Scottish Budget 2026 to 2027: distributional analysis
Analysis of the estimated impact on household incomes resulting from tax, social security and public spending decisions made in the 2026-27 Scottish Budget and the 2026 Spending Review.
Introduction
This paper analysis the effects of tax, social security and key spending decisions included in the Scottish Budget 2026-27 and 2026 Scottish Spending Review on households across Scotland. It models changes in household incomes across income levels, age groups and household characteristics.
Distributional analysis is central to understanding the effect of these policies on inequality and identifying the households that benefit most.
The first part of this paper analyses the impact of Scotland’s tax and social security system on household incomes, both on its own and in comparison with the system operating in the rest of the UK. Understanding the overall effect of the social security and tax system as a whole provides essential context for assessing changes introduced in the annual Budget.
This section also considers the impact of removing two-child limit on households in Scotland, confirmed by the UK Government in Autumn 2025 Budget, considering interactions with the wider reserved and devolved social security system.
The second part focuses on selected policy changes announced or confirmed in the Scottish Government budget, specifically:
- Income tax policy changes
- Social security policy changes
These two parts of the publication consider only policies that affect households’ financial resources – namely personal taxes and cash benefits - and do not include in-kind benefits (such as free school meals or free early learning and childcare).
The third part of this paper extends the analysis of public spending published last year for the first time to include spending on Further and Higher Education. This analysis covers spending on Health, Schools, Education, Early Learning and Childcare and Transport. Overall, it covers approximately 70% of total resource spending (when Social Security is excluded which is analysed in parts 1 and 2). This part of the publication also explores the potential impact of decisions from the Scottish Spending Review published alongside the 2026-27 Scottish Budget.