{"id":19032,"date":"2026-01-14T12:02:57","date_gmt":"2026-01-14T12:02:57","guid":{"rendered":"https:\/\/sceptical.scot\/?p=17593"},"modified":"2026-01-14T12:02:57","modified_gmt":"2026-01-14T12:02:57","slug":"in-this-scottish-budget-the-silences-were-loudest","status":"publish","type":"post","link":"https:\/\/sceptical.scot\/staging\/2026\/01\/in-this-scottish-budget-the-silences-were-loudest\/","title":{"rendered":"In this Scottish Budget the silences were loudest"},"content":{"rendered":"\n
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It\u2019s hard to see how the Scottish Government can claim \u2013 as it does in its Budget document \u2013 to be running a \u201csustainable pay policy.\u201d It\u2019s also hard to square these pay deals with the allocation of just 0.7% growth in real terms for the Health portfolio… Fraser of Allander budget report<\/a>, authors Jo\u00e3o Sousa<\/a>, Ciara Crummey<\/a>, Spencer Thompson<\/a><\/span><\/p>\n

 <\/p>\n<\/blockquote>\n\n\n\n

The devil was very much in the detail and in what wasn\u2019t said by Shona Robison<\/strong>. <\/p>\n\n\n\n

The Cabinet Secretary chose to talk about policies such as higher bands of council tax on million-pound-plus properties and increases in the Scottish Child Payment for children under the age of one, but neither takes effect in the next financial year.<\/p>\n\n\n\n

What does take effect in less than three months\u2019 time is a significant cut in spending, even if you wouldn\u2019t know it from the Budget speech. Relative to plans laid out in June, the Finance Secretary has had to cut day-to-day spending by \u00a3480 million, largely due to much weaker underlying tax forecasts from the Scottish Fiscal Commission. This was on top of further uses of exceptional items and non-recurring revenues in the region of \u00a3300 million.<\/p>\n\n\n\n

This Budget then was another example of the Scottish Government plugging an underlying deficit of over half a billion pounds with one-off funding pots \u2013 and even then having to make significant cuts to its planned expenditure.<\/p>\n\n\n\n

On the capital side, as we trailed last week, the Scottish Government had to face up to a difficult funding reality. Despite a little bit of extra borrowing, it has amended its plans down by \u00a3850 million for next year. We will be going through the documents to see how this falls area by area, but it is a clear recognition that its original plans were unaffordable.<\/p>\n\n\n\n

The Scottish Spending Review and Infrastructure Investment Plan will take longer to digest, so we\u2019ll be going through those in due course.<\/p>\n\n\n\n

One area where there is more detail is income tax, with the Finance Secretary making much of the increase in the amounts of tax paid at 19% and 20%. This was a significant increase (7.4% on each of the thresholds), but it still keeps the difference for taxpayers below the median income at a maximum of \u00a340 a year, or 75p a week. All higher thresholds remain frozen, bringing in significant revenue from fiscal drag \u2013 and the Scottish Government has revealed plans to keep them frozen for an additional two years.<\/p>\n\n\n\n

Another case of delaying adjustment into the future<\/h2>\n\n\n\n

It is unfortunate just how difficult it can be to get a clear picture of the funding position of the Scottish Government, but the table below brings together resource funding and planned expenditure set out in the Budget.<\/p>\n\n\n\n

Table 1: Changes in funding and expenditure since our Budget Report<\/h3>\n\n\n\n
Resource Budget (\u00a3 million)<\/strong><\/td>Scottish Budget<\/strong><\/td>Change since FAI Budget Report (based on UK Budget)<\/strong><\/td>of which Scottish Budget policy<\/strong><\/td>of which other changes<\/strong><\/td><\/tr>
Block Grant<\/strong><\/td>42,671<\/strong><\/td>-10<\/strong><\/td>0<\/strong><\/td>-10<\/strong><\/td><\/tr>
<\/td><\/td><\/td><\/td><\/td><\/tr>
Fiscal Framework funding<\/strong><\/td>8,029<\/strong><\/td>-240<\/strong><\/td>97<\/strong><\/td>-336<\/strong><\/td><\/tr>
Forecast devolved revenues<\/td>22,651<\/td>-393<\/td>-46<\/td>-347<\/td><\/tr>
Tax and non-tax BGAs<\/td>-21,449<\/td>-67<\/td>0<\/td>-67<\/td><\/tr>
Social security BGAs<\/td>6,323<\/td>77<\/td>0<\/td>77<\/td><\/tr>
Adjustment for forecast error, of which:<\/td>354<\/td>-8<\/td>-8<\/td>0<\/td><\/tr>
Reconciliations<\/td>354<\/td>-8<\/td>-8<\/td>0<\/td><\/tr>
Borrowing<\/td>0<\/td>0<\/td>0<\/td>0<\/td><\/tr>
Scotland Reserve drawdown, of which:<\/td>150<\/td>150<\/td>150<\/td>0<\/td><\/tr>
Drawdowns by year-end<\/td>150<\/td>150<\/td>150<\/td>0<\/td><\/tr>
Underspend additions<\/td>0<\/td>0<\/td>0<\/td>0<\/td><\/tr>
<\/td><\/td><\/td><\/td><\/td><\/tr>
Other sources<\/strong><\/td>3,722<\/strong><\/td>-27<\/strong><\/td>-14<\/strong><\/td>-13<\/strong><\/td><\/tr>
Other funding, of which:<\/td>248<\/td>48<\/td>50<\/td>-2<\/td><\/tr>
Crown Estate Funding<\/td>50<\/td>50<\/td>50<\/td>0<\/td><\/tr>
Other<\/td>198<\/td>-2<\/td>0<\/td>-2<\/td><\/tr>
NDR receipts<\/td>3,387<\/td>-164<\/td>-153<\/td>-11<\/td><\/tr>
NDR distribution above receipts<\/td>87<\/td>89<\/td>89<\/td>0<\/td><\/tr>
<\/td><\/td><\/td><\/td><\/td><\/tr>
Less resource borrowing costs<\/strong><\/td>-121<\/strong><\/td>0<\/strong><\/td>0<\/td>0<\/td><\/tr>
Less capital borrowing costs<\/strong><\/td>-194<\/strong><\/td>4<\/strong><\/td>4<\/td>0<\/td><\/tr>
<\/td><\/td><\/td><\/td><\/td><\/tr>
Total funding<\/strong><\/td>54,107<\/strong><\/td>-273<\/strong><\/td>87<\/strong><\/td>-360<\/strong><\/td><\/tr>
<\/td><\/td><\/td><\/td><\/td><\/tr>
Planned resource spending<\/strong><\/td>54,108<\/strong><\/td>-480<\/strong><\/td>-480<\/strong><\/td>0<\/strong><\/td><\/tr>
<\/td><\/td><\/td><\/td><\/td><\/tr>
Net position<\/strong><\/td>-1<\/strong><\/td>207<\/strong><\/td>567<\/strong><\/td>-360<\/strong><\/td><\/tr>
<\/td><\/td><\/td><\/td><\/td><\/tr>
Underlying net position<\/em><\/td>-642<\/em><\/td>-75<\/em><\/td>285<\/em><\/td>-360<\/em><\/td><\/tr>
<\/td><\/td><\/td><\/td><\/td><\/tr>
Memo: Underlying funding<\/em><\/td>53,466<\/em><\/td>-555<\/em><\/td>-195<\/em><\/td>-360<\/em><\/td><\/tr>
<\/td><\/td><\/td><\/td><\/td><\/tr>
Memo: Exceptional funding used<\/em><\/td>641<\/em><\/td>282<\/em><\/td>282<\/em><\/td>0<\/em><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Source: SFC, Scottish Government, FAI analysis<\/em><\/p>\n\n\n\n

This confirms the continuation of a pattern that we highlighted in our Budget Report. The Scottish Government is again forecast to run a significant underlying deficit of around \u00a3659 million, which is actually higher than we had originally predicted and reflects the worsening of tax forecasts (more on this below), and despite a significant cut to planned spending. Further use of one-off or exceptional revenues includes drawing down another \u00a3150 million from the Scotland Reserve, a distribution from the Non-Domestic Rates pool \u00a390 million above receipts for the year, and another \u00a350m of Crown Estate revenue used for day-to-day spending.<\/p>\n\n\n\n

Despite this tight settlement, it\u2019s unclear how the Scottish Government will be able to make the sums add up. In August, the Scottish Fiscal Commission warned that pay deals were running well ahead of the pay policy, and news since then have been similar. The SFC forecasts average earnings in the devolved public sector to grow at 4.6%, which will be well above the 3% in the pay policy for next year even after accounting for projected falls in headcount.<\/p>\n\n\n\n

It\u2019s hard to see how the Scottish Government can claim \u2013 as it does in its Budget document \u2013 to be running a \u201csustainable pay policy.\u201d It\u2019s also hard to square these pay deals with the allocation of just 0.7% growth in real terms for the Health portfolio, which the SFC have helpfully laid out after reversing transfers in the ABR that weren\u2019t baselined.<\/p>\n\n\n\n

We know that the Scottish Government laid out ambitious targets for efficiencies in the public sector in the Fiscal Sustainability Delivery Plan, but the underlying assumptions that are required for these settlements border on heroic. It would be no surprise to see an emergency statement in the coming year if pay deals continue to burst through the stated pay policy \u2013 especially given that a few are already automatically inflation-protected.<\/p>\n\n\n\n

Capital spending was slashed significantly<\/h2>\n\n\n\n

As we mentioned last week, something had to give on the investment side, and it is no surprise that it was the Scottish Government\u2019s plans that budged. Even after some additional borrowing to go to the limit permitted by the Fiscal Framework, the Cabinet Secretary for Finance still had to lay out plans for a 10% cut (\u00a3860 million) to the plans she had laid out just this past June.<\/p>\n\n\n\n

It will take us a while to get through the Infrastructure Delivery Pipeline, the much-anticipated update to the Infrastructure Delivery Plan last update, but an initial look shows that some projects have been on a \u201cdevelopment\u201d rather than delivery pipeline \u2013 which may appear a subtle difference, but crucially the Scottish Government has so far allocated no funds for these projects. While the document says that \u201c[t]he strategic outline case has been made and is a Government commitment,\u201d those of a more cynical disposition might see it as a staging post for significant delay or eventual cancellation.<\/p>\n\n\n\n

Examples of these include the A96 programme, including the Nairn Bypass \u2013 which was recently in the news \u2013 as well as the renewal programme for the Highland Mainline and the redevelopment of the Ardrossan Harbour.<\/p>\n\n\n\n

Income tax forecasts have been revised down significantly for 2026-27<\/h2>\n\n\n\n

Income tax forecasts are down by \u00a3274 million for 2026-27, compared with December 2024. Only \u00a350 million of this reduction is driven by policy decisions to increase the basic and intermediate rate thresholds by 7.4%.<\/p>\n\n\n\n

The remaining \u00a3224 million reduction comes from a combination of lower outturn data, that is partly offset by higher earnings and employment growth.
Lower outturn data can be broken down into two parts:<\/p>\n\n\n\n