Tax hikes for wealthier households are central to Scotland’s upcoming budget as Finance Secretary Shona Robison seeks to address fiscal pressures and secure opposition support for the plan. Additional revenue-raising measures are also being considered.
Wealthy Households Face Tax Hikes as Scotland Tackles Budget Pressures
By Chourouk Derkaoui
Published on 3 December 2024 19:01
Scottish ministers are considering modest tax hikes targeting wealthier households and planning to lift the council tax freeze as they prepare the fiscal framework for this week’s budget. These measures aim to address mounting fiscal pressures while balancing public expectations for robust government spending.
Shona Robison, the Scottish finance secretary, faces the challenge of crafting a politically and economically persuasive budget, buoyed by a record funding allocation from the Treasury for the coming year.
Robison’s budget boosts health, winter aid, and seeks opposition support.
Robison’s budget, to be unveiled on Wednesday, is anticipated to include increased allocations for health services, up to £160 million for a new universal winter fuel payment for pensioners, and assurances against further cuts to public services.
This financial strategy comes against a backdrop of competing demands from the opposition parties, whose cooperation is essential to pass the minority government's £47 billion budget.
It will require the support of at least one party to close the gap at Holyrood, where the Scottish National Party (SNP) holds 62 seats, three short of the majority.
Greens and Lib Dems Outline Priorities in Budget Talks
The Greens and Liberal Democrats, both pivotal players in budget negotiations, have laid out their priorities. The Greens advocate for enhanced council funding, greater investment in climate and nature initiatives, reinstating free school meals for all primary pupils, and a pilot scheme to cap bus fares at £2.
Instead, the Liberal Democrats focused on increased support for carers and the abolition of the council tax freeze. However, they also demanded an end to spending on pro-independence campaigns, a position in stark contrast to the SNP's main agenda.
Unforeseen Costs and Gaps Strain Robison’s Budget
Despite a £1.4 billion increase in day-to-day spending for the current financial year and a £2.8 billion boost for the next, Robison’s fiscal flexibility is constrained. According to the Fraser of Allander Institute (FAI), unbudgeted public sector pay deals will cost at least £750 million this year, swelling Scotland’s public sector wage bill to approximately £25 billion.
Moreover, the FAI estimates a £400 million gap in current spending plans, compounded by the £90 million required to reinstate services cut during September’s emergency budget.
Robison Considers Tax Hikes and New Levies to Address Fiscal Pressures
To address these fiscal pressures, Robison is exploring various revenue-raising measures. These include:
- Council Tax Adjustments: Scrapping the freeze could allow local authorities to increase rates by up to 10% or more, offsetting reductions in central government funding.
- Income and Other Taxes: Holyrood’s powers may enable adjustments to income tax rates, landfill taxes, and stamp duty. However, the UK Chancellor Rachel Reeves’ decision to increase employer national insurance rates—costing Scotland an additional £550 million in public sector pay—has narrowed the scope for personal tax increases.
- Targeting Private Aviation: A potential levy on private jets, aligned with climate goals, is under consideration.
Robison has also tapped into Scotland’s reserves and revenues from the ScotWind offshore wind licensing fund twice before. These resources remain potential stopgaps for immediate needs.
FAI Warns Households of Budget Strain Without New Revenue Streams
The FAI has warned that, despite these measures, significant challenges remain. Public sector pay, healthcare, social security, and local government expenditure account for seven-eighths of available funding, leaving little room for discretionary spending.
“When we consider these pressures collectively, it becomes evident that without new revenue streams, protecting the public sector from further cuts will be exceedingly difficult,” the FAI cautioned last week.
Balancing Fiscal Priorities and Political Alignment
As Robison finalizes her budget, the stakes extend beyond economic management. The outcome will signal the government’s capacity to navigate competing fiscal priorities while addressing critical societal needs. Success hinges not only on crafting a coherent budget, but also on securing political alignment in a fractured parliamentary landscape.