Scottish Budget 2026 to 2027: distributional analysis

Summary

Distributional analysis is central to understanding the effect of these policies on inequality and identifying the households that benefit most.

This paper analyses the impact on household incomes of tax, social security and key spending measures set out in the Scottish Budget 2026-27 and the 2026 Scottish Spending Review (SSR) on households across Scotland.

The analysis shows:

• Scotland’s tax and social security system is progressive, supported by the decisions in the 2026-27 Budget and redistributes income from higher-income households to those on lower incomes. Households with higher incomes contribute a larger share through income tax and receive less in social security support.
• Since tax and social security powers were devolved in 2016, Scottish Government policy decisions have strengthened this progressivity. On average, households in the lower half of the income distribution are around £480 better off a year than they would be under UK Government tax and social security policies in 2026-27. Overall, around 62% of households in Scotland are better off or unaffected. Households with children benefit the most under the Scottish system, primarily due to support from the Scottish Child Payment.
• UK Government’s removal of the two-child limit means affected households in Scotland could gain an additional £300 per child each month. As some households will still be affected by the benefit cap, the Scottish Government helps mitigate this through increased spending on Discretionary Housing Payments. In addition, removing the limit makes some households eligible for devolved benefits linked to Universal Credit (e.g. the Scottish Child Payment).
• Compared to the 2025-26 Scottish Budget policy, the new approach to the Pension Age Winter Heating Payment gives higher payments to all pensioners earning less than £35,000 a year, with households in the second and the first deciles benefitting the most in 2026-27.
• Income Tax changes further increase progressivity in 2026-27. Lower-income households gain slightly from higher Basic and Intermediate rate thresholds, while higher-income households see reduced income due to the freeze on higher-rate thresholds.
• Progressivity is driven by the tax-benefit system. In contrast, public spending on health, schools, transport, education and funded early learning and childcare in 2026‑27 is estimated to be distributed similarly across income groups. However, across all areas, spending represents a higher share of income for lower-income households.
• The impact of the Scottish Spending Review decisions at the end of the spending review period (2028-29), measured as a share of household income, is estimated to be progressive relative to a baseline where spending is held flat in real terms across all areas. This reflects health spending growing in real terms. The estimated gains are proportionately larger for those on lower incomes (around 4.5% for the bottom quintile and 0.9% for the top quintile). Families with children under one, large families and single female households benefit the most.