With the UK government confirming real-terms spending cuts – all to fund tax cuts disproportionately benefiting the richest households – all departments face the risk of a return to austerity.

The Scottish government is no exception and difficult choices will be required in meeting its ambitions while balancing the books. How it makes those choices in next week’s Budget will be a test of its progressive credentials.  

Tackling poverty is one of three defining missions of the Scottish government, with stretching targets set in legislation to radically reduce poverty. But, despite those important and welcome ambitions, progress is stalling, and major spending commitments are facing significant pressure.  

‘Tax, targeted support, and tough budget choices’ was how first minister Humza Yousaf announced his approach to tackling poverty in May this year. This coming Budget will be a test of that commitment.  

The Scottish government should resist the urge to deliver a tax cutting budget and focus instead on investment where it’s needed most, with five key measures.

Scrap the planned council tax freeze – and move quickly to deliver a fairer, local tax

Far from being a meaningful ‘cost-of-living measure’ IPPR Scotland estimates (assuming an average planned increase of 10%) that the government’s vaunted council tax freeze will only save the poorest households at most £1 a week, at a cost of at least £200 million – and do nothing to lift children out of poverty.  

Council tax is inherently regressive where any gains are felt most by the richest households – and spending potentially hundreds of millions of pounds is, at best, a questionable use of precious resources. A council tax freeze would deliver an effective tax cut that benefits the wealthiest households. Instead, the government should replace it entirely – finally delivering on the countless commitments, reviews and commissions of the last two decades.  

A fairer and more progressive approach to property wealth taxation would tackle one of the key drivers of wealth inequality within Scotland: vastly unequal property holdings. We have previously called for a new percentage of property value tax – ensuring a genuine link between property value and tax liabilities. Our research has previously estimated that if such a tax were to be set at 0.75 % of a property’s value, it could raise £350 million more than the existing Council Tax. 

Use the planned funding for the council tax freeze to invest further in the Scottish Child Payment and protect families from the worst impacts of the UK government’s punitive welfare reforms

The Scottish Government has rightly stepped up where the UK coalition government failed and introduced stretching and statutory child poverty reduction targets in Scotland. Social security – which has done most of the heavy lifting to date – alone won’t be able to meet those targets, but in the absence of other, equally ‘game changing’ efforts, it may need to do more.

During the SNP leadership election, the First Minister committed to increase the Scottish Child Payment by a further £5 a week in his first budget – a pledge that was noticeably absent from his first Programme for Government. That would cost £100 million, which is half the cost of a council tax freeze but would put five times the money in the pockets of the poorest households.  

Alongside this, the Scottish Government has rightly described the two-child limit as “harmful and discriminatory”. It is a regressive policy, born out of the very worst aspects of austerity and punitive welfare reform, and should be consigned to the scrapheap of history. Using its devolved powers, the Scottish Government could take action to do that right now in Scotland, at a cost of a further £100 million.  

Both measures would cost the same as an ineffectual council tax freeze and lift a further 20,000 – 25,000 children out of poverty.  

Deliver on commitments made during the SNP leadership campaign to ensure a fairer tax system 

“Scotland is a wealthy country, but that wealth is not distributed evenly. To tackle poverty, we need to be even bolder on taxation, and the redistribution of wealth.” These were the words of Yousaf in April 2023, which showed a willingness to consider new wealth taxes and go further within the existing income tax system. In the face of mounting spending pressures, his first budget is an opportunity to deliver on that commitment.  

Alongside a range of charities, academics, trades unions and other civic organisations across Scotland, we’ve previously set out three clear priorities for tax:  

  • A new income tax band and rate: It is only right that those with the broadest shoulders carry the greatest weight. A new rate of income tax of 45% for people in the top 10% of gross full-time earnings – those who earn above £58,285 – could raise an additional £257 million.  
  • Reform of non-domestic rates: Every year, businesses in Scotland benefit from almost £700 million of discounts and reliefs on their rates bills, but with little to no requirements around their social responsibilities. When two-thirds of children living in poverty are in a working household, the Scottish government should explore new taxes that incentivise more businesses in Scotland towards pro-social behaviour. 
  • Taxing wealth where it’s held the most- in property: As above, the current council tax system is regressive and outdated, with bills based on a house value from 1990. The case for change has been well made for years, and reform is long overdue.   

Deliver more significant investment in free childcare for families

Previous IPPR Scotland research has shown that affordable and accessible childcare is good for families. It provides hefty savings, lifts children out of poverty, and helps parents get into work and progress in it – all with significant gains for the economy.  

While the first minister has made some good commitments on childcare, these appear to have been slowly diluted with time. The budget should provide the investment to finally deliver on the commitment to expand funded childcare to 1- and 2-year-olds who will benefit most – which should be any family who receive a low-income benefit.  

Scaling up social housebuilding

Our research has shown that social housing can provide a huge lift to households – keeping them out of poverty while also reducing the benefits bill due to its lower costs. Despite positive commitments here, again, official figures show as many as 178,000 people are on a social housing wait list – but the true number is potentially as high as a quarter of a million.  

While most of the government’s funding for housebuilding is directed towards social rented housing, the scale of investment is still dwarfed by the scale of need. Moreover, it comes on the back of a £118.5 million cut in the affordable housing supply programme capital in last year’s budget.  

That urgently needs to be reversed and every penny must be directed at delivering more social housing. 

All these ideas are centred on a key point: Tackling child poverty isn’t a zero-sum game – its impacts reverberate through the economy, while billions more are spent in our public services tackling its consequences. 

The Scottish Government is to be commended for setting ambitious targets and priorities on child poverty – but good intentions alone will take us nowhere. There needs to be serious investment which in turn can unlock serious gains.