Conversations with the Scottish Labour leadership have not been happy ones in recent months: wrinkled brows, worry, prevarication, hedging.
If they never quite thought they were on a glide path to victory at the 2026 Holyrood election, Keir Starmer’s entrance into Downing Street certainly helped them believe it was likely. But then came a summer and autumn of wild missteps. Too many own goals at Westminster, too little dynamism, a reckless squandering of what should have been a useful honeymoon period. Starmer’s personal poll rating has cratered. John Swinney’s SNP has started presenting as a more reasonable, moderate and agreeable force. Eek.
The effect is that Anas Sarwar’s momentum has stuttered. We’ll see what the polls say in the coming months, but a Labour victory in 2026 no longer feels inevitable, as perhaps it had come to seem.
The Budget, therefore, mattered not just in terms of its impact on the overall UK electorate, but in its specific impact on Scotland, and on the mood of Scottish Labour. And on that front, it’s fair to say that the tails of Sarwar and his team are back up again. The important message, the one they really needed in their competition with the SNP for left-of centre voters, is that the era of austerity is over. Rachel Reeves announced a real-terms increase next year in the Scottish budget of £3.4bn, taking funding from Westminster to £47.7 bn, the largest in the history of devolution. There will also be a £1.5bn increase in this year’s settlement. The cash boost is a result of Reeves’s spending plans south of the Border – the Barnett Formula ensures Scotland receives a higher than population share of any spending increases in England.
Politically, this was essential for Scottish Labour. The move deprives – or should deprive – the SNP of its regular claim that not much divides the new government from the last Conservative one. That particular nationalist fox appears to have been shot. Reeves was explicit about this, when she told parliament there would be “no return to austerity”.
Sarwar will have been happy, too, that the Chancellor mentioned him by name in her statement, praising his focus on economic growth. She also issued a challenge to the SNP administration in Edinburgh – she was delivering “funding which must now be used effectively in Scotland to deliver the public services the people of Scotland deserve.”
The move does indeed present Swinney and his ministers with a dilemma. Given the SNP’s relatively poor record on public services, despite its imposition of higher taxes, this extra money is both an opportunity and a challenge. The Nats have been demanding more resource, and now they’re getting it – so will things improve? And if not, why not? Get it right, shift the dial on education and health a bit, and they might do their prospects in 2026 some good. But if the money is just shovelled into the gaping maw of an unreformed system, with no evident improvement, that would only re-emphasise the sense that this is a party out of ideas and that has always lacked courage on the reform agenda. So: can Swinney use this money as a lever to negotiate change with the public sector? Will he put conditions on this spending? Can he make the data tick upwards? Surely he has to try.
As Scottish Secretary Ian Murray put it, “that money must reach frontline services, to bring down waiting lists and lift attainment in our schools.” Sarwar, with some justification, will expect the Nats to blow it, which gives him a renewed opportunity to sell Labour as the party that can arrest national decline.
There was more in Reeves’s statement that will affect Scotland than simply the fiscal consequentials. The National Living Wage will rise by 6.7 per cent to £12.21 an hour. There will be a £470 annual increase in the state pension. Defence spending is on the up too, which should benefit the sector in Scotland.
The Chancellor pushed ahead with her planned tax rises on the oil and gas industry, which could cause Labour problems in north-east Scotland in 2026. She and Sarwar will hope that the announcement of a swathe of new green hydrogen projects, including in East Renfrewshire, along with the headquartering of GB Energy in Aberdeen, will do something to soften the blow.
In summary, only a Labour chancellor would have produced a Budget like this. Scots voted for a Labour government and no one can now doubt that they’ve got one – a somewhat old-fashioned, big-state one that doesn’t have very much in common with the economically liberal instincts of the Blair era. Taxes will go up by £41.5bn, borrowing will go up by £30bn, and public spending will rise by £70bn a year. The state, according to the Office for Budget Responsibility, will account for 44.5 per cent of GDP by the end of the decade.
Reeves has placed her bets, and none of us know what the outcome will be. Starmer’s government is asking for patience, but time is short north of the border. Anas Sarwar will be praying that the green shoots of economic recovery are evident by the time voters go to the polls in 2026.
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