With Scotland living beyond its means, SNP Budget should have gone for growth
Only by growing the economy will Scotland meet its ambitions to create a fairer society, writes Sara Thiam
The final Budget before an election always comes with a heightened political dimension, so it was no great surprise that Shona Robison announced some giveaways this week. But one topic had a notably low profile in the Finance Secretary’s speech: the word “growth”. It only crossed Ms Robison’s lips once.
Ultimately, as well as redistributing wealth and income, we need to grow our economy. Although policies which help to boost opportunity and create a fairer and healthier society can generate long-term benefits – through reduced demand for benefits and the NHS – they also have upfront costs.
I am afraid that current projections make for bleak reading. Ahead of the Budget, the Fraser of Allander Institute’s quarterly survey of firms found that 81.3 per cent of businesses expect weak or very weak growth over the next year. The Scottish Fiscal Commission, an independent economic forecaster, now expects the economy to grow by 1.3 per cent over the next year, down from the 1.5 per cent stated in its forecast 12 months ago. The forecast tax take is slightly down for the next year too.
Geopolitical turbulence
So, what can be done about this? Fortunately, there are ideas, such as those contained in the economic blueprint we published last summer and in the seven opportunities that we flagged to the Scottish Government last week.
One area the blueprint highlights is the importance of certainty. That might be a tall order in a world characterised by geopolitical turbulence abroad and electoral volatility at home. But certainty is the currency that gives both consumers and investors confidence to spend, breathing life into local high streets and building the infrastructure needed to power the economy.
Unfortunately, the tax and spending decisions made by the Scottish and UK governments lurch from year to year in a state of continued tinkering and instability. Take the Scottish Government’s medium-term financial strategy, published in June 2025.
It laid out the government’s assumptions on spending for the rest of this decade, for example that the budget for health and social care would need to increase by 3 per cent a year in real terms as demand for the NHS rises. But, this week, the Finance Secretary allocated that portfolio a mere 0.7 per cent rise in funding for next year.
According to the Institute for Fiscal Studies (IFS), budgets will have to be “significantly topped up during the course of the year if NHS performance is to be maintained, let alone improved”. All this brings is fiscal uncertainty, with politicians forced to raid budgets from areas deemed to be of lower importance to plug gaps in overstretched services.
Grow the tax base
A similar picture emerges on tax. Although Ms Robison increased the thresholds when the lowest two Scottish income tax bands start to be paid, the point on the earnings scale when the other bands kick in were frozen. As earnings increase, this fiscal drag amounts to a tax rise.
Changes to council tax were also announced, with local authorities able to introduce two new bands on properties worth over £1 million. However, there was little detail on how this would work with Scottish council taxes still based on property valuations that are more than 30 years old.
Rather than making tweaks to rates and bands on an annual basis, the Scottish Government should have an absolute focus on growing the tax base, especially as part of its budget for services and welfare is determined on the revenues raised in Scotland.
Facing spending pressures and weak tax growth, it’s clear that, in the longer term, we are living beyond our means. The IFS said that the outlook for public finances is “far from rosy” and Strathclyde’s Fraser of Allander Institute stated that “it’s unclear how the Scottish Government will be able to make the sums add up”.
You don’t even need to take the word of the data-crunchers either. The Finance Secretary was forced to – quietly – cut £480m from day-to-day spending from April, largely because tax forecasts have been lower than planned. On top of that, £850m has been taken out of capital investment – spending on the roads, railways, ports and homes that will make Scotland economically competitive in the long-term.
Four ways to boost growth
Given the backdrop of uncertainty and bleak public finances, how can the next Scottish Government inject some life into the economy so firms can expand and hire with confidence?
First, it should prioritise spending on the areas which can make a difference to growth. The Finance Secretary was right to end the cuts to college funding – where budgets have reduced by 20 per cent since 2021/22 – in what was a belated recognition of the critical role that further education plays.
Second, Scotland needs an industrial strategy worthy of the name with a laser-like focus on backing and unblocking the regulatory barriers faced by sectors that have high-growth potential: financial services, energy, food and drink, professional services, education and the creative industries as well as emerging industries including clean power, tech and life sciences.
Third, there is a once-in-a-generation economic opportunity from the decarbonisation of the electricity grid and the growth of low-carbon energy. Scotland should grasp that prize with open arms, making the most of home-grown energy, including our remaining oil and gas resources.
Finally, Scotland’s regional economies have been neglected for too long and so the First Minister’s announcement in November on strengthening place-based economic partnerships was particularly welcome.
An election will soon be upon us soon and this week’s Budget reflects that. But whatever the result in May, all parties in Scotland must not lose sight of the urgent need to start growing our economy. Only then will we be able to afford the services and welfare payments that redistributes our collective wealth in a fairer way.
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