Scottish Parliament Buildings: Reinhold Möller, CC BY-SA 4.0, via Wikimedia Commons
The 2026 Scottish Budget, published yesterday, has drawn initial reaction from academics at the University of St Andrews Business School. While the measures offer short-term relief for households, they caution that Scotland’s longer-term economic challenges remain unresolved. Their comments highlight the need to support growth more actively and to maintain credibility with investors following the launch of Scottish Government bonds.
Dr Song Zhang, Lecturer in Banking and Finance, said:
“This Budget takes a pragmatic short-term approach to easing pressure on households while operating within very tight public finances. Raising the basic and intermediate income tax thresholds helps prevent low- and middle-income earners from being pulled further into tax as living costs remain high, while freezing thresholds at the top end shifts more of the burden upwards. That two-part approach is defensible in the current fiscal climate.
Dr Song Zhang
“But it largely buys short-term relief rather than solving deeper structural problems. The core challenge for Scotland’s public finances is that day-to-day spending continues to rise year after year, while long-term sources of revenue are not growing fast enough.
“The focus has to move towards growth. Strengthening the small business economy matters in particular. Small firms are the engine of employment and can spread the benefits of growth more widely. Alongside this, sustained and well-targeted infrastructure investment is essential, as its returns only materialise over the long term.”
“The Budget reflects a continuing period of tight fiscal space, and that shows in the scale of the measures. The changes to income tax thresholds will technically leave some households better off, but the gains are minimal. The most the difference will amount is only a couple of pounds a month, unlikely to materially change how households experience the cost of living.
Dr Jonathan Swarbrick
“From a macroeconomic perspective, the more striking feature is the lack of ambition around growth. This is a Budget focused on managing pressures rather than shifting Scotland’s longer-term economic trajectory, with little that would significantly improve productivity or growth prospects.
“The introduction of Scottish Government bonds are symbolically important and may slightly diversify funding sources, but they do not materially expand fiscal space. Borrowing limits remain institutionally set rather than market-driven, so the underlying constraints on public finances remain unchanged. Without stronger growth, future budgets will continue to rely on marginal adjustments rather than addressing the deeper imbalance between rising spending pressures and limited headroom.”
“Credibility and predictability are the primary currencies for both bond investors and businesses planning long-term strategies. Issuing Scotland’s first government bonds is therefore a significant test of that credibility, particularly as it comes alongside tighter day-to-day spending compared with earlier plans and an increased reliance on one-off funding measures.
Dr Sapnoti Eswar
“In that context, questions about the feasibility and timing of future capital projects are likely to persist. Markets will be watching closely for signs that announced investment plans can be translated into on-the-ground delivery. If execution matches ambition, the bond programme could help anchor investor confidence and reinforce Scotland’s standing in capital markets. But any perception of slippage or instability will be quickly priced in. For investors, consistency matters at least as much as intent.”
