Scotland’s Finance Secretary Shona Robison unveiled a £67.8 billion budget for 2026-27 on 13 January 2026, framing it as a “budget for Scottish families” that would ease cost-of-living pressures while investing in public services. However, the spending plans have drawn sharp criticism from business groups who warn that reduced rates relief will push firms toward closure despite modest reductions in property tax rates.
The budget, presented just four months before the Holyrood elections in May 2026, sets out spending plans approaching £200 billion over the multi-year Spending Review period. At its centre are record investments in health, major increases to child poverty support, and controversial new taxes on high-value properties and private jets – measures that reflect the SNP government’s progressive policy agenda but which business leaders say fail to address the fundamental challenges facing Scottish commerce.
Business Rates Relief slashed as revaluation looms
The most contentious element of the budget for Scottish businesses centres on non-domestic rates, where the government has cut relief for retail, hospitality, and leisure properties from 40% to 15% even as many firms face dramatic increases from the 2026 property revaluation.
Under the new arrangements, retail, hospitality, and leisure premises with rateable values up to £100,000 will receive just 15% relief on their rates bills for the three-year period from 2026 to 2029, capped at £110,000 per business annually. This represents a significant reduction from the 40% relief available in 2025-26, which applied only to properties with rateable values up to £51,000.
The Scottish Government has reduced the poundage rates across all three property bands: the basic property rate (for rateable values up to £51,000) falls from 49.8p to 48.1p, the intermediate rate (£51,001-£100,000) drops from 55.4p to 53.5p, and the higher property rate (over £100,000) decreases from 56.8p to 54.8p. While these reductions will provide some offset, industry leaders argue they are wholly insufficient given the scale of increases many businesses face from revaluation.
Leon Thompson, Executive Director of UKHospitality Scotland, described the relief package as “merely a sticking plaster to cap eye-watering bills” and cautioned that “the increases facing our local pubs, hotels, restaurants and cafes over the next three years are still staggering”.
The criticism centres on the fact that while the poundage rate reduction is positive, it does not offset the combination of significant revaluation increases and the loss of the more generous 40% relief scheme. Some businesses were already facing rate increases of between 400% and 550% before any reliefs are applied, according to warnings issued ahead of the budget.
Scottish businesses at competitive disadvantage to England
A key concern for business groups is that Scottish firms now face a less favourable rates regime than their counterparts in England. The Scottish relief is not only lower in percentage terms (15% versus England’s 40%) but is also capped at £110,000 per business, whereas the English scheme has no such cap.
Louise Daly, Head of Business Rates in Scotland at property consultancy Colliers, branded the budget “underwhelming” and warned it puts Scotland in a “worse property tax position than in England”. This disparity “could affect decisions and investment from large operators” considering investing in Scotland, she noted.
David Lonsdale, Director of the Scottish Retail Consortium, expressed similar concerns, saying the limited rates relief “falls well short of the permanent business rate discount on offer to retailers in England”. He warned that failing to match England’s more competitive regime could undermine investment decisions and employment in Scotland’s town and city centres, noting that “medium-sized and larger retailers underpin the vitality of our high streets”.
Transitional Relief and Small Business support
The Scottish Government has introduced several measures intended to soften the impact of revaluation. A Revaluation Transitional Relief scheme worth £184 million over three years will cap year-on-year increases in gross bills. For small properties with rateable values up to £20,000, increases are capped at 15% in 2026-27, rising to 22% in 2027-28 and 38% in 2028-29. Medium-sized properties (£20,001-£100,000) face caps of 30%, 44%, and 75%, while large properties (over £100,000) have caps of 50%, 75%, and 113%.
The Small Business Bonus Scheme, which exempts over 100,000 small businesses from paying rates entirely, will continue for the next three years at current rates and thresholds. For businesses losing eligibility for this scheme from April 2026, a new Small Business Transitional Relief will phase in bill increases at 25%, 50%, and 75% of the increase over three years.
Island and remote area businesses in retail, hospitality, and leisure sectors will benefit from 100% rates relief, also capped at £110,000 per business annually, covering properties on islands as defined by the Islands (Scotland) Act 2018 and in three specified remote areas: Cape Wrath, Knoydart, and Scoraig.
Additionally, electric vehicle charging points will receive 100% relief for 10 years from 1 April 2026.
Income Tax thresholds rise for lower earners
On personal taxation, the Scottish Government announced a 7.4% increase to the basic and intermediate rate income tax thresholds – a move designed to put “more money in the pockets of low and middle-income earners” while maintaining the SNP’s commitment that the majority of Scots pay less income tax than they would elsewhere in the UK.
From April 2026, the starter rate threshold rises from £15,397 to £16,537, while the intermediate rate threshold increases from £27,492 to £29,527. The higher, advanced, and top rate thresholds remain frozen at £43,663, £75,001, and £125,140 respectively.
Finance Secretary Robison said the changes mean “over 55% of Scots set to pay less income tax because they live in Scotland and have a Government led by the SNP”. The Scottish Fiscal Commission forecasts that income tax will raise £21,508 million in 2026-27.
However, independent tax analysts have questioned the framing of these changes as a “tax cut.” Dan Neidle of Tax Policy Associates noted that the real-terms impact is minimal – at most £31.75 per year – and that the frozen personal allowance means taxpayers are £72 worse off in real terms due to fiscal drag. He wrote: “In real terms nobody is receiving a tax cut. The real effect of the Scottish Budget is that the income tax increase from fiscal creep is slightly reduced”.
The threshold increases will cost the Scottish Government £50 million in 2026-27, but the continued freezing of higher rate thresholds is forecast to generate £190 million in the same year, rising to around £200 million annually from 2028-29 onwards.
“Mansion Tax” and Private Jet Levy
In line with policies championed by the Scottish Greens, the budget introduces two new council tax bands for high-value properties from 1 April 2028. Band I will apply to properties valued between £1 million and £2 million, while Band J will cover homes worth over £2 million. These new bands will be based on up-to-date valuations for these properties only, with all other homes remaining on the existing council tax valuation framework.
The Scottish Government says this “targeted change” will affect fewer than 1% of households and “seeks to ensure that those with the broadest shoulders contribute more”.
A Private Jet Supplement will also be introduced under Air Departure Tax in 2028-29, targeting the higher emissions of private jets versus commercial flights.
Record NHS Investment
Health and social care receives the largest single allocation in the budget: £22.5 billion, including a record £17.6 billion for NHS boards. This funding will support the national rollout of walk-in GP clinics – a key manifesto commitment from First Minister John Swinney – with £36 million allocated to make same-day appointments easier to access.
The budget also provides £200 million to reduce NHS waiting lists and support the reduction of delayed discharge, building on what the government says has been six consecutive months of falls in long waits. Plans to expand Hospital at Home services will see at least 2,000 additional beds by December.
However, there will be further delays to five proposed national treatment centres, which are now under review as part of a broader assessment of NHS Scotland’s infrastructure.
Public Sector Reform and Job Cuts
To achieve the budget’s spending priorities within constrained fiscal resources, the Scottish Government plans £1.5 billion in efficiency savings through public sector reform. This will involve cutting 11,000 public sector jobs on a “natural attrition and voluntary basis,” Finance Secretary Robison confirmed.
“The public sector needs to change, and it needs to be smaller,” Robison told STV News. She explained that the reductions would be achieved through “the use of digital and automation (services)” and that “services need to be delivered in a different way”.
The cuts will affect health boards, corporate services, and administrative functions, with the aim of ensuring “as much of that investment in public services to go to the frontline”.
Economic Outlook
The Scottish Fiscal Commission expects the Scottish economy to grow by 1.2% in 2026-27, slightly ahead of the UK average, before increasing to 1.3% in subsequent years. Inflation in Scotland is forecast to fall to 2.5% in 2026 and return to the Bank of England’s 2% target in early 2027.
However, the fiscal outlook remains challenging. The Commission notes that with limited growth in funding, the Scottish Government is “using the flexibilities at its disposal to smooth funding over the next four years” while seeking “ambitious savings, including through public service reforms, efficiencies, and cuts to the public sector workforce”.
Day-to-day spending will grow by an average of just 1.1% per year in real terms to 2030-31. While capital funding increases by 2.9% in real terms in 2026-27, there will be real-terms cuts to investment funding in all future years.
The budget was delivered just four months before the Holyrood elections scheduled for May 2026, giving it particular political significance. As a minority government, the SNP administration must secure support from opposition parties to pass the budget through parliament.
Finance Secretary Robison indicated that “key priorities of opposition members have been included” in the spending plans, including funding for neurodevelopmental assessments for children, investment in changing places toilets, bus franchising resources, and support for the redevelopment of Edinburgh’s King’s Theatre.
Business concerns remain
The 2026-27 Scottish Budget presents a complex picture for Scottish businesses. While the Scottish Budget delivers substantial public investment in health, infrastructure, and social security – areas the government says will support long-term economic growth and reduce poverty – the business community remains deeply concerned about immediate cost pressures.
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The reduction in rates relief for retail, hospitality, and leisure from 40% to 15%, combined with the removal of the rateable value cap and the looming revaluation, has created what industry leaders describe as a perfect storm of rising costs. The fact that Scottish businesses now face less generous support than their English counterparts has raised fears about competitiveness and investment decisions.
The budget will now undergo detailed scrutiny by the Scottish Parliament before final approval.
