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Chancellor Rachel Reeves recently presented her Budget, though not all of its announcements will have direct effect in Scotland due to the country’s devolved powers. While certain measures are applicable across the entire UK, many changes either won’t apply north of the border or may influence Scotland indirectly through funding adjustments or related policies.
An important aspect relates to income tax. Scotland controls its own tax bands and rates, so only some of Reeves’ proposals will be relevant there. For instance, the personal allowance threshold, which determines the amount individuals can earn before paying tax, is set by the UK government. The decision to freeze this allowance at £12,570 until 2031 will therefore impact Scottish workers, increasingly bringing part-time employees into the tax system as wages rise over time. However, Scotland will not follow the UK’s freeze on thresholds for higher tax bands — a decision that falls to Scotland’s Finance Secretary, Shona Robison, who is due to announce decisions in the Scottish Budget later this month. National Insurance thresholds, also UK-determined, will remain frozen, meaning that Scottish workers will pay more NI in the future.
Scotland has introduced additional income tax bands beyond the four bands that exist in England, Wales, and Northern Ireland, using devolved powers to create a more complex tax structure. The Scottish government’s finances are also affected indirectly by the complex block grant formulas that govern funding from Westminster. Chancellor Reeves has claimed that her Budget will provide an additional £820 million to Scotland over the next three to four years. Business owners like Marianna Penman from
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