UK Budget 2024: What it Means for Scotland’s Public Finances and Economy
Scotland is set to see a financial boost from the latest UK Budget, with Chancellor Rachel Reeves confirming a significant funding increase. Reeves announced that Scotland would receive an additional £3.4 billion in Treasury funding, marking what she described as the “largest real-terms funding settlement since devolution.” This substantial allocation underlines the scale of financial commitments that the Labour government is prepared to extend across the UK. Labour officials also noted that the Scottish government would gain an additional £1.5 billion in this financial year alone.
Scottish Finance Secretary Shona Robison acknowledged this increase as a positive step but shared her concerns regarding specific aspects of the funding plan. While the additional funding could offer a lifeline for Scotland’s finances, Robison highlighted some key disappointments in the Chancellor’s proposals. A major issue is that part of the funds could be quickly consumed by rising public sector costs. Approximately £500 million of the newly allocated budget might be needed just to cover increases in National Insurance contributions, which public sector employers will now be required to pay on behalf of their employees.
Robison has expressed disappointment that the Budget didn’t reverse cuts to winter fuel payments or lift the two-child limit on benefits, both measures that have significant implications for Scotland’s more vulnerable populations. “One Budget doesn’t change 14 years of austerity,” Robison stated, emphasising the need for “sustained investment” to reverse the effects of long-term budget constraints.
This funding announcement is timely, as Scotland’s government recently had to make significant cuts of its own, with £500 million being trimmed from its budget. Without additional funding, Scottish ministers warned that further cuts or tough choices would be inevitable when they lay out Scotland’s tax and spending plans in December.
The Chancellor stressed that this additional funding for Scotland should be “used effectively to deliver the public services that the people of Scotland deserve.” However, the intricate relationship between the UK and Scottish governments means that not all elements of the UK Budget apply directly to Scotland, especially in devolved areas like health, education, and transport.
The funding boost for Scotland, derived from what’s known as the Barnett Formula, reflects a share of increased funding allocated to similar services in England. Essentially, any increase in the UK government’s spending on devolved matters triggers a proportional boost to Scotland’s funding, as part of an agreement made with the Treasury.
One of the most notable outcomes of the Budget is the rise in the UK’s minimum wage, which will affect Scottish workers as well. From April, those aged over 21 will see their minimum hourly wage increase from £11.44 to £12.21. Younger workers aged 18-20 will see their minimum wage go up to £10, while apprentices will see a rise to £7.55.
The Budget also outlined a windfall tax on the profits of oil and gas companies, raising it to 38% from 35%. This tax, which will remain in place until 2030, affects many of the North Sea’s oil and gas companies operating out of Scotland. Despite protests from industry leaders, the Chancellor argued this tax is vital for the country’s economic stability. Additionally, the introduction of VAT on private school fees is expected to bring in over £9 billion across the UK, adding to the funds earmarked for public services.
Other key measures affecting Scotland include:
A continued cut to fuel duty of 5p per litre for petrol and diesel, now extended until 2025.
A requirement for employers to pay National Insurance on earnings over £5,000, reduced from £9,100, with a rate increase from 13.8% to 15%.
The employment allowance, which allows firms to reduce their NI contributions, is set to increase to £10,500.
The main rate of corporation tax remains fixed at 25%.
Taxes on non-draught alcoholic drinks, including whisky, will rise according to inflation, while draught drinks will see a 1.7% tax cut.
Capital gains tax on shares will increase to a maximum of 24%.
The Budget also included plans for a £70 million rural growth deal for Argyll and Bute and funding to support a green hydrogen project in East Renfrewshire, highlighting the Chancellor’s commitment to developing sustainable energy resources in Scotland.
This Budget sets the stage for Scotland’s economic future, as Holyrood prepares to announce its own spending plans in early December. While the additional funding offers a welcome increase, the associated costs and financial pressures reveal a complex economic landscape that the Scottish government will need to navigate carefully. MPs in Westminster will soon debate the Budget proposals in detail, with a final finance bill set to follow.
As Reeves put it, Labour’s Budget is focused on “stability, protection for working people, and rebuilding Britain.” Whether this new direction will satisfy Scotland’s economic and social needs remains to be seen but this does appear to be a good first step to economic stability. The Scottish economy but more broadly the British economy has lacked stability and growth and as such investment has been slow. Reeves has taken a cautious step towards righting the ship but we will wait to see if she has been too cautious.
