On Wednesday 28 October the UK Chancellor delivered the UK Budget for 2027-28. This UK Budget comes after a period of considerable economic and political change in the UK and globally. This is the first fiscal event since Andy Burnham became Prime Minister, since the 2026 Scottish election, and since the escalation of conflict in the Middle East.
This blog will summarise some of the key messages in the UK Budget, and the implications for the upcoming Scottish Budget for 2027-28.
A much changed economic context
The Office for Budget Responsibility (OBR) last published economic and fiscal forecasts on 3 March 2026. This was only 3 days after the US and Israel launched attacks on Iran, and so at a time of considerable uncertainty. This has already contributed to higher inflation than had been expected prior to the conflict, and further energy price increases are expected in 2027.
Higher inflation increases the costs for the UK Government as the costs of goods and services rise, as well as the costs of certain benefits which are linked to inflation. In addition, higher inflation expectations feed through to the interest rates charged to the UK Government for its borrowing. The forecast expects borrowing costs to be £18 billion higher this year, £16 billion higher in 2027-28 and then an average of £11 billion higher in the remaining years of the forecast.
The outlook for economic growth remains constrained. Real GDP growth in 2026 is expected to be 1.25%, falling to 1% in 2027. The OBR expect a slowdown in average earnings growth to continue, although the pace of this slowdown is more gradual compared to the March 2026 forecast. This reflects the higher inflationary environment, which it is assumed will lead to higher-than-expected wage increases.
Much focus has been on the ‘fiscal headroom’ available to the UK Chancellor. This is how much spending can increase while ensuring that there is a resource budget surplus – in other words that there is no borrowing to cover day-to-day spending. The OBR forecast in March that this headroom would be £24 billion in 2029-30. The deterioration to the economic outlook means that, without any action, this headroom would have reduced to £12.5 billion. Measures announced in the UK Budget are forecast to limit the reduction to the headroom to £14.5 billion.
What did the UK Chancellor announce?
A key theme since the changing of the guard at 10 Downing Street this year has been a desire to increase the ‘breathing space’. The UK Budget includes a number of measures which seek to reduce the impact that elevated energy prices will have:
- Announced a few hours ahead of the UK Budget, standing charges will be removed from household gas bills, to come into effect next year. The standing charge is a daily fee payable regardless of how much gas is used. Overall, this is expected to be revenue neutral – the costs are not being cut, but are being moved to the unit price of gas. This means that households with low levels of gas usage will save money, but households with higher levels of usage will pay more. HM Treasury have estimated that 60% of households will save an average of £45 per year. This implies that the remaining 40% of households will face an average increase of £67.50 per year.
- Households in council tax bands A-D will receive a £100 ‘household energy payment’ this winter, costing £2.6 billion. This applies in England only, and results in Barnett consequentials of £208 million for Scotland in 2026-27.
- The VAT cut to electricity bills, due to end in March 2027, has been extended to end of July. This is expected to cost the UK Government £755 million in 2026-27, and £305 million in 2027-28.
- The temporary 5p fuel duty cut, which was to end on 31 December 2026, has been extended until July 2027. This 5p cut was originally introduced for 12 months only but has been extended several times since. The latest 6-month extension is expected to cost £757 million in 2026-27, and £780 million in 2027-28.
Also announced a few days ahead of the UK Budget, the UK Government has suspended import tariffs on more than 100 products such as baked beans, chocolate, fertilizer and heating oil. These tariff reductions, alongside reductions already announced earlier this year, are expected to save the average household £21 per year.
The UK government will also introduce the Pension Tax Allowance (PTA) from April 2027, which prevents pensioners from paying small amounts of tax where their incomes only just exceed the Personal Allowance (currently £12,570 per year). Pensioners with incomes at or under the value of the full new State Pension will not be brought into paying tax because of State Pension uprating in this UK Parliament. The allowance will apply from 6 April 2027 until 5 April 2030 and will be uprated in line with the full new State Pension across this UK Parliament period. This measure applies in Scotland because it relates to the UK-wide Personal Allowance and the taxation of pension income. While Scotland sets its own income tax rates and bands on earned income, key tax allowances and pension tax rules remain reserved to the UK Government.
From April 2029, the government will introduce a First Time Buyers ISA, allowing contributions of up to £4,000 a year with a 25% bonus for qualifying first-home purchases up to £450,000. There will be no upper age limit. From 29 October 2026, Lifetime ISA holders buying properties above the £450,000 cap can withdraw funds with a reduced 20% charge, protecting the value of their original contributions.
The UK Government announced several tax changes as part of the Budget:
- A temporary increase to the Bank Corporation Tax Surcharge from 3% to 6% for 15 months (1 January 2027 to 31 March 2028) to fund announcements around supporting households with the cost of energy.
- An extra 20% reduction in business rates for pubs, music venues and social clubs as well as freezing business rates for all other retail, hospitality, and leisure properties for two years. These measures will not apply in Scotland as business rates are devolved. However, the Scottish Government will receive Barnett consequentials in relation to these measures, which it can use in any policy area. Barnett consequentials relating to changes to business rates total £37 million in 2027-28 and £60 million in 2028-29.
- Tax on gambling increased to fund business rates reliefs, and the UK Government has also excluded gambling establishments from business rates reliefs. The rate of Machine Games Duty will increase from 20% to 25% on machine games with stakes over £1 from April 2027. This will increase the rate on higher-risk machines, which are more associated with gambling harm and commonly found in venues such as adult gaming centres. The revenue raised from this measure will help to pay for the freeze in business rates for retail, hospitality and leisure properties, although as noted above the business rate changes announced in the Budget do not apply in Scotland.
As part of the Chancellor’s “Good growth in every postcode” initiative, two direct investments in Scotland were announced. A £6 million investment to expand Glasgow’s Scottish Event Campus and £18 million funding for a UK Advanced Chip Design Academy led by the University of Edinburgh.
Impact on the upcoming Scottish Budget
It’s worth highlighting that the timing of this UK Budget is welcome from a Scottish public finance perspective. Last year, the UK Budget was published on 26 November 2025. This left relatively little time for the Scottish Government to reflect on the implications for its own budget, and for the Scottish Fiscal Commission to produce an updated forecast. As a result, the Scottish Budget for 2026-27 was not published until after Christmas, reducing the time available for scrutiny. An earlier UK Budget has allowed the Scottish Government to set a 3 December publication for the 2027-28 Scottish Budget.
In addition to the timing issue, the UK Budget has a direct impact on the funding for the Scottish Budget through the Barnett formula. Changes in planned spending in policy areas in England which are devolved in Scotland (or the rest of the UK for some policies) results in the Scottish Government’s block grant being topped up or reduced. If, for example, the UK Government increases spending in a devolved area like education, then the Scottish Budget will be topped up by a per-capita share of this increased spending.
Spending decisions taken by the UK Chancellor in today’s budget result in a total of £600 million more in funding for the Scottish Budget between 2026-27 and 2029-30 (this excludes the impact of technical adjustments related to public pension contributions). The table below provides details of this by year and type of funding:
Funding type | 2026-27 | 2027-28 | 2028-29 | 2029-30 |
Resource | £329.2 million | £283.2 million | £253.9 million | – |
Capital | -£58.9 million | -£101.6 million | -£72.5 million | -£104.9 million |
Financial transactions | -£7.4 million | £25.2 million | £30.3 million | £22.5 million |
Total | £263.9 million | £206.9 million | £211.8 million | -£82.5 million |
The Scottish Government published its Autumn Budget Revision on 24 September, ahead of the UK Budget. Discussing this at the Finance and Public Administration Committee this morning, the Minister for Public Finance noted that the Scottish Government had anticipated £66 million in negative Barnett consequentials related to UK Government spending decisions to fund the Defence Investment Plan.
As shown above, while there are reductions in the capital and financial transaction budgets for 2026-27, these are more than offset by the increase in resource funding, which all told mean that the Scottish Government has £264 million more in funding for this financial year than previously anticipated.
For the 2027-28 Scottish Budget, £206.9 million more in total funding will be available than anticipated previously. While the capital block grant has been reduced by over £100 million , the Scottish Government could opt to use resource funding to top up its capital budget.
The economic and fiscal forecast published by the OBR is also welcome – this is the first updated forecast since March 2026. Ordinarily, the Scottish Fiscal Commission (SFC) would have published a Scottish forecast to accompany the Medium Term Financial Strategy (MTFS) in May, however the Scottish Government delayed this publication, and has since cancelled it.
This is not the first time that the Scottish Government has not published this document on time, as shown in the visual below:
Writing to the Finance and Public Administration Committee in June 2026, the Deputy First Minister and Cabinet Secretary for Finance and Local Government stated that:
“In practice, producing an MTFS that meaningfully informs pre-Budget scrutiny would require publication in September.
Publishing at that point in the fiscal cycle would mean basing our medium-term assessment on forecasts which would not provide a reliable picture of Scotland’s fiscal position. While the Scottish Fiscal Commission (SFC) could update its forecasts for publication, the corresponding Office for Budget Responsibility (OBR) forecasts used to calculate block grant adjustments would still be those published in March 2026. Those OBR forecasts are now dated, not least because they were produced before the recent Iran conflict and will, in any case, be superseded at the UK Budget in the autumn.”
Future Scottish elections will take place in May as well, so it seems reasonable to expect that this issue will arise at the start of future sessions of the Scottish Parliament.
In their Fiscal Update (August 2025), the SFC highlighted several pressures on the 2027-28 Scottish Budget. The Scottish Government will have to account for a £720 million negative reconciliation for Income Tax, the pressure to achieve the portfolio efficiencies outlined in the 2026 Scottish Spending Review, and the impact of higher-than-expected inflation in 2026 and 2027. The additional Barnett consequentials announced today will go part way to addressing these pressures, but the Scottish Government will still face difficult trade-offs in the 2027-28 Scottish Budget.
Andrew Feeney-Seale, Rachel Cook and Nicola Hudson, SPICe