devolved benefits. First Minister John Swinney has committed any savings to efforts aimed at reducing child poverty.
Reactions to the Budget were mixed. Scottish Labour leader Anas Sarwar welcomed it by highlighting benefits such as reductions in child poverty, lower energy bills, wage increases, and the rejection of austerity measures. He remarked, “Thousands of Scottish children lifted out of poverty, £150 off energy bills, £300 for those most in need, increases in the living wage and £820m extra for the Scottish government.” Conversely, Scottish Conservative leader Russell Findlay criticized the Budget, describing it as a “£26bn tax bombshell” and accusing Labour of targeting workers and businesses.
Looking ahead, the Scottish government is scheduled to announce its own Budget on 13 January, which will detail tax and spending priorities. This later-than-usual date, pushed back due to the delayed UK Budget in November, brings the Scottish Budget close to the Holyrood election in May, promising to be a significant moment in the political campaign. The block grant from the UK Treasury, which funds devolved services such as health and education in Scotland, is calculated based on population and other factors to determine Scotland’s share
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