The Scottish Budget: what businesses can expect

The government is facing recurring costs of £1.26 billion due to previously agreed public sector pay deals, which is £800 million more than has been accounted for, alongside ongoing inflationary pressures and limited scope for borrowing. 

Robison has been frank about the “very difficult decisions” she is having to juggle in order to balance the Scottish budget and has argued that the UK chancellor Jeremy Hunt’s recent autumn statement has made those challenges more acute, describing it as the “worst possible scenario” for Scotland’s finances.

It is against that backdrop that Robison will seek to set out a budget that is not only capable of balancing the books but able to satisfy MSPs on the SNP benches and those of the SNP’s partners in government, the Scottish Greens. Indeed, there have been reported disagreements within the Scottish Cabinet over the budget, particularly around proposals to introduce an additional income tax band – the debate appears to rage over whether the measure will raise a meaningful amount to address the £800m in the public accounts or in fact serves as an anti-growth signal to industry. There are also concerns about how the measure will be perceived going into an election year in 2024.

Scotland’s first minister Humza Yousaf has previously committed to using his first budget to expand access to high quality, funded childcare, so employers should see clarity on this in the budget. Investment in social care is also anticipated to feature prominently owing to commitments made in September’s programme for government. Policy measures to facilitate the transition to net zero are also expected, with calls for the Scottish government to invest in new electricity transmission infrastructure and reform planning processes. 

Support for businesses is not anticipated to be front and centre of Robison’s budget, though. Aside from varying income tax levels, the main fiscal lever available to the finance secretary is setting business rates. Business groups have been vocal in calling for the Scottish government to freeze the poundage rate that impacts on what businesses need to pay in the coming financial year. This would avoid the rate being increased with inflation, which would add significant costs to a business’ tax bill. However, with business rate revenues ultimately being paid to local authorities, there is a risk that Robison sees increasing the poundage as an opportunity to compensate local authorities for funding they will lose as a result of the already-announced freeze to council tax.

Driven by Neil Gray, the cabinet secretary for wellbeing economy, fair work and energy, the Scottish government has committed to improving its relationship with business. Businesses may view how the budget addresses the poundage rate as a test of that commitment, with companies having argued that the rate is putting Scotland at a competitive disadvantage to England and deterring investment into the Scottish economy.

Notwithstanding the challenging fiscal backdrop and what is announced in the budget, businesses should continue to engage with the Scottish government to lobby them to use policy levers to facilitate economic growth and create favourable operating conditions.