Rachel Reeves announces biggest tax rise since 1993 as Scotland gets more funding than expected

After Labour’s first Budget for 14 years, the tax burden will now reach a historic high, while borrowing increases by an average of £32.3bn a year and spending rises by around £70bn annually over the next five years.

The Chancellor also unveiled an additional £3.4bn for Scotland, representing the largest real-terms funding settlement since devolution began.

However, her announcements led to the Prime Minister Sir Keir Starmer being accused of breaking his promise to “back Scotch producers to the hilt”, after another increase to alcohol duty.

Delivering her Budget, Ms Reeves said the measures were necessary to address the “black hole” in the public finances left by the Tories while pumping billions into schools and hospitals.

She confirmed plans to hike employers’ national insurance contributions and increase capital gains tax, while also making changes to inheritance tax and stamp duty.

And changing the way government debt is measured allowed her greater flexibility to borrow, resulting in what the Office for Budget Responsibility (OBR) called “one of the largest fiscal loosenings of any fiscal event in recent decades”.

The tax burden will reach 38.3 per cent of gross domestic product (GDP) in 2027-28, the highest since 1948 as the UK recovered from the impact of the Second World War.

In the first Budget delivered by a female chancellor, and the first Labour financial statement since 2010, Ms Reeves said: “This is a moment of fundamental choice for Britain.

“I have made my choices. The responsible choices. To restore stability to our country. To protect working people.

“More teachers in our schools. More appointments in our NHS. More homes being built.

“Fixing the foundations of our economy. Investing in our future. Delivering change. Rebuilding Britain.”

The announcement of increased funding for Scotland delighted Scottish Labour figures, with sources saying the additional £1.5bn in the current financial year left the SNP with no excuses ahead of the Scottish Government budget in December.

Secretary of State for Scotland Ian Murray said: “This is a historic budget for Scotland that chooses investment over decline and delivers on the promise that there would be no return to austerity.

“It is the largest budget settlement for the Scottish Government in the history of devolution, including an additional £1.5 billion this financial year and an additional £3.4 billion next year through the Barnett formula. That money must reach frontline services, to bring down NHS waiting lists and lift attainment in our schools.

“It will also bring a new era of growth for Scotland and the whole UK, confirming nearly £890 million of direct investment into Freeports, Investment Zones, the Argyll and Bute Growth Deal, and other important local projects across Scotland’s communities, as well as £125 million next year for GB Energy and support for green hydrogen projects in Cromarty and Whitelee.

“The increase in the minimum wage will also mean a pay rise for hundreds of thousands of workers in Scotland, with the biggest increase for young workers ever. This is on top of our employment rights bill which will deliver the biggest upgrade in workers’ rights in a generation. The triple lock means an increase in the state pension by £470 next year, on top of £900 this year for a million Scottish pensioners.

"The budget protects working people in Scotland, delivers more money than ever before for Scottish public services and means an end to the era of austerity."

Dunfermline and Dollar Labour MP Graeme Downie has now urged the SNP to use the extra funds to deliver on its promises.

He said: “Today’s budget will fix the foundations to deliver on our manifesto promise of change. It’s positive to see the Chancellor commit vital spending to Scotland including an additional £3.4 billion allocated to the Scottish Government’s coffers. It is now up to the Scottish Government to spend this on fixing our broken public services and to end their age of austerity in Scotland.

“This budget has delivered for Scotland, and it is time the SNP use the money to deliver what people need, including the long overdue Kincardine Health Centre. It’s time to stop dithering and get shovels in the ground to build it.”

The Scottish Trades Union Congress said the Budget left the SNP with no more excuses, and unable to continue blaming Westminster for a lack of funds.

STUC General Secretary Roz Foyer said: “The task now falls to the Scottish Government to take the decisions needed to invest, through progressive taxation, into our communities and public services. The Westminster blame game is finished. They have the money. They have the powers. They can make our public services the gold standard of the UK if they choose to invest using their own tax raising powers.

“This budget is a significant step towards brighter days, but greater strides will need to be taken by the Scottish government in the months ahead if we are to unlock the potential of our country and dispel the darkness left behind by the Tory Government.”

Stephen Boyd, director at the Institute for Public Policy Research Scotland, said tax rises were "inevitable", and labelled the funding for Scotland as "much more generous" than anticipated.

Speaking to The Scotsman, he said: "Given the hand dealt to the Chancellor, it was inevitable that taxes would have to rise in order to provide much needed investment to struggling public services. It should be noted that despite the scale of the tax rises announced today, the OBR assesses that tax as a share of GDP will rise by only 1 per cent- to 38 per cent - by the end of the decade. A tax to GDP ratio of 38 per cent is by no means remarkable and would put the UK only slightly above the average for OECD nations. Many countries manage to sustain significantly higher ratios over time.

"This looks like a much more generous settlement for Scotland than anyone had anticipated. A high settlement in the next financial year will not resolve Scotland's long-term fiscal challenges but it should lighten some of the immediate pressures. The Scottish Government has some hard thinking to do as to whether it replicates the UK government's focus on health and education or chooses to spread the additional funds more broadly".

Less happy with the Budget was the Scotch Whisky Association (SWA), which labelled the increase to duty as a “hammer blow” to the industry.

It had called for the Chancellor to reverse the 10.1 per cent duty increase announced last August by the Conservative government.

“Instead, the damage done to the industry and to government revenue has been compounded by further increasing the tax burden on the sector, which is already the highest in the G7,” it said.

The industry body said the previous increase resulted in whisky revenue falling by hundreds of millions of pounds, which ultimately led to a lower intake by HMRC.

Mark Kent, chief executive of the SWA, 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.

“On the back of the 10.1 per cent duty increase last year, which led to a reduction in revenue for HM Treasury, this tax hike serves no economic purpose.

“It will damage the Scotch whisky industry, the Scottish economy, and undermines Labour’s commitment to promote ‘Brand Scotland’.”