What might income tax changes by the UK Government mean for Scotland?

2nd November 2025

Fraser of Allender Institute article looks at the budget on 31 October 2025.

The article notes that while the UK Government has pledged not to raise the basic, higher or additional rates of income tax, recent signals suggest an increase in income tax may no longer be ruled out.

For Scotland, where income tax on non-savings and non-dividend income is largely devolved (rates and thresholds set by the Scottish Government) the implications are more complex. Even if Scottish taxpayers may not see their bills change directly, Scotland's budget will be affected via the "Block Grant Adjustment" (BGA) mechanism.

The article gives an example: if the UK Government increased the basic rate by 2 pence, the Scottish Government's budget could fall by about £1 billion next year because the BGA deduction would increase.
FAI

The piece also highlights a possible policy route: the UK could increase income tax by 2p while cutting the primary rate of employees' National Insurance Contributions by 2p — this would raise revenue but shift the burden and have distinct outcomes in Scotland due to tax devolution.

The crux: any UK income tax change doesn't just affect Westminster’s tax base — it has a "knock-on" budget effect for Scotland, forcing the Scottish Government either to raise its own taxes or cut spending if revenue falls.

Read the full article HERE