Scottish Budget 2026-27 - patch and mend

 The Scottish Government has published its draft budget for the coming year. I wrote a pre-budget briefing for the Jimmy Reid Foundation outlining the challenges facing the Finance Secretary. I also penned an opinion piece in The National, setting out what I, and Tax Justice Scotland, hoped to see in the Budget. The extra cash in the UK budget meant that the Scottish Government could patch and mend the Scottish Budget this year - at least for resource funding. However, the looming deficit means that we need to start putting Scotland’s finances on a sustainable footing. We need a longer-term view, particularly on tax. 

"We’ve patched, postponed, pretended. Now Scotland must choose: keep letting services quietly crumble, or invest properly in the people and places that make this country tick. That requires an open debate on our willingness to pay for the country we want. And the really big question is whether, in an election year, our politicians are willing to have it."

God loves an optimist, but hoping for tough choices in an election year was probably too much to ask for. Not unlike the UK Budget, what we got was patch-and-mend. This is my quick take.

Not that there are no welcome patches. Breakfast clubs, a bit for housing and college funding; not enough, but some relief for a hard-pressed sector that has been discriminated against for years. The Scottish Living Wage for social care workers is always welcome, but it will take more than that to address staff shortages in the sector. Equally important, there is little sign that the government understands the link between social care and hospital capacity, as set out in yesterday's SHA survey and Audit Scotland report. The increase in the Child Payment is welcome, if insufficient, and at least demonstrates a willingness to address child poverty.

The capital budget is struggling, although, in fairness, this largely reflects the Scottish Government's inadequate borrowing powers. Promises to deliver projects long into the future will convince no one. A two per cent 'real-terms' increase in council funding will hardly touch the sides of the demands on local government services, so difficult tax decisions have just been outsourced to councils. This chart from the SFC highlights the problem. 

There are also some positive tax measures. Taxing private jet departures is something many of us have argued for. Raising the thresholds on basic and intermediate income tax rates retains the progressivity of the Scottish approach and allows the government to claim that 55% of Scots will pay less income tax than the rest of the UK, sustainable or not. The Scottish version of the Mansion Tax won't raise much revenue (nothing next year), and it is a long way from the Council Tax reform the SNP promised as far back as 2007. More patch and mend there. 

Instead of a proper review of business rates and the weak Small Business Bonus scheme, we have another patch, unlikely to satisfy many on either side of this debate. And £1.5bn savings from public service reform - that will be right! The Scottish Fiscal Commission's forecasts don't make great reading either, on the economy, tax, or public finances.

SFC, "Overall, the additional funding available to the Scottish Government for both resource and capital relative to June 2025 is small compared to the size of the Budget and the scale of the fiscal challenges identified by the Scottish Government in its MTFS in June 2025." If the wishful thinking reform savings don't materialise, and most are from health and social care, this could get very serious. As the SFC says, "The progress towards achieving these targets for recurring savings to date, and the number of health boards not breaking even, suggest that it could be challenging for the Scottish Government to deliver the efficiency savings it has incorporated into the Health and Social Care portfolio spending plans."

Overall, this is a classic election-year budget. A few eye-catching sweeteners, a little cash spread around to placate as many people as possible, and promises of great things in years to come. The tough decisions are deferred to the next government.

Water and wastewater reform

 Let’s talk about water and wastewater. A subject that is rarely discussed in Scotland for two main reasons. Firstly, it rains a lot, so we don’t think there is a water scarcity issue. Secondly, with a public water service, we have avoided the shambles of the privatised system in England and Wales. However, both of these assumptions are misleading.

While we are better placed in terms of water use than many countries (2 million people worldwide die annually due to water-related causes), water scarcity is a growing problem, particularly in the east of Scotland. The chart below shows that half the population will face water scarcity by 2050, with drought conditions occurring every 3 years instead of every 20. The population is rising (13% p.a.), we have large rural areas that often rely on poor private supplies, and there is growing industrial demand caused by developments, including large data centres.

In response to this, we need to use water more efficiently. Water consumption in Scotland is higher than in other European countries, partly driven by cultural assumptions about abundant water and by very limited household metering. 

Scottish Water has a big investment programme (£886m last year) to strengthen the ageing water and wastewater infrastructure. However, this is only 40 per cent of the need, so they prioritise. There is also the cost legacy of the Private Finance Initiative (£170m p.a.). New household design developments are increasing water run-off, with 2300 properties at risk of sewer flooding (up 60% by 2050). Scottish Water has limited monitoring of outflows compared with England, although progress is being made.

To reduce investment costs, we need to use water more efficiently. That includes reusing water as recommended by a World Bank report. This could save 50-80 litres of water a day in a typical household. We also need to invest in green infrastructure (green roofs, permeable pavements and retaining gardens), mandating some of these through the planning system. Modern data and computer models make this more achievable. All of this requires replacing the outdated legislation, as the EU is currently doing. The Scottish Government has consulted on this, but progress has been glacial.

That leaves reforming our current public service structure. I set out much of this in a paper for the STUC, based on research commissioned by the University of Strathclyde. This essentially involves abolishing the costly and unnecessary regulatory model, which is identical to the failed English model. As the recent scandals have highlighted, the Water Industry Commission is no longer fit for purpose, if it ever was. This model has also driven the stealth privatisation of Scottish Water, which now has 400 private contractors (2,000 staff) delivering around half the service. Some 45 per cent of wastewater treatment was privatised using PFI, and the entirely unnecessary non-household marketisation has created additional costs for businesses. 

A public service model would enable a better industrial relations approach, with a worker director and a partnership structure based on the NHS Scotland model. It is hardly surprising that Scottish Water increasingly looks like a failing English water company (with managerial bonuses to match), when most of its board comes from the privatised sector. There is also a case for greater decentralisation, including better community engagement on water solutions. 

As a country, we need to better understand the issues surrounding water and wastewater, and a Citizens’ Assembly approach might help. We may be in a better position than England and Wales, but that won’t last much longer unless we act now.

Keep Britain Working

 Keep Britain Working is the final report of the Mayfield Review into the issues surrounding ill-health and disability in the workplace. Earlier this year, I wrote, with Ian Tasker of Scottish Hazards, a paper for the Jimmy Reid Foundation, Tackling the Causes of Working Age Ill Health, covering similar ground.

We share a common understanding of the problem. As the report says, "Over one in five working-age adults are out of the workforce, substantially because of health problems. Mental ill-health among young people is rising sharply. Older workers are leaving too early. Disabled people remain locked out of work at twice the rate of non-disabled people." It is also true that other countries do better. 

We also have common ground in diagnosing the problem. He found three persistent problems:

• a culture of fear, that is felt by employees and, differently, by employers, especially line managers. This creates distance between people and discourages safe and early disclosure, constructive conversations and support just when they are needed most
• a lack of an effective or consistent support system for employers and their employees in managing health and tackling barriers faced by disabled people. This lack of support is sometimes compounded by a ‘fit note’ system that is not working as intended
• structural challenges for disabled people, creating barriers to starting and staying in work. Compared to international comparators, the UK lacks systemic levers to support disabled people in work, leaving them disproportionately excluded and talent wasted.

The Mayfield solution is "a fundamental shift from a model where health at work is largely left to the individual and the NHS, to one where it becomes a shared responsibility between employers, employees and health services." This includes a recognition that employers need to do more. This was the core message in our paper. Sadly, the Mayfield Review paints too rosy a picture of existing occupational health provision. As we pointed out, very few employers (as low as 3%) invest in the wider range of services that occupational health professionals can provide. For too many employers, the solution to ill health at work is increasingly punitive absence management systems and dismissal. The review also almost entirely ignores the role of safety in the workplace and cuts to the HSE.

The Healthy Working Cycle recommended in the report is fine, as far as it goes. The major failing in the report is the lack of a structural change to ensure it actually happens. His solution is "the development of a Workplace Health Provision (WHP) which is built from the range of existing provision but looks to amplify, expand and improve the availability of it."

The report's delivery option is "a flexible, market-led solution, with employers funding the provision and choosing certified providers that meet their needs. Providers will be assessed against national standards – possibly stewarded by government – giving employers access to a wide range of trusted options." There is very little stick and a marginal carrot in this solution, other than "Over time we would expect that this provision would be formalised and certified." The question any reasonable person would ask is, when we look at where we have got to under the current arrangements, what makes you think employers and their totally inadequate occupational health providers will change?

I don't disagree that employers should fund improved occupational health, as it is their statutory duty, albeit one that is little enforced. However, we recommended "An integrated approach to working-age health, underpinned by including occupational health and vocational rehabilitation in mainstream health care, which no longer relies on inadequate private sector providers." This could be funded in a similar way to the Apprenticeship Levy, which ensures that all employers, regardless of their performance, contribute.

The Mayfield Review claims its changes are ambitious. Sadly, they fall well short of that. Having correctly diagnosed the problem, their recommendations are a hope that employers will change their ways. The cultural change that is needed should have a statutory underpinning; otherwise, in another ten years, we will be asking the same questions, with thousands more workers excluded from work due to ill health. The taxpayer will be picking up the bill, with economic growth a pipe dream.

Defending Democracy

 I was speaking at an EIS conference last Saturday on the challenges facing our democracy. It prompted me to examine the evidence more closely.

Democracy

Let’s start with the state of our democracy. Polling by NCSR highlights the scale of the challenge. They conclude, ‘All in all, it appears that people’s trust in governments and politicians, and confidence in their systems of government is as low now as it has ever been over the last fifty years, if not lower.’

Similar polling by ERS found that a massive three-quarters (76%) of the public feel that politics needs to improve significantly. Lower for Tory voters, higher for Reform voters, and the average for Labour, Lib Dems, and SNP. Politicians command lower levels of public confidence than members of any other profession, even estate agents! This is particularly unfair. I have dealt with hundreds of politicians over the years, and very few meet the ‘in it for themselves’ stereotype. They may get it wrong, but their motives are generally positive. Having said that, I do think the professionalisation of politics is a problem. It shouldn’t be a career in the traditional sense, and politicians should gain broader experience before seeking elected office.

One consequence of declining trust is an increase in support for electoral reform. Sixty per cent now favour changing the UK electoral system to proportional representation, with only 36% opposed. This represents a notable shift over the past few years. Here's a worrying statistic: Reform could secure a majority in Westminster with just 30% of the vote. 

Another shift in my lifetime has been the decline of voting differences by social class. Age is now the biggest dividing line. However, those who believe young people will save us may be indulging in wishful thinking. A University of Glasgow survey found 63% of young people believe democracy is ‘in trouble’ while 27% say they’d rather live in a dictatorship. In Spain, 40% of men aged 18 to 34 report planning to vote for Vox, a far-right party.

There is also little comfort to be had in Scottish exceptionalism. There are slight differences in polling on progressive policies, but it isn’t huge. At least on economic issues, Scotland remains socially conservative.  Even on immigration, 56% of Scottish voters think it is too high. And that’s even though the Scottish economy and public services would suffer significantly without immigration. There is some comfort in the fact that actual voting is more progressive so far.

This isn't just a Scottish or British issue. Oppressive and often violent authoritarian forces have successfully tipped the international order in their favour in many countries, exploiting both the advantages of non-democratic systems and the weaknesses in ailing democracies.

Disinformation

So, what’s behind this shift in attitudes towards liberal democracy? There are economic reasons, including a fall in real wages and a drop in the standard of living. However, you only need to listen to the irritating vox pop interviews on the TV to realise that disinformation is widespread. 

It begins with basic misinformation, such as questions about which services are devolved. I wasn’t brave enough to blame teachers at an EIS conference, and my wife was a modern studies teacher. Like the attainment gap, these issues are societal in nature, and schools cannot address them alone. When even mainstream (supposedly neutral) broadcasters like the BBC uncritically promote Reform, it’s unfair to place the blame solely on schools.

Disinformation is nothing new, but social media has made it easier to spread inaccurate information widely. Research shows that people may be more likely to believe disinformation if it aligns with their existing beliefs, triggers an emotional response, originates from a trusted source, or if they encounter it repeatedly. Believing in conspiracy theories is not a harmless eccentricity. It signals a fundamental failure of judgment. People who embrace such beliefs show they cannot evaluate sources, weigh evidence, or think critically about the world around them.

Disinformation is actually encouraged by the ’reward systems’ on social media. A Yale University study found that the issue was systemic, not just individual. Fact-checking has been largely abandoned by technology companies, citing freedom of speech, even when it involves dangerous disinformation on topics like vaccines. As President Macron says, "We have been incredibly naive in entrusting our democratic space to social networks that are controlled either by large American entrepreneurs or large Chinese companies, whose interests are not at all the survival or proper functioning of our democracies."

Countries are adopting different strategies, including regulation (Digital Service Legislation), countering bots (in California), robust public information schemes (UN Verify), and fact-checking (BBC Verify or The Ferret in Scotland). A free and diverse media is also vital, as is fostering digital literacy in schools. A University of Birmingham study found that 9- to 11-year-olds can be taught to help identify fake news.

Political Parties

Political parties have adopted one of three strategies: ignore, adversarial, or co-option. A European study showed a tendency towards what they called ‘responsiveness’ while remaining aligned with the party’s policy goals. The UK Labour Party has been adopting this approach, despite polls indicating that its voters are shifting to left-wing parties, rather than Reform Ltd. However, for social democratic centre-left parties, academic research is clear: do not move towards the populist radical right on policy.

What is clear is that strong policy arguments alone are insufficient. This can be somewhat discouraging for think tank directors like me! Policy effectiveness is not the same as democratic legitimacy, ‘voice of the people’, or the strategies adopted by the far-right. Politicians like Trump and Farage see blatant lies as a legitimate strategy. 

I have drafted two political party manifestos and contributed to many more. There is an inherent conservatism in their approach, believing that people vote against policies, not for them. The problem is that they sound bland and say nothing that connects with the real-world experiences of voters. Today, I attended the Tax Justice Scotland conference, and the responses from the political panel were generally predictable. The traditional economic analysis by the IFS, OBR, and Fiscal Commission tends to reinforce this groupthink. I disagree with Richard Murphy that all parties are the same, but there are some common themes.

Conclusion

In conclusion, a problem exists, and democracy is in danger. Disinformation is a key issue that must be addressed alongside new strategies to tackle the challenges faced by Western democracies. Political parties have yet to develop an adequate response, and civil society more broadly must step up and be part of the solution.

Making Defence an Engine for Growth

 Following the publication of its new Defence Strategy, the UK Government has now released its Defence Industrial Strategy, titled 'Making Defence an Engine for Growth'. 

This is undoubtedly the most significant defence policy reform in decades, and something many of us have argued for. In 2023, I wrote a paper for Prospect on defence procurement in which I concluded, 

“Without a thriving defence industry, the UK puts at risk its freedom to act in defence of the country’s interests at home and abroad. And the armed forces risk losing their technological advantage over actual and potential enemies. Achieving these aims requires a commitment to sustain and strengthen national defence design, manufacturing and support capabilities in a partnership between the MoD and industry. The UK by default.”

At the Westminster launch of the paper, the then shadow minister said a future Labour Government would prioritise sovereign capacity in defence procurement. So, how does the new strategy match up?

There is to be a 10-year Defence Investment Plan, although we will have to wait a few months for the details. This is vital, as defence industrial capacity cannot be switched on and off quickly. The sector needs certainty, and the commitment to increase defence spending to 2.6% of GDP by 2027, with a trajectory towards 3% in the next parliament, and 5% by 2035, is also vital to the strategy. 

The priority outcomes all tick the right boxes:

1. Making Defence an Engine for Growth

2. Backing UK-based businesses

3. Positioning the UK at the leading edge of defence innovation 

4. Developing a resilient UK industrial base

5. Transforming procurement and acquisition systems

6. Forging new and enduring partnerships

The strategy promises £250 million of public funds for the creation of five new “Defence Growth Deals” in the UK. Investment will initially be provided in Plymouth, South Yorkshire, Scotland, Wales and Northern Ireland. Ministry of Defence spending already provides more than 11,000 jobs in Scotland, and the UK Government hopes these growth deals will 'unleash potential' from businesses and research institutions in Scotland. This is in addition to the £10 billion deal, which will see warships for the Norwegian navy built in Glasgow, and possibly more from Denmark.

In structural terms, they have established a new partnership with the industry, through the Defence Industrial Joint Council, with a welcome involvement of trade unions and other stakeholders, beyond the usual suspects. This places a strong emphasis on people and skills, something that was previously lacking in strategies. 

The details of procurement reform are less clear. The Procurement Act enables many of the recommendations outlined in my 2023 paper, including direct awards and the consideration of social value in procurement. This is something the Scottish Government needs to act on. The Scottish procurement legislation predates Brexit and is in urgent need of reform. However, it remains to be seen whether the segmented approach to procurement and the tighter timescales will be successfully implemented. There is more work to be done here. I would also have liked to see more on Fair Work and other local procurement benefits.

There is also a bit of spin on the concept of ‘military Keynesianism’. I think we should be cautious about this, as jobs and other economic spin-offs are simply a welcome by-product. Different forms of public spending deliver higher economic multipliers. Increasing defence spending is necessary given the threat from Russia and Trump's foreign policy. It therefore makes sense to maximise the economic benefits from this necessity, rather than suggesting it is the best way to drive growth.

Overall, this new strategy is moving in the right direction, but there is still more work to be done.

Outdated and Unfair: The Case for Council Tax Reform

 I have been working with the Tax Justice Scotland campaign on the case for Council Tax reform. This week, we have published a briefing that throws down the gauntlet to Scotland’s politicians, demanding they end decades of inaction and commit to replacing the unfair and outdated Council Tax in their 2026 election manifestos.

There is cross-party agreement that Council Tax is unfit for purpose, and a broad consensus amongst the policy community, supported by several reviews, on the solution. It is now a decade since the 2015 cross-party Commission on Local Tax Reform concluded that ‘the present Council Tax system must end.’ The problem is a lack of political will – moving implementation from the ‘too difficult’ tray. We are therefore calling for concrete manifesto commitments to:

• Abolish Council Tax and replace it with a fair, modern property tax.
• Launch a national revaluation of property as a first step in the next Parliament.
• Ensure the new system is local, proportional, and protects those on low or fixed incomes, while ensuring effective transition support is in place.

It is beyond absurd that properties are still valued for tax purposes as if it were 1991. I recall giving evidence to the Scottish Parliament Local Government Committee in the mid-2000s, pointing out that it was then 15 years since a valuation, and asking how much longer? 20, 25, 30 years? Well the answer was even more than that!  The uneven distribution of house price increases has also led to many properties with similar 1991 values having wildly different values in 2025. The Institute for Fiscal Studies says that over half of properties are in the wrong Council Tax band relative to where they would be if valuations were brought up to date. This has further entrenched the regressive nature of Council Tax, with the burden falling most heavily on people in less valuable properties. 

The consequences of the failure to reform can be seen in every community, with councils raising charges for services or cutting them entirely, which most negatively impacts those least able to afford them. The regressive and inflexible nature of Council Tax makes it difficult for councils to use it as an effective tool for funding public services. A prolonged period of nationally imposed Council Tax freezes in Scotland further restricted local councils’ already limited financial autonomy relative to comparable countries. Think of taxes like paying into a pot we all draw on: it’s how we keep our schools and libraries open, our care homes running, reduce the cost of public transport, and keep our streets safe. It’s about paying for the  foundations (the social infrastructure) that make our society one that we all want to live in.

The briefing explains why successive studies have agreed that a reformed property tax is the best solution. A reformed tax on property recognises that property is a major source of wealth in Scotland, but one that is glaringly unequal. That is particularly true on a generational basis, with rates of property ownership among younger generations much lower than among older ones, even at comparable points in their lives. Taxes on property are also more difficult to avoid or evade. A reformed property tax must be set locally and be based on a percentage of property value. It must be periodically reviewed and flexible to household circumstances. While it remains the most important local tax, action is also needed on business rates and other levies that could also make a significant contribution to funding essential local services.

We’ve had consultations, commissions and countless commitments, but little has changed. Decades of delay on Council Tax reform have deepened the crisis facing local services and locked in inequality. The 2026 election is the moment for Scotland’s leaders to move beyond words and commit to the fair, modern and proportionate tax system our communities deserve.

UK Strategic Defence Review in a changing world

 The much-trailed UK Strategic Defence Review (SDR) was published yesterday. It was timely for me as I was participating in a European seminar on how Europe should respond to the new strategic situation.

There is a lot of narrative (some have called it a think piece) in the Defence Review, rather than detailed plans. It's undoubtedly a coherent read, probably the best I have read, and for the critics who focus on detail, the hint is in the title - it’s strategic. It will inform further plans.  The commitments include:

·       £1.5bn to build six new factories to enable an "always on" munitions production capacity.

·       Building up to 7,000 long-range weapons, including missiles or drones.

·       A "cyber and electromagnetic command" to boost the military's defensive and offensive capabilities in cyberspace.

·       £1.5bn to 2029 to fund repairs to military housing.

·       £1bn on technology to speed up the delivery of targeting information to soldiers.

 

There was no commitment to significantly increase the number of full-time soldiers, which is sensible given the need to concentrate on meeting the current targets. The same certainly applies to the Royal Navy, which is struggling to staff the surface fleet. Improvements in pay and conditions, as well as the investment in service housing, are crucial to meeting those targets.

 Unlike previous defence reviews, there was less emphasis on shiny new equipment. Even the headlines, such as the latest attack submarines, are primarily about replacing existing weapon systems. However, there are still some tough decisions to be made if the UK is to bridge the gap between policy rhetoric and strategic reality. For example, as a recent University of Exeter study asks, “Does an aircraft carrier or a defunct amphibious force with limited air and aviation assets really deter adversaries from acting against the UK or its allies?” Ukraine’s Operation Spider Web has rightly been described as “a defining moment in modern warfare.” One of the big ideas in the SDR, the integrated force with a digital targeting web, is a recognition of the need for change.

 Everyone in Europe has woken up to the need for stockpiles, a problem I highlighted last year and one that dates back to the Cold War. Hopefully, the ‘just in time’ era is finally over. The investment in munitions manufacturing is crucial, as at present, we barely produce as much ammunition annually as Russia fires off in Ukraine each day. Strengthening our industrial base is something I highlighted in a paper on defence procurement for Prospect, which has broadly welcomed the SDR. Britain cannot afford to rely on uncertain supply lines during a war. The section on defence procurement is a move in the right direction, but we need to see what this means in practice in the later plans. The detailed emphasis on skills, workforce planning and people is very welcome.

 There is a bit of spin on the concept of ‘military Keynesianism’. Jobs and other economic spin-offs, not least R&D, are a welcome by-product, but other forms of public spending deliver higher economic multipliers. However, not as egregious as the Scottish Government pulling the plug on a high-tech training and research centre, led by Rolls-Royce, which has rightly been described as industrial sabotage. Or the excitable performance from the Tory Shadow Defence Minister in the Commons, who has forgotten that this review is starting to tidy up the mess they left behind.

The SDR gives a credible and detailed breakdown of the threats facing the UK. There is a welcome shift from the imperial strategy of the Johnson Government. It also reflects a much stronger relationship with our European partners. This was evident in the seminar I participated in, where most countries reported similar policy shifts. However, almost everyone indicated that this is not a massive shift – the proposed changes are relatively modest, relying on Russia’s need to rebuild after the Ukraine war. For example, the spending commitments in the UK and Europe are not huge and are spread out over many years. In the UK, 20% of the MoD budget is spent on Defence Nuclear Enterprise, which, whatever position you take on those weapons, is a big chunk out of conventional capacity. Even the much-vaunted German policy is not quite as substantial as the spin. Current and immediate funding plans won’t do much more than paper over the cracks caused by 30 years of underinvestment. Lord Dannatt’s comment may be a little harsh, but he has a point.

 There was a concern at my seminar, particularly from countries in Eastern Europe, that this may be misguided. The Russian economy has been militarised to an extent that is not fully appreciated in the West. If a peace deal is agreed, then they would be in a position to attack the Baltic states reasonably quickly. Putin, like Netanyahu, is in a political cycle that almost requires continuous war. The PM is also doing his best to ‘strengthen our bridge to the US’. However, there are few people in Europe at present who regard the USA as a reliable partner, at least while Trump is in office. The PM’s ‘sovereign warhead programme’ may be a tacit recognition of that reality, along with new delivery options. The SDR is typically vague on these issues for the usual reasons, but it ducks the issue of just how independent our nuclear deterrent is.

The Prime Minister claimed his defence blueprint would deliver “A battle-ready, armour-clad nation with the strongest alliances, and the most advanced capabilities – equipped for the decades to come.” I’m not convinced that the UK, or our European allies, are at that stage, but there has been a welcome and significant gear shift.