UK Income Tax Hike Could Trigger £1 Billion Cut to Scotland’s Budget, Warns Finance Secretary
Scottish Government highlights risk to NHS and local services if UK fiscal changes reduce the block grant
Scotland’s Finance Secretary, Shona Robison, has warned that a possible increase in UK income tax could have "a massive impact" on public services north of the border, potentially cutting the Scottish government’s block grant by around one billion pounds.
She stressed that the fiscal framework underpinning how London transfers funds to Edinburgh is not "fit for purpose" and must not leave Scotland as an "afterthought" in UK budget decisions.
The concern stems from Chancellor Rachel Reeves’ comments, ahead of the Autumn Budget due in three weeks, that tax rises may be needed to safeguard public finances.
Under the current arrangements, if the UK government raises income tax in England, Wales and Northern Ireland, the Block Grant Adjustment mechanism automatically reduces the funds allocated to Scotland — because the UK government treats the extra revenue it expects from Scotland as a deduction in its contribution.
Independent analysis from the Fraser of Allander Institute suggests that a two-percentage-point UK income tax rise could reduce the Scottish settlement by nearly one billion pounds annually for the next three years.
Robison said her government did not want to increase Scottish income tax to offset any shortfall, but stopped short of ruling out that possibility.
She called on the UK government to protect Scotland’s funding and scrap the two-child cap on benefits.
Meanwhile the Scottish tax system remains distinct, with Holyrood having set its own rates and bands; changes in UK income tax would not directly apply in Scotland, but the funding flows are affected.
The warning signals tension in the UK-Scotland fiscal relationship as Westminster prepares for major fiscal announcements and Holyrood braces for potential pressure on its budget for the upcoming Scottish Parliament election year.
She stressed that the fiscal framework underpinning how London transfers funds to Edinburgh is not "fit for purpose" and must not leave Scotland as an "afterthought" in UK budget decisions.
The concern stems from Chancellor Rachel Reeves’ comments, ahead of the Autumn Budget due in three weeks, that tax rises may be needed to safeguard public finances.
Under the current arrangements, if the UK government raises income tax in England, Wales and Northern Ireland, the Block Grant Adjustment mechanism automatically reduces the funds allocated to Scotland — because the UK government treats the extra revenue it expects from Scotland as a deduction in its contribution.
Independent analysis from the Fraser of Allander Institute suggests that a two-percentage-point UK income tax rise could reduce the Scottish settlement by nearly one billion pounds annually for the next three years.
Robison said her government did not want to increase Scottish income tax to offset any shortfall, but stopped short of ruling out that possibility.
She called on the UK government to protect Scotland’s funding and scrap the two-child cap on benefits.
Meanwhile the Scottish tax system remains distinct, with Holyrood having set its own rates and bands; changes in UK income tax would not directly apply in Scotland, but the funding flows are affected.
The warning signals tension in the UK-Scotland fiscal relationship as Westminster prepares for major fiscal announcements and Holyrood braces for potential pressure on its budget for the upcoming Scottish Parliament election year.
