Tax, benefits and minimum wage: What does the Budget mean for Scotland?

Chancellor Rachel Reeves has unveiled her Budget - but because many powers are devolved to the Scottish government, not all the measures she announced will apply north of the border.

While some are UK-wide, others won't apply in Scotland at all - and there are other areas where there will be an indirect, knock-on impact.

So how will the chancellor's tax and spending plans affect Scotland?

More workers will be paying tax in future

Marianna Penman says there are many "little things" in the budget that will affect her finances

Scotland sets its own income tax bands and rates, which means that only some of Reeves' proposals will apply north of the border.

But the personal allowance - the amount a person is allowed to earn before they start to pay tax - is set by Westminster. As a result, the decision to freeze the threshold until 2031 will affect Scottish employees.

It will remain at £12,570 and as wages rise over time, more part-time staff will find themselves drawn into the tax system.

However, a freeze on the threshold where workers move into higher tax bands will not apply in Scotland.

Scotland's Finance Secretary Shona Robison must now decide whether to replicate this step when she announces her own Scottish Budget on 13 January.

National Insurance is set by Westminster, so a freeze on NI thresholds will lead to workers in Scotland paying more of this tax in future.

Scotland has used devolved powers to introduce extra tax bands and rates of tax.

This compares with the system in England, Wales and Northern Ireland, where there are only four bands.

There is an indirect impact on the Scottish government's finances through the complicated funding formulas that determine how much Holyrood receives from Westminster in the block grant.

Reeves claimed her budget would mean an extra £820m for the Scottish government over the next three to four years.

Marianna Penman, who runs a catering business in East Kilbride, says she expects to face the biggest impact as a result of other measures in the Budget, from minimum wage increases to pension changes and tax on dividend income.

She said: "I will have to properly look at this to see what it means to me because there are little things everywhere, rather than an obvious big thing. So, little things, but overall you might be paying quite a lot more."

Scrapping the two-child benefit cap

Reeves has scrapped the two child benefit cap - the policy which means families who receive universal credit only get child-related payments for up to two children.

The Treasury says 95,000 children in Scotland will benefit from this change.

The Scottish government has long called for this policy to be ended, and had promised to "mitigate" it with a new payment for affected families from next March.

This would have cost about £155m in 2026-27 and more in the years after that, according to the Scottish Fiscal Commission.

It means Scotland's finance secretary will no longer have to find the money from within her own budget, freeing most of it up to be spent on other things.

First Minister John Swinney has made tackling child poverty a priority, so one possibility is that it could be used on measures such as raising the Scottish Child Payment.

It currently stands at £27.15 a week and is paid to parents on certain benefits for each child under the age of 16.

Money for Grangemouth, Greenock and Kirkcaldy

The Budget includes more than £14m of funding to support the transition to "low carbon technologies" at Grangemouth.

Scotland's only oil refinery stopped processing crude oil there in April after a century of operations.

A £1.5m report known as Project Willow has come up with nine low carbon ideas that could be developed at the site - but they are dependent on private sector investment.

The Inchgreen dry dock in Inverclyde will be renovated using public money

A surprise announcement was £20m to "renew infrastructure" at Inchgreen - a huge dry dock in Greenock which has been barely used for more than a decade.

There were no details of what is planned for the facility, which is privately-owned by Peel Ports, although it was claimed that this could create up to 1,750 jobs.

Another £20m has been earmarked for sea front and town centre redevelopment at Kirkcaldy in Fife.

The minimum wage continues to rise

Elise Graham says the increase in the minimum wage does not go far enough

One of the most widely-felt financial impacts will be the increase in minimum wage rates, which applies across the UK.

For over-21s, the national living wage is going up by 4.1% from April, from £12.21 to £12.71 per hour.

There's a bigger increase for 18 to 20-year-olds, who will get an 8.5% rise - from £10 to £10.85 per hour - as the government moves towards establishing a single rate for all adults.

Under-18s and apprentices are getting 45p more, with the rate rising to £8 an hour.

Elise Graham, from East Kilbride said the "small rise" in the minimum wage would help her in managing household costs.

However, the 20-year-old added: "It's good that it is going up slightly, but it should go up more. I don't think it is a living wage compared to the cost of living - it doesn't match."

Energy bills, cars and pensions

A new mileage-based charge for electric vehicles will be introduced from 2028.

Battery electric cars will be charged 3p per mile, while the levy on plug-in hybrids will be1.5p.

Scottish ministers say that will be particularly hard felt in rural areas of Scotland where drivers have to travel longer distances.

Meanwhile users of petrol and diesel vehicles will benefit from the extension of the 5p cut in fuel duty until September 2026.

Levies placed on energy bills are being scrapped, which means households will see their costs fall by £150 a year on average, according to Reeves.

The Scottish government says this does not fully offset the amount bills have risen by since Labour came to power.

Savers in Scotland will be affected by the changes on rules for cash ISAs (indvidual savings accounts) which are now capped at £12,000 for under-65s, with the rest of the £20,000 allowance reserved for investments.

Investors who receive income from dividends face a 2% rise in tax from next April.

Changes to pensions are also UK-wide. Basic and new state pension payments will rise by 4.8% from April under the "triple lock".

But the amount people can sacrifice from their salary, avoiding paying National Insurance on pension contributions, will be capped at £2,000 a year from 2029.

Will the recipe for Irn Bru have to change?

Among the measures trailed ahead of the Budget were changes to the so-called sugar tax.

The existing tax, which mainly applies to fizzy drinks, will be applied to bottles and cartons of milk-based drinks, including milkshakes, flavoured milk, milk substitute drinks and lattes, adding a few pence to their cost.

New rules will also lower the amount of sugar permitted in fizzy drinks before they are covered by the tax - which could affect Irn Bru.

The popular Scottish brand produced by AG Barr in Cumbernauld had already changed its formula when the sugar tax was first introduced in 2018, affecting drinks containing more than five grammes of sugar per 100ml.

The firm and other drinks manufacturers may now have to consider another recipe change because the threshold is going down to 4.5 grammes from 2028.

Oil and gas industry dismay over windfall tax

The UK government has confirmed a relaxation of the moratorium on new drilling for oil and gas, which will be allowed when it can be argued that the new areas are extensions of existing fields.

This is a modest concession to the oil and gas sector which has been lobbying hard ahead of the Budget, arguing it faces a grim future under the current regulation.

But the sector's main concern is the level of taxation - the Energy Profits Levy, or "windfall tax" on profits introduced after energy prices surged in the wake of the Russian invasion of Ukraine.

David Whitehouse of the main industry body for North Sea oil and gas producers said the silence on the "windfall tax" was a "bitter blow".

This means producers are paying 78% tax on profits, even though oil prices have since fallen significantly, with the levy due to last until 2030.

Industry body Offshore Energies UK (OEUK) had called for it to end four years earlier, warning it's a barrier to investment which is putting thousands of jobs at risk.

The chancellor made no such announcement, although documents published since her speech suggest the UK government could be looking to reform the mechanism.

"Today's been a bitter blow," said David Whitehouse, chief executive of OEUK.

But environmental campaigners welcomed Reeves' decision on North Sea taxation.

Tessa Khan, executive director of Uplift, said: "The government has made the right decision not to go soft on an industry that has made billions of pounds in profits in recent years while people have been struggling to heat their homes."