Why Scotland’s Budget must simplify tax, not add complexity

More money does not mean easier choices for the Scottish government. Scotland emerged from the UK Budget with additional funding on paper, but the headline alone does not explain the decisions ministers now face.

Scotland will receive around £600 million in additional funding over four years. Yet resource funding rises while capital funding falls, and inflation means more cash does not necessarily buy greater spending power.

Resource funding is expected to reach £43.7 billion in 2026-27 and £44bn in 2027-28. The Scottish government nevertheless says this represents a 1.3 per cent real-terms cut in 2027-28. More pounds can still mean less purchasing power.

​Katie Close CA, Director of Tax, ICAS

The question ahead of the Scottish Budget on 3 December is therefore not simply how much Scotland received, but what choices that leaves Holyrood.

Businesses should watch closely. Westminster is increasing the threshold for 100 per cent Small Business Rates Relief in England from £12,000 to £18,000 from April 2027. Rates are devolved, so Scotland must decide whether to use additional funding for comparable support or spend it elsewhere.

Comparable support may be welcome, but matching England is not the only test. The design of relief matters as much as its generosity: does it support growth?

Support for smaller businesses is attractive when high streets are under pressure. But sharp thresholds can discourage expansion if growing means suddenly facing a significantly bigger tax bill. Tax should not create artificial obstacles for businesses seeking to grow.

Property income presents another difficult choice. The UK Budget increases tax on savings and property income by two percentage points. The savings increase applies in Scotland, but the property income increase will not apply automatically because that tax is devolved.

Additional property income tax raised elsewhere in the UK can affect Scotland’s funding through adjustments to its block grant. That limits the financial freedom to take a different approach: if Scottish ministers do not increase their own rates, they must absorb the resulting funding consequences.

Devolution allows different choices, but those choices do not happen in a vacuum. The political slogans can obscure the trade-offs between using devolved powers and managing their effects on funding.

The new pension income tax allowance raises a different question: is another allowance the right way to solve a tax problem? It aims to prevent pensioners receiving small income tax bills simply because the State Pension rises above the personal allowance.

I understand the problem but question the solution. Each new allowance, threshold or exception makes an already complicated system harder to understand and administer.

Complexity imposes costs on taxpayers and businesses, distorts decisions and obscures what people owe and why. governments must stop patching individual problems and confront the underlying system.

That should guide Scottish ministers on 3 December. The Budget is an opportunity to define Scotland’s tax environment, not merely decide where to follow Westminster or diverge.

Good tax policy must do more than raise revenue. It should support investment and growth, minimise unnecessary distortions and give people and businesses confidence to plan.

More funding does not remove difficult choices. Short-term fixes, new thresholds and further divergence risk adding complexity without addressing long-term fiscal sustainability.

Ministers should resist that temptation. The real test of the Budget is not the size of the funding headline: another layer of complexity would mean an important opportunity missed. Their decisions should make Scotland a simpler, more competitive place to do business and invest.

​Katie Close CA, Director of Tax, ICAS