The Scottish Budget 2026-27 delivers targeted relief for retail, hospitality, and leisure sectors through 15% non-domestic rates relief worth £138 million over three years, alongside modest reductions in business rates poundage, but raises alarms with frozen higher income tax thresholds and new property taxes that could stifle economic growth forecast at just 1.3% GDP for 2026. Presented by Finance Secretary Shona Robison on January 12, 2026, this £68 billion plan prioritizes health with £22.5 billion allocation and child poverty measures like raising Scottish Child Payment to £28.20 weekly, yet industry voices highlight insufficient support amid revaluation pressures and fiscal drag. Readers will gain deep insights into key announcements, sector impacts, growth challenges, business reactions, and practical implications for taxpayers and enterprises, empowering informed decisions on investments, operations, and policy advocacy in Scotland’s devolved fiscal landscape.
Budget Overview
The 2026-27 Scottish Budget totals nearly £68 billion in spending, with resource funding growing 1.1% year-on-year, heavily weighted toward health and social care at £22.5 billion including walk-in GP clinics and expanded Hospital at Home beds. Tax measures include a 7.4% uplift to basic and intermediate income tax thresholds, freezing higher thresholds to generate £190 million via fiscal drag, and introducing Scottish Aggregates Tax at £42 million from April 2026 aligned to UK rates. Non-domestic rates see poundage cuts to 48.1p basic, 53.5p intermediate, and 54.8p higher, plus transitional relief totaling £184 million over three years for revaluation-hit properties.
Deeper analysis reveals a reconciliation surplus of £354 million, avoiding resource borrowing, but projections show earnings growth lagging UK averages due to higher labor costs and uncertainty. Public sector reforms target £1.5 billion efficiency savings, potentially impacting local services like libraries and roads without structural tax base expansion. Overall, the budget balances progressive aims with fiscal prudence, though critics note short-term sweeteners precede post-2027 cuts.
Tax Changes Breakdown
Income tax adjustments feature no rate hikes but frozen higher, advanced, and top thresholds into 2028-29, projected to boost revenues by £72 million in 2027-28 and £200 million thereafter, affecting mid-to-high earners from April 2026. Council tax gains two new bands from April 2028: one for £1-2 million homes and another above £2 million, alongside a targeted revaluation of luxury properties over £1 million mimicking England’s mansion tax. Air Departure Tax launches April 2027 with Highlands exemptions and private jet surcharges, while incineration tax drops to £27 million amid capacity rises and delayed biodegradable waste ban to 2028.
These shifts aim to fund social priorities but risk deterring investment; for instance, fiscal drag on frozen thresholds could raise effective taxes for 40%+ earners without wage growth offsets. Businesses face nuanced non-domestic rates: Small Business Bonus Scheme holds at 100% relief under £12,000 rateable value for three years, with new transitional relief capping bill hikes at 25% in 2026-27 for those losing eligibility post-revaluation.
Income Tax Thresholds
Basic and intermediate thresholds rise 7.4% for 2026-27, shielding lower earners but squeezing middle incomes as inflation erodes gains. Higher rate freeze sustains 42% on earnings over adjusted thresholds, part of baseline forecasts by Scottish Fiscal Commission.
Advanced rate at 45p and top at 48p remain static, with extensions confirmed to 2028-29, prioritizing revenue over competitiveness.
Business Rates Reliefs
A flagship 15% non-domestic rates relief targets retail, hospitality, and leisure on basic/intermediate poundage from April 2026 to March 2029, capped at £110,000 per business and 100% for islands/remote areas, aiding 37,000 premises amid £3.387 billion forecast revenue post-revaluation. Poundage reductions—48.1p basic (down from prior), 53.5p intermediate, 54.8p higher—combine with £184 million transitional support over three years, where eligible small firms pay 25% of net bill increases in year one, scaling to 75% by 2028-29. Small Business Bonus persists unchanged, fully exempting under £12,000 combined values, tapering above.
Industry welcomes these as breathing space post-144,000 property revaluations expected to hike bills, yet margins stay thin with no broader reforms. Hospitality leaders note replacement of 40% discounts with 15% falls short, potentially forcing price hikes or closures despite consumer squeezes.
Health and Social Care
Health portfolio secures £22.5 billion, funding national walk-in GP rollout and doubling Hospital at Home beds by December 2026, though five national treatment centers face review and delays. Social care integrates with £688 million extra for ongoing services, prioritizing NHS recovery amid infrastructure reassessment.
Child poverty tackles head-on with £163 million uplift to measures, including Scottish Child Payment at £28.20 weekly (£40 for under-ones from 2027-28), breakfast clubs, and expanded wrap-around care, building on relative poverty reductions.
Infrastructure Investments
Nearly £200 million advances A9 dualling and key A96 sections, enhancing Highland links, while £243 million capital bolsters local economies and £325.5 million empowers enterprise agencies. Railways gain a new station at Winchburgh new town West Lothian; ferries eliminate peak fares for Orkney/Shetland and fleet upgrades.
Digital infrastructure receives £138 million, supporting jobs via university/college funding, oil/gas retraining, and apprenticeships. Transport, Net Zero portfolio at £4.6 billion funds £5 billion climate measures cutting emissions and household costs.
Economic Growth Forecasts
Scottish Fiscal Commission projects 1.3% GDP growth for 2026-27, up from 1.1% in 2025, with earnings slightly below UK due to costs and uncertainty weakening labor demand. Positive reconciliations cut 2026-27 forecast down £274 million from prior, yielding £354 million surplus.
Yet relative income tax position dips to £969 million from £1.3 billion forecast, as OBR upgrades UK earnings. Local government rises 2.9% or £419 million real terms, short of calls, with no council tax cap risking hikes.
Industry Reactions
Hospitality greets with faint praise: 15% relief provides temporary relief but ignores revaluation volatility and cost burdens, per Scottish Licensed Trade Association. Tourism warns of closures without deeper support, despite Small Business Bonus continuity.
Business groups note sector-specific wins over universal cuts, calling for growth-stimulating reforms amid thin margins. Critics label pre-election sweeteners, delaying mansion/private jet taxes post-2027.
Small Wins Highlighted
Key positives include £138 million RHL relief over three years, poundage cuts softening revaluation for 144,000 properties, and £1.5 billion efficiencies avoiding frontline slashes initially. Child supports and infrastructure like A9/A96 dualling promise jobs and connectivity.
International development fund up 25% to £16 million aids global ties. Islands gain 100% relief caps and ferry fare axing, boosting remote viability.
Big Worries on Taxes
Frozen thresholds enable fiscal drag, taxing earners harder without growth offsets, while new council tax bands and ADT/private jet levies from 2027-28 hit high-value assets and travel. No broad business tax cuts amid rising NDR forecasts to £3.387 billion.
Efficiency targets risk service cuts; IFS flags post-election pain. Growth at 1.3% lags potential without base expansion via inactivity tackles.
Growth Challenges Ahead
Labour market softens short-term from uncertainty, higher costs curbing confidence per SFC. No just transition balance for oil/gas risks jobs despite retraining.
Devolution limits perpetuate short-termism, per analyses urging land/resource taxation shifts for sustainable revenue.
Practical Implications for Businesses
Review rateable values now for 2026 revaluation impacts; apply for Small Business Bonus/Transitional Relief via local councils from April 1, 2026. Expect 15% RHL auto-applied if eligible, capped £110k yearly—track via Revenue Scotland portal.
Costs: Basic poundage 48.1p means £4,810 per £10,000 rateable value pre-relief; transitional eases hikes phased. Transport to assessments: Edinburgh Parliament offices or virtual portals; no fees for relief apps.
Tips: Model scenarios with 25%/50%/75% hike phases; lobby for extensions via FSB/Hospo bodies. Expect audits post-reval; buffer cash for 2027 ADT if flying commercially.
Taxpayer Planning Tips
Adjust 2026-27 tax codes via payroll for threshold uplift; higher earners model fiscal drag—42% from frozen point. Council tax payers in £1m+ homes prep for 2028 bands via revaluation notices.
Costs: Income tax basic threshold up ~£1,000 estimated; child payment auto via Social Security Scotland. How-to: Use gov.scot simulators; file self-assess by January 31 annually.
Expect scrutiny on efficiencies impacting services; save on ferries post-Orkney/Shetland peak removal. Diversify investments amid 1.3% growth caution.
Future Policy Outlook
Mansion tax-like bands and ADT rollouts signal progressive tilt, with aggregates tax scaling to £48m by 2030-31. Spending review maintains child poverty £163m, but £1.5bn savings loom.
Elections may drive bolder reforms; monitor SFC updates quarterly.
Frequently Asked Questions
What is Scottish Budget 2026-27 main focus?
It centers on £22.5 billion for health/social care and child poverty via £163 million measures like £28.20 weekly payments. Balances reliefs with tax freezes for revenue.
When does 15% business rates relief start?
From April 1, 2026, to March 31, 2029, for retail/hospitality/leisure on basic/intermediate rates, capped £110,000 yearly.
How will tax changes affect businesses?
Poundage drops to 48.1p/53.5p/54.8p; transitional relief limits hikes to 25% year one for small firms post-reval. Aids 37,000 premises but caps limit scope.
What are new council tax bands?
From April 2028, bands for £1-2m and over £2m homes post-revaluation, targeting luxury properties.
Why growth forecasts low at 1.3%?
SFC cites uncertainty, higher costs weakening demand; earnings lag UK despite GDP uptick from 1.1%.
Who qualifies for Small Business Bonus?
Properties under £12,000 combined rateable value get 100% relief for three years from April 2026; tapers above.
What infrastructure projects funded?
£200m for A9/A96 dualling, new Winchburgh station, ferry upgrades, Orkney/Shetland peak fare removal.
Can I get RHL relief on islands?
Yes, 100% capped at £110k for eligible remote properties from April 2026.
How much health spending increase?
£22.5 billion total, with walk-in GPs, doubled Hospital at Home beds by December 2026.
What criticisms from industries?
Hospitality calls 15% insufficient vs prior 40%; risks closures amid costs, per trade groups.
When Air Departure Tax starts?
April 2027, exempting Highlands/Islands; private jet surcharge added.
Best tips for rate revaluation?
Check values early, apply transitional relief; model 25-75% phased hikes via council tools.
Will council tax rise uncapped?
No limit for 2026-27; 2% real increase to local funding, potential hikes to fill gaps.
What child poverty measures included?
Scottish Child Payment £28.20/£40 under-ones, breakfast clubs, £163m total uplift.
How to prepare for income tax freezes?
Use gov.scot calculator for 42%+ brackets; adjust withholdings for fiscal drag.
Top wins for small businesses?
Unchanged Bonus Scheme, poundage cuts, £184m transitional over three years.
Impact on hospitality sector?
15% relief replaces discounts but caps/thin margins worry closures; faint praise overall.
