Scottish Budget 2025-26: Personal finance analysis

Key measures impacting personal finance:

• The amount at which the basic and intermediate rates – 20% and 21% – is paid will increase by 3.5% in the next financial year.
• Following the above changes, income tax rates in Scotland will be frozen until 2026.
• Council tax is unlikely to be increased significantly.
• Social security benefits will rise with inflation.
• Free school meals will be expanded to pupils in P6 and P7 at primary schools whose families receive the Scottish Child Payment.
• The Scottish government will mitigate the impact of the UK government’s two-child benefit cap.

Analysis

Shona Robison’s second Budget as finance secretary came against a slightly improved fiscal backdrop than that of last December, and soon follows Labour’s first UK Budget in 14 years.

While Ms Robison announced a “record” £2 billion increase in frontline NHS spending, the measures impacting personal finances were more measured. Daniel Hough, a financial planner in RBC Brewin Dolphin’s Glasgow office, provides analysis:

“The finance secretary had said her Budget would put more money in people’s pockets prior to sharing her spending plans with the Scottish Parliament. True to her word, she increased the basic and intermediate thresholds by 3.5%, meaning more of people’s income will be taxed at 20% and 21%. This means that £522 of the basic rate band will now be taxed at the 19% starter rate rather than 20%, resulting in a £5.22 tax saving; while £930 of the intermediate rate band will now be taxed at the 20% basic rate rather than 21%, equivalent to a £9.30 tax saving.

“The commitment to not introducing any new bands or increases to rates of Scottish income tax for the remainder of this parliament will also be welcome, given how complex the system has already become.

“Benefits will rise with inflation, and many families will benefit from more funding for free school meals and breakfast clubs. ‘No big increases’ to council tax through increased funding for local authorities should also help make a small difference to household incomes next year, while those working in the public sector should also see a 9% increase above inflation in their pay over the next three years.

“However, with Labour’s pledge to not make changes to personal taxes and National Insurance for individuals, combined with frozen tax bands for the foreseeable future, there will still be a meaningful gap between Scottish taxpayers and those in the rest of the UK – particularly at the higher end of incomes. The increasing basic and intermediate thresholds close the gap ever so slightly, and commitments around no new bands or increases provide a degree of certainty, but they also bake in the differences between the tax systems for a while yet.”

Scottish income tax levels planned for 2025-26

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