Chancellor Rachel Reeves claims Scotland will get an extra £3.4 billion but does that mean for the Highlands?
Chancellor Rachel Reeves has delivered the first Labour budget for 14 years in what is a dramatically changed Britain – a post-EU and post-pandemic country still reckoning with the pain of the cost of living crisis and the war in Ukraine.
It has been widely reported that Scotland will get the largest block grant since devolution – possibly as high as £47.7 billion in 2025/26 with an additional £1.5 billion this year and a £3.4 billion next year.
That is sizable by any standards as all government budget figures are huge but there is no underestimating the real impact that £40 billion more in taxes will have - as we have covered the national insurance hikes for employers.
The Office of Budget Responsibility – which checks the government's numbers and assertions – said that the overall UK tax burden will rise from 36.4 per cent of gross domestic product in 2024/25 to 38.3 per cent in 2027/28.
Among the headline initiatives are some that will prove popular with many, including abolishing non-dom status; freezing fuel duty for next year; taking a penny off pints in pubs and raising the weekly earnings limit for carers
Some that could divide opinion are renewing raising duty on tobacco products including by 10 per cent on hand-rolled tobacco this year; introducing a flat-rate duty on all vaping liquid from 2026, and raising air passenger duty by 50 per cent for private jets.
But in what could eventually be positive for the Highlands in particular were announcements concerning money to rebuild schools and £5 billion for new homes as this would tentatively look like an increase for Scotland’s capital budget.
So what does that mean for rural Scotland, especially the Highlands?
Inverness-based economist Tony Mackay said: “It is difficult to assess the specific implications for Scotland because some of these activities are devolved to the Scottish Government.
“However, Rachel Reeves said that the Budget will mean an annual increase of £3.4 billion in the Scottish Government’s income. Another big increase is private schools having to pay VAT. However, there are very few private schools here, with the notable exception of Gordonstoun.
“I do not think that the Budget proposals will make much difference to the Highland economy, with the exception of the NI increases for small businesses. In any case it will take two to three years for most of the impacts to be felt. The Labour Party obviously hopes that growth in the economy will increase during that period.
“But that level of funding is supported by a huge rise in taxes – most notably in employers’ National Insurance contributions – but also in rising duty on tobacco and spirits.”
A ‘hammer blow’ for one of the region’s iconic industries?
The government will renew the tobacco duty escalator at inflation by plus two per cent while duty on hand-rolled tobacco will be increased by 10 per cent, as well as on spirits.
And on that note, the Scottish Whisky Association lashed out at the UK government for raising duty by the retail price index level of inflation next year rather than reverse the “damage done” by the 10.1 per cent increase in August 2023.
That could hurt north whisky employers as they are a significant player in the Highland economy, not least with big names like Glenmorangie and Dalmore among many others.
Chief executive of the association Mark Kent said: “This duty increase on Scotch Whisky is a hammer blow, runs counter to the Prime Minister’s commitment to ‘back Scotch producers to the hilt’ and increases the tax discrimination of Scotland’s national drink.
“It will damage the Scotch Whisky industry, the Scottish economy, and undermines Labour’s commitment to promote ‘Brand Scotland’. Rachel Reeves has also increased the tax discrimination of spirits in the Treasury’s warped duty system, and with 70 per cent of UK spirits produced in Scotland, that will do further damage to a key Scottish sector.”
