Potential Scottish Budget impasse has hidden consequences

Engaging in horse-trading with opposition parties is an important part of the budget process, and the SNP will almost certainly be prepared to make concessions to see its Budget Bill passed, as they have done in years gone by, and before the cooperation agreement was first implemented. However, the backdrop against which this year’s budget is being set is extremely perilous, not only financially but also politically.

After announcing £500 million of spending cuts in September, which included the abandonment of Green Party policies such as concessionary travel for asylum seekers and ending peak rail fares, support from the SNP’s former Bute House Agreement partners is at this stage far from assured.

While the Greens may ultimately be prepared to support the Scottish Government, the scale of concessions they may demand to do so could yet prove to be of a scale which the Scottish Government is unwilling, or unable, to countenance. Other parties such as the Liberal Democrats could offer support – as they have done in the past – but this too is far from assured, particularly if the price of their backing was the withdrawal of funding for the SNP’s flagship National Care Service, which the Scottish Government remains firmly committed to at this time.

Failure to achieve the requisite support for the Budget would leave the door ajar to the prospect of an early Holyrood election. If the Budget Bill – likely to be voted on at the end of January 2025 – were to be defeated, the Scottish Government would have to present an alternative Budget Bill. Were this also to be rejected, the Scottish Parliament would enter unchartered territory and, if confidence in the Scottish Government were to be said to have been lost by the parliament at that point, an election might be the only option to break the impasse.

The Scotland Act requires a two-thirds majority of all MSPs to vote for an unscheduled parliamentary election. The next scheduled Scottish election is due to take place on 7 May 2026. Unlike in the Westminster system where an early general election results in a new five-year parliamentary term, the scheduled May 2026 Scottish election will only be cancelled if an unscheduled election takes place within six months of 7 May 2026. On this basis, were the SNP government to prove unable to pass a budget in early 2025 and were an early election to then be held, the Scottish public could find themselves going to the polls twice in as many years.

An election to allow public services’ funding to continue is not an inevitable outcome of any Budget impasse that might arise, however. If successive budget bills were voted down by the parliament but no early election subsequently held, this would not trigger a US-style government shutdown. Foresighted legislators anticipated the situation early in the history of the Scottish Parliament. Provisions exist within the Public Finance and Accountability (Scotland) Act 2000 that provide that, in the absence of a Scottish Budget, from the beginning of the next financial year – i.e. from 1 April 2025 – the Scottish Government can still spend funds based on the previous year’s Budget. However, spending limits on that basis are calculated on a monthly rather than yearly basis, restricted to the greater of one-twelfth of the previous year’s spending or the total spend in the corresponding previous month. 

On income taxation, the Scotland Act provides that if the Scottish Parliament cannot agree to the Scottish rates and bands of income tax, they will default, perhaps unexpectedly, to the provisions of the UK Income Tax Acts, so, in practical terms, they would revert to the levels set by Westminster. Unlike with spending, there is no express continuation of the Scottish rates for a further year. A new budget could reset this, but in an interim period, the political consequences of such an eventuality could be seismic.

The threat of a political crisis is unlikely to abate as we approach December’s Scottish Budget, with the SNP continuing negotiations to secure support for their tax and spending plans. However, it is a constitutional certainty that the Scottish Government will be able to continue – at least on an interim basis – without a Budget being passed, albeit with a significantly reduced funding envelope, and the prospect of a painful default to Westminster taxation norms. The latter is something which, at this stage, appears underappreciated and certainly underdiscussed.