UK Budget 2025: Which headline decisions effect Scotland and what matters are devolved - from income tax to the two child benefit cap
It’s one of the most discussed - and leaked - budgets in recent history, but not all of it directly impacts Scotland.
Following weeks of speculation, Chancellor of the Exchequor Rachel Reeves has delivered her Budget.
It’s been an uneviable job, with an estimated £30 billion black hole in the public finances to fill.
Early expectations that she would rip up Labour manifesto promises to not raise the rate of income tax may have not come to pass, but British people will still be hit in the pocket in many other ways.
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But due to devolution, many of the decisions she has made will not directly impact Scotland - although knock-on events may be inevitable.
Here we are looking at the main talking points of the Budget and whether they apply to Scotland.
Income tax
Income tax is fully devolved in Scotland so the Chancellor’s decision to freeze the personal tax thresholds until the end of the 2030/31 financial year - three years longer than planned - has no direct impact on Scottish workers.
The measure will mean more English and Northern Irish earners (Wales’ income tax is partially devolved) will be dragged into higher bands of tax in the coming years, effectively increasing the tax burden.
It will have a potential indirect impact on Scotland though, as it will have an effect on the block grant given to Scotland from Westminster, leaving Holyrood with less cash if it doesn’t follow suit.
The Scottish Government will set out its own Budget on January 13.
Mansion tax
The Budget has introduced a so-called ‘Mansion Tax’ for houses worth over £2million which is expected to raise £0.4billion. It is to be levied as “high value council tax surcharge”.
Council tax is a fully devolved matter in Scotland so it will not have any impact. There are also far fewer houses worth over £2million in Scotland in comparison to London - the main area that the new tax will target.
Fuel duty
Fuel duty will be frozen until at least next September, keeping the price of petrol down. This is a measure that will impact the whole of the UK.
Two child benefit cap
Rachel Reeves’ decision to drop the hugely-unpopular two-child benefit cap (which means parents can only claim universal credit or tax credits for their first two children) will cost £2.3 billion in 2026-27 and £3 billion in 2029-30. The Scottish Government had already announced that it would be effectively scrapped north of the border with a “mitigation payment” starting in March 2, 2026.
Electric vehicle tax
A new mileage tax for electric vehicles will be introduced in April 2028 equating to £0.03 per mile for battery electric cars and £0.015 per mile for plug-in hybrid cars, with the rate per mile increasing annually with inflation. This will apply to the whole of the UK.
Pensions
‘Salary sacrifice’ pension contributions (that’s when employers match employees’ contributions to their pension) of over £2,000 will no longer be exempt from National Insurance from April 2029.
Occupational and private pension policy, including the rules for employer contributions and automatic enrolment, is reserved to the UK Government - so this will impact Scottish workers and their pensions.
Direct funding to Scotland
Rachel Reeves has said that there will be a £820 million rise in ‘Barnett consequentials’ for Scotland - that’s the funding for the devolved Scottish administration that results from the changes in UK government spending on services in England.
She also mentioned a number of Scottish initiatives receiving cash, including more than £14m for low carbon projects at Grangemouth and £20m to redevelop Kirkcaldly town centre and seafront.
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