We have now had some more time to digest the announcements from yesterday’s budget, and we’re publishing some more reaction. Look out for more analysis tomorrow as well, as we round up the announcements from this week.

Dissecting the affordable housing budget announcement – with more of the money going on direct capital spending

Shona Robison announced that the affordable housing budget would be £768 million, returning it to a higher level than two years ago – so before 2024-25’s steep cut.

It’s not immediately clear from the detailed Budget documents where that figure comes from. The most similar group of expenditure lines would the Housing and Building Standards Level 2 budget within the Social Justice portfolio, which is actually £766 million for 2025-26 – but we’ll chalk that one up to a small discrepancy.

But that is a relatively diverse group of spending lines, including Fuel Poverty and Housing Quality an Building Standards, as well as funding for Discretionary Housing Payments and Housing Support. These are important ways of supporting people in difficult circumstances, of course, and much needed ones – but they are not what we’d consider targeted affordable housing supply investment.

Instead, we should focus on the More Homes Level 3 budget, which is itself focused on affordable housing supply. The total size of that budget line is £590 million, of which £583 million is capital spending (between direct capital spending and financial transactions). This represents a 4.5% increase since 2023-24 in nominal terms, although it’s still about 0.5% lower in real terms.

Capital spending on the level 4 line related to the Affordable Housing Supply programme – what we might term more accurately as the funding of additions to the affordable housing stock, as it doesn’t net off receipts from sales and repayments – is up in cash terms relative to 2023-24 by 2.4%, although 2.5% lower in real terms. But there is an interesting movement in the underlying allocation of funds, with direct capital spending up by 16% in real terms and a lower reliance on financial transactions. This is good news and a more transparent way of handling spending – direct investment means that it either is directly built by the Scottish Government or a grant is given out to pay for the new housing stock, rather than relying on lending to third parties in schemes that are further removed from public sector direction and therefore less accountable.

Chart 1: Affordable housing supply spending in real terms

Source: Scottish Government, FAI analysis

Some bits of the tax strategy are welcome, others rather vague

Alongside the Scottish Budget, the Tax Strategy has also been published. This was meant to have been published in draft form alongside the Medium-Term Financial Strategy (MTFS), but its delay and subsequent cancellation meant that it has now come out in final form.

There are some really positive steps in it, including a commitment to evaluating the effects of changes to income tax in 2023-24 and 2024-25. This is really important, especially in the context of the evaluation conducted by HMRC of the 2018-19 changes and some of the uncertainty over how long-lasting the effect might have been.

Also very positive was the publication of the areas of research interest, particularly with relation to behavioural effects of tax policy changes and the different forms they may take. As we continue to monitor and evaluate the effects of the divergence in income tax policy between Scottish Income Tax and forms of income tax controlled by the UK Government – either savings and dividends income tax in Scotland or income tax as a whole in the rest of the UK – it will be critical to put resources and weight behind ensuring that the evidence base is robust and refreshed appropriately. Publishing these research questions is a step in the right direction, and a pre-requisite for a higher quality of debate in Scotland.

Some of the commitments in terms of the path forward are also welcome, and set out the direction of travel. We now know more formally what the Scottish Government intends to do with income tax thresholds until 2027-28, though of course annual reassessments will still happen at the Budget.

Other areas of the strategy feel a little light on the detail. For example, council tax and non-domestic rates reforms have been relegated to commitments to consider responses and working groups that are likely to take a long time to report.

Some of the highlighted aims in terms of the interaction between economic growth and the tax system are difficult to disagree with – hard to see who wouldn’t want to grow the tax base and the economy, or to understand the impact of tax on competitiveness and attractiveness. The proof however will be on whether this leads to any specific policy action – it will need a lot more fleshing it out to do so.