The key battlegrounds for Scottish Budget negotiations - has the SNP done enough for the Lib Dems and Greens?

On the face of it, it seems like a Budget for everyone.

More money for the NHS, no income tax rises and the surprise announcement of ending the two-child benefit cap were the highlights of Finance Secretary Shona Robison’s 2025/26 Scottish Budget unveiled on Wednesday.

Finance Secretary Shona Robison presents her proposed Budget for next year to the Scottish Parliament (Picture: Jeff J Mitchell)

But given the SNP is now a minority government in Holyrood, they will need to rely on other parties to get their Budget passed early in the new year.

So who can ministers rely on and what are the key battles that will now take place?

Who will support the SNP?

It is almost certain the Conservatives and Labour will not support this Budget.

First Minister John Swinney clearly knows this, as he urged the two biggest opposition parties multiple times to back the Budget during First Minister’s Questions on Thursday.

That leaves three other parties - the Lib Dems, Greens and Alba.

Alba’s sole MSP Ash Regan was fairly positive about the Budget, particularly the pledge to end the two-child benefit cap - but her vote is not enough on its own to swing the balance in the SNP’s favour here.

Alba party leader in Holyrood, Ash Regan at the public memorial service for the former first minister of Scotland Alex Salmond who died aged 69 last month, at St Giles Cathedral in Edinburgh.

That brings us to the Lib Dems and the Greens. Both parties have publicly said they will not be supporting the Budget in its existing form, However, there were offerings for both delivered by Ms Robison, which suggests an avenue for a positive outcome for the SNP following some further negotiation.

There was lots for the Lib Dems in this Budget, including increases to social care funding and ending the council tax freeze.

But despite one Lib Dem source telling The Scotsman there is a “decent number of Lib Dem wins” in the Budget, and there were conversations to have, the party said it was “underwhelmed” by the offerings for business, and want to see the government go further on rural healthcare.

The Greens, on the other hand, say they cannot presently support the Budget because it does not cover the expansion of free school meals, put a cap on bus fares, or provide enough funding for nature restoration.

Independence

One of the red lines for the Lib Dems was for “not a penny” to be spent on independence planning.

They have their wish. In fact, the Scottish Government has since confirmed it will now only publish one final paper in its Building a New Scotland series.

This series of papers sets out the Government’s vision for Scotland post-independence. However, no new papers have been published since John Swinney became First Minister.

Meanwhile the pro-independence Greens have warned the SNP against “caving to the Lib Dems’ anti-independence demands” in exchange for support in the Budget negotiations.

Local government

This is something both the Lib Dems and Greens wanted to see some action on.

Alex Cole-Hamilton | PA

There has been a 4.7 per cent increase to the local government budget, taking the total to over £15 billion. However, Cosla, the umbrella organisation representing Scotland’s 32 local authorities, said this was not enough to address the challenges local authorities were facing.

It is therefore expected council tax will increase across the country, in some places quite substantially.

Last year’s council tax freeze, announced unexpectedly by former first minister Humza Yousaf without first telling council leaders about his plan, was not popular.

Ms Robison has now lifted the freeze for 2025/26 and put no cap on how much local authorities can increase council tax by. Some local authorities, such as Aberdeenshire, have previously mooted a rise of as much as 17 per cent.

A survey by the Local Government Information Unit found a fifth of local authorities may be raising council tax by over 10 per cent.

SPICe [the Scottish Parliament Information Centre] said: “With the Scottish Government having secured freezes and caps for much of the last 17 years, increases of this magnitude could come as quite a shock to many households, especially as levels of satisfaction with council services are not particularly high.”

Ms Robison did say the increases in the local government budget meant there was “no reason for big increases in council taxes”. Ultimately, though, the decision will not be up to her.

Income tax

There will separately be no increases to income tax in 2025/26.

The basic and intermediate rates of income tax will increase by 3.5 per cent, but the thresholds for the higher, advanced and top income tax rates have been frozen.

This means more people will be dragged into these tax bands as their wages increase and will end up paying higher taxes - a scenario referred to as fiscal drag.

The Scottish Government said it wants to support low earners in this Budget, and the income tax plans would mean all Scottish taxpayers earning less than £30,400 will pay less income tax than if they lived elsewhere in the UK.

However, the saving will only be by around £28 a year, and given the predicted large increases to council tax, it will make very little, if any, difference.

It is a different story for higher earners. Those earning £50,000 will pay around £1,500 more in tax than if they lived elsewhere in the UK, rising to almost £6,000 for those earning £150,000.

The Scottish Fiscal Commission’s growth forecast for income tax revenue is strong, but it is lower than the equivalent growth forecast by the Office for Budget Responsibility (OBR) for the whole of the UK.

The commission has also said there is an economic performance gap at play, as the Budget will be £838 million better off because of the devolution of income tax. However, Scottish taxpayers are paying £1.6bn more in income tax.

Business rates

Clearly the Budget’s offering for businesses is not enough to please the Conservatives - but the Lib Dems say they are also “underwhelmed”.

The Scottish Government was under growing pressure to replicate the UK government’s 40 per cent rates relief for retail, hospitality and leisure businesses in England and Wales.

To an extent, they have - 92 per cent of hospitality businesses who are liable for the basic property rate will now have 40 per cent rates relief, costing the Government £22m. The 100 per cent rates relief for island hospitality businesses, introduced last year by Mr Yousaf, will also be continued at a cost of £5m.

But it is “a bitter pill to swallow” for the businesses that will not get this in the retail sector, according to the Federation of Small Businesses.

However, economists at the Fraser of Allander Institute suggest extending the rates relief to retail businesses, which make up around a fifth of the properties on the valuation roll, would cost the Government £220m - so it is perhaps understandable why this move was not taken.

This could yet be an area where the Lib Dems push slightly harder for adjustments in return for supporting the Budget.

The two-child benefit cap

The big announcement on the day was the SNP’s pledge to end the two-child benefit cap.

This cap means parents can only claim Universal Credit or child tax credits for their first two children. Ever since the policy was introduced by the Conservative UK government in 2017, the Scottish Government has been highly critical of it.

However, there was an expectation a new Labour UK government would abolish this cap, but so far that has not happened.

Government sources deny it was done for this purpose, but it is a savvy move for the SNP to get one over on Labour heading into the 2026 Holyrood election. Of course if the SNP cannot keep this promise, the pledge could yet prove a blow to their election prospects.

There is one small problem with this pledge - there is no money attached to it in this Budget.

The Fraser of Allander Institute’s economist said: “The finance secretary left this until last in the order to ensure maximum impact. A very political announcement, then, given the timing of the election, and one that has no money attached to it - as far as we can tell - in the 2025/26 financial year - the year this Budget actually refers to.”

The organisation said this was “clearly” a last-minute addition to the Budget, particularly as the Scottish Fiscal Commission (SFC) received the details too late to add it to their figures and analysis.

The economist said: “This lack of detail is troubling given the potential cost of funding this is likely to be in the region of £200m. There are far too many unknowns to say anything conclusive about impact, but there is no doubt that it would boost efforts towards the statutory child poverty targets, albeit not by nearly enough to meet them just by doing this alone.”

There is now a suggestion from the institute that Scottish ministers are hoping they will not even need to fund the cap’s abolition as it will pressure the UK government into abolishing the policy nationwide, meaning the SNP can claim victory without having to spend any money.

It was heavily caveated in the Budget statement on being dependent on the UK government’s co-operation, although government sources did say if the money becomes available sooner than the 2026 target date, then the policy will be implemented even sooner.

Both the Lib Dems and the Greens have criticised this cap in the past, meaning the pledge is likely to have pleased them behind closed doors.

There are other measures to tackle child poverty that need to be considered here too. For example, the Greens are not happy that free school meals will not be expanded to P6 and P7 pupils, something the party fought for when it was in government itself in partnership with the SNP.

ScotWind money

This is another interesting point for both the Lib Dems and the Greens.

Previously both parties have heavily criticised the SNP for using ScotWind money to plug gaps in day-to-day spending, known as the resources budget. However, the finance secretary said no ScotWind money would be used for resource spending in the 2025/26 Budget.

This is money generated from leasing the seabed for offshore wind farms, and the revenue was intended to have been spent on green infrastructure projects and the just transition.

Despite this good intention, the Scottish Government used £160m of this for resource spending in 2024/25. Now the Government will spend £326m of it on capital infrastructure projects and £10m on resource spending.

This leaves £219m that can be spent in future years. The Fraser of Allander Institute said “here’s hoping it is explicitly set aside for investment spending”.

What else?

There are some other issues to note from the draft Budget, which both parties will now be weighing up as they mull over the numbers and decide whether or not to back it.

Before the Budget was announced, First Minister John Swinney said the NHS would be his Government’s priority, and increased the health and social care budget by £2.2bn (7.7 per cent).

The NHS’s capital budget will also increase by £184m, including money for upgrading Belford Hospital in Lochaber, a key Lib Dem area of the country. The Lib Dems have also said they want to see investment in places like Shetland and Caithness.

Housing is another area to consider - this department suffered a significant cut last year, but in 2025/26 £768m will be ploughed into affordable housing.

This is a 26 per cent increase on 2024/25, but is still 3 per cent lower than the budget for 2023/24, and comes after the Government was forced to declare a national housing emergency.

The Lib Dems say they are pleased to see this investment in housing and hope it will go some way to tackling homelessness.

Economic growth is another battleground area that needs to be considered.

The SFC forecasts economic growth to increase in the short term as a GDP growth of 1.2 per cent this year and 1.6 per cent next year.

The commission said earnings would grow by 3.7 per cent in Scotland in 2025/26, which is more than the 3 per cent the OBR has forecast for the UK as a whole.

And what happens next?

So what of the next steps?

On the whole and large, significant inroads have been made by the SNP to meet the asking demands from the Lib Dems and the Greens.

MSPs will now debate the proposals and are able to table amendments, with the stage three debate and vote on the Budget Bill ultimately scheduled for February 21.

Ms Robison had described the Budget as one “filled with hope for Scotland's future”. Regardless of arguments over whether the Government has delivered, the package has substantially raised the likelihood of at least one - if not both - of the Lib Dems or the Greens ultimately backing it.