Finance Secretary Shona Robison has unveiled a draft Scottish Budget for 2026 27 that nudges down tax for low and middle earners, trims business rates and promises extra investment in key services, while warning that tough choices will continue across the public sector.
Scene‑setting introduction
The Scottish Government has published its draft Budget for 2026 27, outlining tax and spending plans against a backdrop of stubborn inflation, stretched public services and sluggish growth. Ministers argue the package is designed to support working families, protect the most vulnerable and create the conditions for longer‑term economic recovery, even as departments are pushed to find further efficiencies.
Scottish Conservative shadow energy secretary and North East MSP Douglas Lumsden said: “This Budget cements the SNP’s reckless desire to end North Sea oil and gas production and sounds further alarms bells over the uncertain future of our energy security.
“A pitiful £3 million to support former oil and gas workers into renewables is a drop in the ocean for the 1,000 jobs expected to be lost each month.The Scottish Government are completely out of touch with the national emergency facing the oil and gas industry, which is reflected in this underwhelming announcement.
“Their £5 million for carbon capture is a far cry from the £80 million promised in 2022 for the Scottish Cluster. Today’s Budget was an opportunity for the SNP to support exploration for new oil and gas fields, but instead they have failed to deliver a plan that protects jobs and keeps the lights on.”
Tax and household income
The Budget makes targeted adjustments to Scotland’s distinct income tax system, offering a modest gain for low and middle earners while quietly pulling more people into higher bands over time. Thresholds for the basic 20 per cent and intermediate 21 per cent bands will rise by 7.4 per cent, while the higher, advanced and top rate thresholds are frozen, a stance forecast to raise around £190 million in 2026 27 as wage growth pushes more income into the upper bands.
For households, the measures are packaged alongside a continued commitment to progressive social security, including further investment in Scottish Child Payment and a pledge to expand breakfast clubs to every primary and special school by 2027. Owners of the most expensive homes face future council tax hikes, with two new bands for properties valued above £1 million to be introduced from 2028, underlining the Government’s emphasis on “those with the broadest shoulders” contributing more.
John Kean, Azets’ Edinburgh-based private client tax partner said: “The Budget has maintained the government’s commitment to progressive taxation, with the thresholds for higher and advanced rates of tax remaining unchanged. The finance secretary did deliver some welcome news in announcing that the thresholds at which the basic and intermediate rates of tax bite will be increased by 7.4%. However, to put it into some perspective, this equates to a maximum tax-saving for an individual of around £32 per annum.
“The high rates of tax that will continue to apply means that careful income and remuneration planning for individuals and employers remains essential. A higher-rate ‘mansion tax’, similar to what is planned for England, is also set to apply to properties worth more than £1 million from April 2028.
“For businesses, continued pressure from non-domestic rates remains a key concern. Longer-term reform coupled with targeted reliefs for retail, hospitality and other high-street sectors is still needed to support competitiveness and investment.
“The government has aimed to balance fiscal constraints with social priorities but in so doing has added more complexity to the tax landscape. If they have any queries or concerns, businesses and individuals in Scotland should review their tax positions early to understand the full impact of the threshold rises and plan for the year ahead.”
Catherine McWilliam, nations director at the Institute of Directors Scotland, said: “Today’s budget lands at a time when business confidence in Scotland remains fragile. We welcome many of the Finance Secretary’s announcements, and while some elements will require closer scrutiny, the commitment to further funding for colleges, reduction of business rates and increase to income tax thresholds is a step in the right direction.
“IoD Scotland has consistently highlighted the impact of fiscal drag on both business leaders and consumers, while skills shortages remain a key issue for members. Today’s announcement will go some way in alleviating these concerns, but with an election on the horizon, our members are clear that stability is vital in long term planning”
Alan Stewart, Partner, MHA, the accountancy and business advisory firm: “This was certainly a Budget with one eye on May’s Scottish elections designed to help secure poll lead and head off attack lines from opposition parties. Many will see it as a step in the right direction for the NHS, families and business, with reductions in rates likely to be welcomed by the retail, leisure and hospitality sectors. Taxpayers paying tax at the lower tax rates will also benefit from the announced changes and there was also reference to support for oil and gas workers transitioning into renewables, although further detail will be needed.
“Additional funding flexibility from the UK Government, alongside £126 million previously allocated to mitigate the impact of the UK-wide two-child benefit limit and headroom arising from the Barnett formula, created the scope for the Scottish Government to direct further funding towards its priority areas.
“There was no major tax changes announced apart from the introduction of a mansion tax and private jet departure taxes, which will now lead to some interesting debates on the spending decisions made by the Scottish Government and how opposition parties would have used and prioritised the available funding.”
Business rates and growth measures
For businesses, the Budget blends modest rate cuts with time‑limited reliefs aimed particularly at the retail, hospitality and leisure sectors. All three non‑domestic rates poundage tiers will fall from April 2026, while a new 15 per cent relief for eligible retail, hospitality and leisure premises on basic and intermediate property rates will run across the next three‑year revaluation cycle, capped at £110,000 per business.
Marc Crothall MBE, Chief Executive of the Scottish Tourism Alliance (STA), said: “Today’s Scottish Budget recognises the pressure facing tourism and hospitality but falls short of the support needed to stabilise the sector and restore confidence.
While short-term relief and modest rate reductions offer some breathing space, they don’t tackle the wider issues driving business fragility. Relief remains capped, time-limited and insufficient for the scale of challenge.
STA research shows over 70% of businesses expect conditions to worsen, with many delaying investment or preparing redundancies. Margins are wafer-thin, and uncertainty remains high.
Additional funding for VisitScotland and infrastructure projects is welcome, but the Budget missed the chance to deliver real reform. We urge all parties ahead of the election to commit to a fairer business rates system that supports growth and long-term competitiveness.”
Martin Bell, tax partner at BDO in Scotland, said: “More than half of Scottish workers will pay less income tax than elsewhere in the UK, but higher earners will face a greater bill – up to £275 more a month for those on £100,000.
“A new council tax rate for £1m-plus properties effectively introduces a Scottish version of the mansion tax, which could dampen demand at that level and deter senior talent. While no further increases in property taxes were announced, purchasing in Scotland remains costlier than the rest of the UK.
“Business rate reliefs for smaller firms and parts of the hospitality and retail sectors are welcome, but it remains to be seen whether these will be enough to boost recovery.”
Island and designated remote area firms in these sectors will benefit from 100 per cent relief, again subject to a £110,000 cap, alongside the continuation of the Small Business Bonus Scheme and Business Growth Accelerator relief. Ministers say that, taken together, these measures mean the vast majority of retail, hospitality and leisure properties will pay zero or reduced rates, although some trade bodies have already branded the package underwhelming compared with support offered elsewhere in the UK.
Cllr Heather Woodbridge, Leader of Orkney Islands Council, Cllr Emma Macdonald, Leader of Shetland Islands Council and Cllr Paul Steele, Leader of Comhairle nan Eilean Siar said:
“We are delighted with the positive engagement we have had with the Scottish Government, resulting in this welcome announcement of an Islands Accelerator Model which will invest hundreds of millions of pounds in our three island communities. We have been working with the Scottish Government for several months on this matter and this is a very positive outcome.
“It is essential that our communities see clear and lasting benefits from the transition towards renewable energy production. Better infrastructure on our islands is an essential element of this transition and will also enable the Scottish Government to achieve its renewable energy ambitions.
“Our engagement with the Government has been professional, constructive and productive. We are confident that our ambitions are shared by the First Minister and the Finance Secretary.
“We anticipate futher engagement to confirm the scale and outcomes of this and future years’ investment.”
Public services, welfare and infrastructure
On spending, the Budget reiterates the Government’s priorities of tackling child poverty, growing the economy and addressing the climate emergency, while maintaining a record level of funding for health and social care. Social security support will rise again, with an extra £600 million taking total spending in this area to around £7.2 billion in 2026 27, at the same time as a cross‑public sector reform programme targets £1.5 billion of efficiency savings.
Sandra Gilchrist, Head of Tax for Scotland at KPMG UK, said:“Raising the lower tax rate thresholds will be welcomed by some employees. However, others may be disappointed that the high marginal rate for those earning between around £44,000 and £50,000 remains, despite pre-Budget rumours the Finance Secretary might address this anomaly.
“Further business rates relief should provide important support for many businesses, particularly across retail, hospitality and leisure, which have faced sustained pressure in recent years.
“Ultimately, Scotland’s economic prospects are closely tied to the success of the private sector. Creating the right conditions for businesses and people to invest and grow and will be key to supporting long-term economic success.”
Michelle Ferguson, Director, CBI Scotland, said: “Many business leaders will see this Budget as a missed opportunity to deliver pro‑growth policies and address high costs. Limited business rates relief may ease pressure slightly, but fundamental reform of the broken system is still urgently needed.
Continued tax divergence risks driving skilled workers south, although lower basic and intermediate thresholds will help many employees keep more of their pay.
Funding for A9 dualling, infrastructure, and climate‑positive investment is welcome, particularly support for offshore wind and the Grangemouth Industrial Cluster. But a clearer roadmap for energy infrastructure, faster planning reforms, and a focus on skills and competitiveness are essential to unlock long‑term growth.”
Capital commitments include nearly £200 million for further A9 dualling and upgrades on sections of the A96, investment in ferry fleets and a new rail station at Winchburgh, alongside more than £300 million for enterprise and regional economic development and enhanced digital infrastructure. Universities and colleges receive additional targeted funding, with ministers highlighting skills, apprenticeships and a just transition for oil and gas workers as central to Scotland’s long‑term competitiveness.
New and emerging taxes
The Budget also signals policy shifts in how wealth and environmental impacts are taxed, adding to Scotland’s divergence from the rest of the UK. Plans are confirmed for a devolved air departure tax with exemptions for the Highlands and Islands, alongside the introduction of a new levy on private jet use, which ministers frame as part of a fairer and greener approach to aviation.
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Chris Barber CA, CFO at ICAS, said: “While today’s Budget includes a few headline‑grabbing measures, it fails to address Scotland’s long‑term economic challenges. Small increases to income tax thresholds will make little real difference for low earners and won’t boost overall revenue, while fiscal drag will see more people pushed into higher tax bands.
“The government’s continued tinkering adds complexity instead of simplifying Scotland’s tax system. New council tax bands and business rate reliefs offer modest benefits, but with limited impact overall. Clearer long‑term plans for tax policy and economic growth are still lacking.”
From 2028, higher‑value homes will move into newly created council tax bands I and J, based on up‑to‑date valuations for properties over £1 million, while local authorities will have greater discretion over premiums for second homes and long‑term empty properties. These changes are intended to widen the tax base at the top end of the property market while shielding the majority of households from further council tax rises in the near term.
