Report on the Scottish Budget 2026-27

The Committee repeats its calls for the Scottish Government to work with the UK Government to address the anomalies arising from how Scottish income tax rates interact with UK national insurance and personal allowance policies. This work should include understanding and resolving potential behavioural impacts.

While we recognise the fiscal pressures in the Scottish Budget, we ask the Scottish Government in place after the election to consider the most effective way to ensure a fairer, more gradual and transparent approach to raising income tax revenues than continuing to use ‘fiscal drag’.

The Committee welcomes the Scottish Government’s decision that revenues gathered through the new higher-rate council tax bands will remain within local government.

We, however, seek assurances that the local government core funding settlement will not be adjusted downward to reflect these additional funds and look forward to receiving further details on how the revenues will be distributed, as and when this becomes available.

While the Committee wanted to see much greater progress towards reform of local government taxation in recent years, we urge the next Parliament at the start of the session to consider this.

The Committee seeks clarity on how the additional funding arising from recently announced NDR reliefs for pubs in England will be used for a similar purpose.

The Committee has significant concerns that the pressures on local government finance may lead to large council tax rises and some local authorities struggling to meet their statutory obligations. We therefore ask the Scottish Government to discuss with local government how and where further support might be provided to ease such pressures, including if additional funds become available through revenues or the block grant. An update on the Scottish Government's discussions with local government should be provided ahead of the Stage 1 debate.

While it is encouraging that the Scottish Government is exploring different ways to fund the delivery of complex social care, we do not consider the current model of funding to be sustainable given current and future demand. The Committee therefore urges the Scottish Government to explore with local government how a more sustainable model can be put in place that can meet the significant demographic challenges ahead.

The Committee remains of the view that the Scottish Government has not provided sufficient evidence of the sustainability of the social security budget. It is disappointing that the Scottish Government has not carried out the work we asked for, which would have provided much more data on this issue. We therefore urge the new Scottish Government to carry out these reviews as a matter of urgency when coming into office after the election.

The Committee also has continuing concerns regarding the impact of spending on social security on other areas of the Scottish Budget which are being squeezed. We therefore seek further information on the Scottish Government’s ‘public value’ work and how it will assess which social security programmes deliver the best outcomes, including in relation to universal payments. We would also like to see a clear timetable for when this approach will be fully in place.

The Committee asks the Scottish Government to discuss with the UK Government the merits of Scotland’s social security budget being reclassified as AME to provide more flexibility to meet unexpected increases in demand.

The Committee urges the Scottish Government to work with Social Security Scotland, the DWP and HMRC with a view to enabling data on devolved benefits to be included in the UK RAPID project in the future. This is important in enabling policymaking on social security to be based on the most reliable and up-to-date information.

Should there be a time lag on Scottish data being included in the UK RAPID project, options should be explored to release as much administrative data on devolved social security payments as possible, to allow more analysis to be undertaken.

The Committee welcomes the SFC's decision to present tables showing arithmetically which portfolios are being prioritised and deprioritised for funding. We request that in future Scottish budgets, an explanation should be included on why these decisions have been taken in the context of the Government’s key priorities.

Given our ongoing concerns regarding the significant financial pressures on Scotland’s colleges and the vital role they play in driving economic growth, we welcome the increased funding for this sector.

The Committee however remains unclear why some spending decisions, such as reductions to funding for SNIB and the enterprise agencies, do not appear to align with the Scottish Government priority of growing the economy.

We also seek further clarification regarding its decision not to provide an uplift in funding, as part of the significant increase in culture spending, to Scotland’s National Performing Companies, which are clearly providing demonstrable economic, wellbeing and social impacts.

The Committee welcomes the Cabinet Secretary’s commitment to discuss with the Cabinet Secretary for Constitution, External Affairs and Culture what level of clarity and certainty can be provided on the trajectory of funding the NPCs can expect over the Scottish Spending Review period. We look forward to receiving an update on the outcome of these discussions at the earliest opportunity.

The Committee recognises the improvements made by the Scottish Government throughout this parliamentary session on presenting budgetary information. However, like our witnesses and other experts, we are frustrated and disappointed that despite repeated requests, the Scottish Government has fallen short of baselining all routine in-year transfers.

We cannot understand the Scottish Government’s continued resistance to carrying out this request, when it would bring much-needed transparency, clarity and understanding to its spending plans.

The Committee therefore recommends that the Protocol currently under negotiation between the Scottish Government and SFC is updated to include agreement on how regular in-year transfers should be presented, in time to be implemented in the Scottish Budget 2027-28. Agreement should also be reached in the Protocol on a suitable timetable for the Scottish Government to provide COFOG data to the SFC for inclusion in its Budget forecasts.

The Committee would welcome further clarification on why some PPP repayments are clearly shown within portfolios while others do not appear in the Scottish Budget at all. We also ask the Scottish Government to consider how it can present information on the profile of PPP repayments more transparently in future years.

The Committee requests that the Scottish Government makes absolutely clear in future budgets what elements of funding is ‘new money’, to provide certainty for public bodies and local government and avoid the unhelpful and unnecessary confusion that has occurred this year.

The Committee recognises that the Scottish Government faces significant financial pressures and has limited flexibilities to manage cash flow across years. However, we continue to be concerned that one-off ScotWind funds are being used to plug funding gaps rather than allocated to net zero projects as intended.

The Committee notes that the Cabinet Secretary appears to be relying on additional funds becoming available through the block grant ahead of the UK general election to avoid drawing down the allocated ScotWind funds. We are not convinced this is the most effective and efficient way of managing Scotland’s finances and we therefore urge the Scottish Government to develop plans that ensure ScotWind funds are in future protected for their intended purpose.

The Committee seeks further information on the Scottish Government’s approach to delivering a Scottish Bonds Programme, how it will ensure due diligence, cost comparisons with other borrowing options, and value for money are at the heart of this Programme, and on what areas it plans to spend the £2.1 million fund allocated for 2026-27.

The Committee believes that a comprehensive review of the fiscal framework is now urgent. We urge the UK Government to work with the Scottish Government to develop a consultative approach for the review while balancing the need for early resolution.

We also ask that the views of witnesses on the need for greater fiscal flexibilities heard during our Scottish Budget 2026-27 scrutiny are reflected in the scope of the review, along with the recommendations in our letter of 19 December 2025.

A key theme of the Committee’s budget scrutiny this parliamentary session has been to urge the Scottish Government to recognise and respond to the significant fiscal sustainability challenges that lie ahead in the long-term, including demographic trends. As part of this work, we have repeated our calls for the Scottish Government to respond in full to the SFC’s two fiscal sustainability reports published in 2023 and then in 2025. It is deeply disappointing and disrespectful that on both occasions no response has been forthcoming.

We look forward to receiving the Cabinet Secretary’s reflections on the Lithuanian approach to collectively developing and implementing Lithuania 2050, that nation’s vision for the future, with a parliamentary committee monitoring progress towards achieving the vision.

The Committee welcomes the Scottish Spending Review which should provide a greater level of certainty to portfolios, public bodies and local government on the trajectory of spending they can expect over the next three years. We however agree with witnesses that more detail could have been included, such as level 3 figures split by capital and resource funding throughout.

The Committee therefore recommends that the incoming Scottish Government after the election prioritises updating the SSR as early as possible into the new parliamentary session.

The Committee is disappointed that the Scottish Government does not appear to have taken a zero-based budgeting approach to the SSR, despite our recommendations that it do so in autumn 2024 and 2025. Furthermore, there is very little detail in the document about the exact approach the Scottish Government did take. It is therefore not possible for the Committee to have any certainty that the Government took a comprehensive and credible approach.

The Cabinet Secretary during evidence to the Committee also made a number of references to the figures in the UK Spending Review changing in the run-up to the UK Government election. As we mention earlier in this report, the Scottish Government should be planning on the basis of the funding it knows it will have rather than what may or may not materialise.

The Committee looks forward to considering the SSR in more detail in evidence sessions with a wider range of witnesses during February and March 2026.

The Committee welcomes the Scottish Government’s progress towards tracking and measuring the outcomes of preventative spend through a budget-tagging approach. We seek further information on how this method will work in practice, including evaluating what has been achieved, even for very long-term programmes.

The Committee notes the information provided in the Scottish Government’s response to our pre-budget report on the measures in place to monitor progress and learn lessons from successful projects funded through the Invest to Save Fund.

We also welcome the extension of funding through the Invest to Save Fund for reform projects, although we question whether the level of funding will provide the transformational results as quickly as is required.

The Committee shares the view of witnesses who expressed concerns regarding the extent to which the targets set out in the Scottish Government’s Portfolio Efficiency and Reform Plans, including for local government and the justice portfolio, are achievable within the timescales proposed.

We, however, welcome the incentive provided to organisations to carry out reforms in the knowledge they will be able to retain their savings.

However, we urge the Scottish Government to ensure that all savings made are reported regularly to allow scrutiny of progress towards its overall targets. These reports should also include details of any impact on public service delivery.

The Committee is concerned that the SFC felt it had to use its own baseline assumptions rather than the Scottish Government’s pay policy for its forecasts. We share the views of witnesses that there is little or no recognition by the Scottish Government that its current pay policy has “been blown to bits” and that it is “kicking the can down the road” rather than addressing the issue now.

We understand that the Scottish Government plans to produce a new pay policy for 2027-28 and seek assurances on the steps it will take to ensure it develops a more sustainable pay policy in future.

The Committee has been requesting a detailed infrastructure plan for over two years. We therefore welcome publication of the IDP which provides more information on the Scottish Government’s plans for future infrastructure projects.

However, we share the view of witnesses that detail should have been provided on costs, timelines, and potential overruns for the projects and that the split between ‘delivery’ and ‘development’ casts some doubt on exactly what will be delivered and by when.

We ask the incoming Scottish Government to update the plans as early as possible after the election.

The Committee looks forward to discussing the IDP, including the level of confidence it provides for investment, with witnesses at a separate evidence session in March 2026.

The Committee notes the Officeholders’ share of the SPCB budget continues to grow. To support scrutiny, the Committee would welcome additional information in future SPCB budget bids on Officeholders’ budgets, including the reasons for any above-inflation uplifts and details of funding requests that have been rejected by the SPCB.

We further ask that additional legislative responsibilities for Officeholders be itemised in future submissions, and that Officeholders’ staff costs are broken down by employer and salary costs.

The Committee considers more could be done to enhance the value of the Parliament shop and increase turnover. We welcome the SPCB’s commitment to “give robust consideration, in our legacy […], as to how we might improve the offering and turnover of the Parliamentary shop”.

The Committee notes the SPCB’s budget proposal for 2026-27.

We welcome the additional information and enhanced presentation of the SPCB’s budget proposal, which we consider is helpful in supporting transparency and effective parliamentary scrutiny. This level of detail should be maintained in future SPCB budget bids. This report also makes a number of recommendations where additional information would be helpful, to further enhance clarity, transparency and understanding around the SPCB’s and Officeholders’ budgets.

We further welcome the SPCB’s work on developing a Medium-Term Financial Plan for Session 7 and reiterate our request that the plan is published in full to support future scrutiny of the SPCB’s budget bids.