Chancellor urges Scottish Government to protect public services with additional £3.4bn

Chancellor Rachel Reeves challenged the Scottish Government to better fund public services as she announced the largest block grant in the history of devolution.

Delivering her first Budget, the first woman ever to do so, Reeves said she was “restoring stability to the public finances” while announcing £40bn of tax increases.

The Scottish Government will receive a record £47.7bn in 2025/26, including an additional £3.4bn through Barnett consequentials.

“This Budget provides the devolved governments with the largest real-terms funding settlement since devolution, delivering an additional £3.4bn to the Scottish Government through the Barnett formula,” Reeves told the Commons.

“Funding which must now be used effectively in Scotland to deliver the public services that the people of Scotland deserve.”

Reeves said her government had inherited a £22bn fiscal “black hole” from the previous government with “hundreds of unfunded pressures” on the public purse.

She said the National Living Wage would rise to £12.21 an hour from next year and the National Minimum Wage will rise for people aged between 18 and 20-years old from £8.60 to £10.

National Insurance contributions will rise from 13.8 per cent to 15 per cent for employers, while VAT will be charged for the first time on private school fees.

The chancellor outlined plans to appoint a Covid Corruption Commissioner to help clawback funds misappropriated during the pandemic. And she pledged £11.8bn and £1.8bn for the infected blood and Post Office Horizon scandals respectively.

Reeves also outlined an increase to capital gains tax and said she was abolishing the non-dom tax regime for foreign nationals. The inheritance tax threshold freeze will be extended to 2030, but inherited pensions will be brought into inheritance tax from 2027.

The chancellor said there would be no change to working people’s payslips as income tax, employee national insurance and VAT would all stay the same.

Scottish Labour leader Anas Sarwar said: “After 14 years of Tory failure, division and decline this Labour Budget turns the page on those lost years, fixes the foundations and starts to rebuild the country.

“This Budget delivers on the promises made in the election, ends the era of austerity, provides vital new investment for our public services and prioritises economic growth.

“After 14 years of austerity, we now have a UK Labour Government that is delivering £1.5bn additional funding for Scotland this year and another £3.4bn next year. This money must be used to support Scotland’s NHS and vital public services.

“Decisions taken today by this Labour Government mean that the Scottish Government is receiving more per person in Scotland than in the rest of the UK.”

But the SNP’s Westminster leader, Stephen Flynn, said the Budget would leave thousands of Scots worse off.

He said: “It's clear the SNP is winning the argument on the need for more investment in our NHS and public services. I welcome those areas where the chancellor has listened, including the decision to change the Labour government's conservative fiscal rules to allow for more investment.

“However, while additional funding for public services is welcome, the Labour government's Budget also imposes more than £40bn of cuts and tax hikes that will hit millions of Scots in the pocket - and it fails to deliver the transformative change people in Scotland were promised.

“The chancellor's decision to cut the winter fuel payment will leave around 900,000 Scottish pensioners up to £600 worse off this winter. The decision to keep the two child benefit cap and bedroom tax will push thousands of Scottish children into poverty. And the decision to raise National Insurance will hit low and middle income workers, and small businesses, the hardest.”

And Scottish Conservative leader Russell Findlay said: “We know what Sir Keir Starmer is going as for Halloween – Nicola Sturgeon. Labour’s tax-raising budget is straight out of the SNP playbook and will terrify hard-working Scots.

“Labour’s budget will hammer businesses, punish strivers, and leave pensioners worse off. This is not the change they promised – this is the same old Labour.”

João Sousa, deputy director of the Fraser of Allander Institute at the University of Strathclyde, said: “For Scotland, there has been a really significant uplift in spending – largely through the Barnett formula due to higher spending in devolved areas.

“Funding for day-to-day spending is £1.5bn higher this year, which is likely to make the Scottish Government’s job of balancing its budget significantly easier. Barnett consequentials are £3.4bn next year as well, of which £2.6bn is day-to-day spending. But although that is a significant amount, several hundred million of that will be compensation for higher staff costs through the NICs measure for public sector employers – so even though it’s a significant amount, it’s a bit less than would initially appear.”