Scotland's Reckoning

Social security, deindustrialisation, export shock, tax divergence, and the bond programme: how decades of SNP government built a structural economic crisis — and why a fifth term will not resolve it.

Introduction:

Scotland’s economy is in structural trouble. Not the cyclical trouble of a downturn, nor the manageable trouble of a government making correctable mistakes on the margins. Structural trouble: the kind that compounds quietly across multiple fronts simultaneously, that resists easy diagnosis because no single number captures it, and that a governing party with nearly two decades in office has every incentive to obscure.

This essay attempts the diagnosis. It begins with Scotland’s social security system, which is spending £1.3 billion more annually than the funding it receives — a gap heading for £1.5 billion, built into statute, and without a published plan for closure. It moves to Scotland’s industrial base, which is shedding high-skill, high-wage employment faster than the energy transition that was supposed to replace it is arriving. It examines Scotland’s most celebrated export industry, caught between American tariffs it cannot negotiate away and domestic tax pressures it cannot relieve. It assesses a tax regime whose income divergence is accelerating the outward drift of the skilled workers whose contributions the public finances most depend upon. And it concludes with a bond issuance programme whose stated purpose is not primarily economic but constitutional — the self-described foundation stones of an independent nation, laid on fiscal ground that the Scottish Government’s own institutions have spent four years warning is softer than advertised.

Running through all of it is a single unanswered question, first posed publicly in 2022 when John Swinney told the country that Scotland’s finances were in robust health: where is the plan? He has now been returned for a second term, and the SNP’s fifth in office as a party of government. The question remains open. The consequences of leaving it unanswered are not.

I. The Boast and the Bill

In August 2022, John Swinney stood before the cameras and told Scotland that “even without North Sea receipts, revenues raised in Scotland covers all devolved expenditure as well as all social security spending”. It was a bold claim. It was also nonsense — predicated ignoring capital investment, debt interest, defence spending, and much else besides. The Fraser of Allander Institute said as much, albeit more diplomatically.

Three and a half years on, the Scottish electorate returned Swinney to Bute House for a historic fifth SNP term. “The driver of voting intentions is who will stand up for Scotland — it's never going to be a party whose parent is in Westminster,” said Andy MacIver, founder of communications consultancy Message Matters. “The SNP don't have to be good — they just have to be Scottish.” The assessment was confirmed, with rather less satisfaction, from within the party itself. “It was not so much down to the virtues of the SNP, but rather the deficiencies of our rivals,” one senior SNP figure told the Financial Times. In Scotland Undone, I analyse what I describe as the bifurcation of the UK's political landscape on cultural grounds— where perceptions of how issues align with parties radically shifts between the home nations. It is clear that MacIver is correct in that John Swinney and the wider SNP continue to benefit from a cultural plus card. However, this ignores the economic realities Swinney and the 20 year long Scottish Government will need to face head-on. And no amount of cultural perception will hide the difficult realities.

Swinney returns to office carrying a social security system spending approximately £1.3 billion more annually than Scotland receives in block grant adjustments to fund it. His boast, that revenues in Scotland cover all Scottish spending has not aged well. The man who made it will soon increasingly have nowhere to hide.

What Was Always Coming

The trajectory was visible in 2022 to anyone willing to look. The Scottish Fiscal Commission’s own December 2021 forecasts — published months before Swinney’s claim — already projected that by 2026-27, spending on Scottish Government social security benefits would be £760 million more than the corresponding BGA funding received. Combine that with the income tax revenue shortfall of £417 million forecast for the same year, despite Scotland already taxing higher earners more heavily than their English counterparts, and the picture was not one of a government comfortably covering its commitments. It was one of a government spending significantly beyond its means and hoping nobody did the arithmetic.

The mechanisms were the Child Disability Payment, launched in November 2021, and the Adult Disability Payment, which replaced PIP in Scotland from August 2022. Both were introduced with design features more generous than the UK equivalents: lighter-touch assessments, easier access, an ethos of dignity over scrutiny. The Scottish Government called this compassion. The Scottish Fiscal Commission called it a fiscal pressure. Both descriptions were accurate.

The Numbers Since

The SFC’s February 2026 Fiscal Sustainability Perspectives report sets out what has actually happened. Disability prevalence among children in Scotland has risen from 6 per cent in 2020-21 to 12 per cent in 2023-24 — a doubling in three years. Among working-age adults, the figure has risen from 19 per cent to 28 per cent over the same period. Scotland has outpaced England and Wales on every disability metric, a divergence the SFC attributes in part to the operational and delivery choices made at the launch of CDP and ADP.

The fiscal consequences are not subtle. ADP alone is running £314 million above BGA in 2025-26, a figure the SPICe issues paper to the Social Justice and Social Security Committee projects will widen to £414 million by 2028-29. The Scottish Child Payment adds a further £471 million above BGA in 2025-26. Total devolved social security spending is forecast to rise from £7.4 billion in 2026-27 to £9.2 billion by 2030-31, with over 80 per cent of that bill accounted for by disability payments. One million people in Scotland are projected to be receiving disability payments by the end of the next parliament.

As a share of the day-to-day budget, social security is heading from 13.7 per cent in 2026-27 to 15.1 per cent by 2030-31. In 2021-22, BGA funding covered over 90 per cent of devolved social security spending. By 2024-25 it covered 84 per cent. The direction of travel is not ambiguous. The spend above BGA is now forecast to stabilise at around £1.5 billion per year — not to improve.

The Structural Trap

This is not simply a matter of unexpectedly high numbers that can be corrected by trimming around the edges. The Scottish Government built something structurally self-reinforcing and then legislated to make it harder to unwind. Uprating duties for social security payments are now embedded in statute. Approximately three-quarters of Scottish children receiving CDP go on to successfully apply for ADP at age 16. The caseload compounds automatically. People are also less likely to lose their award at review than they were four years ago, meaning recipients stay on payments for longer — a pattern more pronounced in Scotland than in England and Wales.

The Scottish Government made deliberate choices to build a more accessible system. There is a reasonable argument for doing so. What there is no reasonable argument for is pretending, as Swinney did in 2022, that Scotland could comfortably afford its existing social commitments and then proceeding to expand them substantially. Audit Scotland said in September 2025 that the government had no detailed strategy to manage the forecasted gap between social security funding and spending. That was not a minor procedural criticism. It was a finding that a government spending over a billion pounds more than it was receiving had no plan.

What a fifth SNP Term Does Not Provide

The SNP’s 2026 manifesto, assessed by the IFS, adds approximately £1.4 billion a year in new spending commitments by 2031-32, with the funding assumptions described as not credible. This sits alongside a Spending Review already committed to £1.5 billion in savings, the majority of which are to be achieved through targets the SFC noted would be challenging to deliver. The IFS was also characteristically blunt on independence: Scotland’s notional fiscal deficit ran at 11.6 per cent of GDP in 2024-25, against 5.1 per cent for the UK as a whole. The fiscal transfers from London and the South East that fund Scotland’s higher per-capita spending would end with independence. The electoral mandate does not come with a cheque.

John Swinney now governs a social security system he redesigned, expanded, and legally entrenched, which is spending £1.3 billion more than it receives in funding, heading for £1.5 billion, with a caseload demographic that ensures it will not naturally contract. His government has no published strategy to close the gap. His manifesto proposes to spend considerably more.

The welfare arithmetic is damning enough on its own terms. But it is only the most visible symptom of a deeper problem. Beneath the spending figures, the productive economy that would need to generate the tax revenues to pay for any of this is quietly contracting — shedding industrial capacity, losing skilled workers to jurisdictions with lower tax burdens, and watching its most celebrated export industries absorb external shocks its government is structurally unable to address. The bill is large. The means to pay it are shrinking. How that happened, and why the Scottish Government’s response has made it worse, is the subject of what follows.

II. The Productive Base is Shrinking

In April 2026, the Grangemouth oil refinery ended a century of production. The closure had been anticipated, debated, and lamented for the better part of two years, and by the time the last shift clocked off, it had acquired the quality of an inevitability — one of those economic facts that governments acknowledge without quite accepting responsibility for. Petroineos (a joint venture between the UK's INEOS and state-owned PetroChina) decided to shutter the century-old plant and transition the site into an oil import terminal due to rising operating costs, aging infrastructure, and global competition.

John Swinney expressed regret. Both UK and Scottish Governments blamed each other. The workers were made redundant. Trades Unions attempted to force negotiations over a transition period, but Petroineos maintained that the plant was structurally unprofitable.

And then it was over.

Grangemouth was not simply a factory closing. It was the most tangible single indicator of a pattern that has been developing across Scotland’s industrial base for the better part of a decade: the systematic loss of high-wage, high-skill, capital-intensive employment that cannot be easily replaced, in sectors where Scotland once held genuine comparative advantage. ExxonMobil’s announcement that it would close its Mossmorran chemicals plant in Fife occurred February 2026. Two closures, in rapid succession, in the kind of industrial Scotland that the SNP’s energy transition narrative was supposed to supersede rather than simply hollow out ahead of schedule.

The Scottish Government’s answer to Grangemouth, developed over several years of increasingly fraught negotiation, was a just transition — state support, retraining, green reindustrialisation, the language of managed change deployed with confidence by ministers who did not have to explain to a fifty-three-year-old process operator what a just transition looks like from the inside. The ambition was genuine. The execution was, as Audit Scotland might put it politely, challenging.

The Transition That Isn’t Arriving

Which brings us to Acorn. The carbon capture and storage project in Aberdeenshire has occupied a central position in the Scottish Government’s energy transition story for years. The logic was straightforward: Scotland’s existing industrial infrastructure, its pipeline networks, its North Sea geology, its engineering expertise, gave it a natural advantage in CCS development. Acorn would pipe carbon dioxide emissions from Scottish industry out to the North Sea and bury them more than two and a half kilometres below the seabed. It would preserve industrial employment, decarbonise the economy, and demonstrate that Scotland could lead the energy transition rather than merely endure it.

In June 2025, the UK Government confirmed £200 million in support for the project. It was presented as validation. Then, earlier this year, Storegga — the lead developer, whose shareholders include Macquarie, ADNOC’s XRG, and Singapore’s sovereign wealth fund GIC — announced it was seeking to sell its 30 per cent stake. The stated reason was strategic review and the approaching capital-intensive phase of development. The practical implication was that the project’s lead backer, having assessed what comes next, decided it would rather not be there for it.

Sir Ian Wood, the Aberdeen businessman who founded Wood Group and who has few incentives to catastrophise, described the development as “deeply concerning” and called on both the UK and Scottish governments to secure Acorn’s future. “The Acorn project,” he said, “is a cornerstone of Scotland’s energy transition.” The choice of words is telling. Cornerstones are not optional features. When they become uncertain, the structure above them becomes uncertain too.

The remaining investors — Shell and Harbour Energy, each with 30 per cent, and North Sea Midstream Partners with 10 per cent — have not indicated they will exit. But Storegga’s departure from the lead developer role raises questions that go beyond the project itself. Carbon capture storage is expensive. Projects around the world have so far captured and stored less than 0.1 per cent of annual global CO₂ emissions despite approximately $40 billion in investment. The technology works. The economics are harder. When the company best positioned to understand those economics decides the next phase is someone else’s problem, it is reasonable to ask whether the Scottish Government’s energy transition arithmetic is as solid as its rhetoric.

What Replacement Looks Like

The Scottish Government’s response to industrial closure has followed a consistent pattern: acknowledge the loss, invoke the transition, announce a programme, and move on. What it has not done is grapple seriously with the asymmetry between what is being lost and what is being built.

Grangemouth employed approximately 500 workers directly, with a much larger number in the surrounding supply chain. Mossmorran employs several hundred more. These are not entry-level positions. They are the kind of skilled, unionised, relatively well-remunerated jobs that underpin local economies and generate the income tax revenues — at Scottish rates — that the government depends upon. When they go, they are not replaced by equivalent employment on any observable timescale. The retraining programmes are real but modest. The green jobs that were promised are arriving more slowly than the industrial jobs are departing.

This asymmetry matters fiscally as well as socially. Scotland’s income tax revenues are already underperforming relative to forecasts, contributing to a structural shortfall that compounds the social security gap identified in Section I. The loss of high-wage industrial employment tightens that vice further. Fewer workers paying higher-rate income tax means less revenue at precisely the tax bands where Scottish rates diverge most sharply from the rest of the UK — a point to which we will return.

A Pattern, Not a Series of Accidents

It would be convenient for the Scottish Government if Grangemouth, Mossmorran, and the Acorn uncertainty could be read as an unfortunate confluence of global forces — energy transition pressures, commodity economics, corporate strategy decisions made in Houston and Oslo with no particular reference to Edinburgh. There is something in that account. Global energy markets are disrupting industrial bases across Europe. Scotland is not uniquely exposed.

But Scotland is uniquely unable to respond. A devolved government without control of corporation tax, without independent trade policy, without the fiscal headroom to deploy significant industrial support, and with a social security system consuming an ever-larger share of its budget, has limited tools for industrial retention and reinvestment. Westminster’s industrial policy choices — the speed of CCS support, the structure of energy transition funding, the management of the North Sea licensing regime — fall outside Holyrood’s competence. The Scottish Government can advocate, negotiate, and complain. It cannot act.

The SNP’s answer to this structural limitation has always been independence. Full fiscal and policy autonomy, the argument runs, would allow Scotland to design an industrial strategy suited to its own economic geography. It is a coherent position in the abstract. In the concrete present, it collides with the fiscal reality established in Section I: a notional deficit of 11.6 per cent of GDP, no published strategy for closing the social security gap, and a productive base that is contracting rather than expanding. Independence does not solve the problem of having no plan. It removes the safety net while the absence of a plan becomes apparent.

In the meantime, the factories close. The transition edges forward. And the economy that is supposed to generate the revenues to fund an ever-more-ambitious public sector grows a little smaller with each announcement.

III. The Export Economy Under External Pressure

There is a bottle of Scotch whisky sold somewhere in the world every 3.7 seconds. It is one of those statistics the industry deploys with justified pride, and it captures something real about the global reach of what is, by any measure, Scotland’s most recognisable commercial product. Whisky accounts for around 75 per cent of Scottish food and drink exports. It supports tens of thousands of jobs, directly and through the supply chain, from barley farmers in Aberdeenshire to bottling plants in the Central Belt.

As I write this here in Zhuhai, opposite the Pearl River Delta from Hong Kong in my home office, I glance at my bottles of 12 year old Bowmore, and toffee hinting Jura bourbon cask. In the vocabulary of Scottish economic identity, it occupies a position somewhere between industrial asset, national symbol, and personal identifier.

Which makes what has happened to it in the past eighteen months all the more disheartening, yet instructive.

The American Problem

The Scotch Whisky Association’s figures for 2025 tell a story of an industry absorbing shocks from multiple directions simultaneously. Global exports were down 0.6 per cent in value, to £5.36 billion, and 4.3 per cent in volume. Those headline numbers are bad enough. The detail is worse. The United States is the industry’s single most valuable international market. Exports to the US in 2025 were down 4 per cent in value, to £933 million, with volumes down 9.2 per cent. But those full-year figures mask the severity of what happened after President Trump’s 10 per cent tariff was implemented in April. Between May and December, US export volumes fell 15 per cent and values fell 7 per cent. The tariff did not merely slow growth. It reversed it.

The distilleries are already responding in the way businesses respond when markets contract: reducing production volumes and laying off staff. An oversupply of Scotch has built up — whisky that was distilled in anticipation of demand that is no longer materialising at the expected rate. Whisky cannot be quickly repurposed. It ages in barrels on a timescale measured in years. The inventory problem created by the US tariff shock will not be resolved in a quarter or two.

The tariff exposure may also be about to worsen. In July, a five-year suspension of a 25 per cent single malt tariff — a legacy of the Boeing-Airbus trade dispute — is due to elapse. If that suspension is not renewed, total effective tariff exposure for single malt Scotch in the US market could reach 35 per cent. Both Keir Starmer and John Swinney have discussed the issue with the US administration. Neither has secured a resolution. The SWA has been waiting, with diminishing patience, for the better part of a year.

Compounded at Home

External trade shocks are, by their nature, only partly within a government’s control. What is fully within a government’s control is whether it compounds those shocks with domestic policy choices that squeeze the same industry from the other direction.

The SWA has noted that spirits duty in the UK has risen 17 per cent over three years. This is a UK Treasury decision, not a Holyrood one, and the Scottish Government has made representations against it. But the point is worth dwelling on regardless, because it illustrates the structural bind that Scotland’s most export-dependent industry finds itself in: squeezed by US trade policy from one side, by UK fiscal policy from the other, and operating in a devolved environment where the government with the loudest opinion about Scotland’s economic future controls neither the trade negotiating table nor the tax lever that matters most to the industry’s cost base.

Mark Kent, the SWA’s chief executive, has called for a halt on domestic tax increases and urged the UK to vigorously pursue trade deals with Thailand, the Mercosur economies, and the Gulf states. These are reasonable requests. They are also requests directed entirely at Westminster. The Scottish Government has no standing at the trade negotiating table. It cannot reduce spirits duty. It can advocate, and it does, with some energy. But advocacy is not policy.

The Diversification Mirage

There is a more optimistic reading of the whisky export picture, and it deserves acknowledgement before being qualified. Market diversification is real and progressing. China agreed earlier this year to halve import tariffs on Scotch to 5 per cent as part of a UK trade deal — a meaningful and vital reduction. Last year’s UK-India free trade agreement reduced India’s 150 per cent import tariff on UK whisky to 75 per cent, with a further reduction to 40 per cent phased in over a decade. These are genuine gains in the large and growing markets of tomorrow. After all, eighteen of the last twenty centuries of earth witnessed east Asia - and China in particular - dominate the global economy. The previous two centuries of U.S.-European dominance is the a-historical blip, as Asia returns to its historic pre-eminence, such deals ensuring Scottish export access to their markets becomes a core priority.

The qualification is one of pace and proportion. The India reduction to 75 per cent remains prohibitive for volume sales. The glide path to 40 per cent is a decade long — relief that is generational rather than immediate. The China reduction is more immediately significant, but China’s whisky market, though growing, is not the US. The SWA’s call for deals with Thailand, Mercosur, and the Gulf reflects an industry that is actively trying to rebalance its geographic exposure. It does not reflect an industry that has found its replacement for the American market. That market, at full tariff exposure, generates nearly a billion pounds a year in exports. There is no single alternative destination that replicates it — for now.

The diversification story is a medium-term aspiration dressed up, in some of the political commentary around it, as a near-term solution. The inventory sitting in warehouses in Speyside and Islay will not wait a decade for Indian tariffs to reach 40 per cent. While Scotland must diversify its exports markets and reduce dependency on the perfidious Americans, nevertheless this is a longer-term transition process which is far from painless.

What Whisky Reveals

The whisky crisis — and it is, at this point, reasonable to use that word — is analytically useful beyond its own sector. It reveals three structural features of the Scottish economy that matter for the broader argument of this piece.

The first is export concentration. Scotland’s food and drink export base is heavily dependent on a single product category, in a single regulatory and diplomatic framework — the UK’s — which it cannot itself control. Diversification within that framework is possible and is happening. But the framework itself is not Scotland’s to design, another theme highlighted in my book Scotland Undone (where I called for a radical de-centralising federalism)

The second is the constitutional paradox at the heart of SNP economic policy. The party that has governed Scotland for nearly two decades, and whose central political project is independence, presides over an economy whose most successful export industry is entirely dependent on UK trade diplomacy for its international market access. Every percentage point reduction in Indian tariffs, every negotiation with Washington, every trade deal with the Gulf — these are achievements of the union that Scotland’s governing party exists to dissolve. The SWA does not make this point in those terms. It does not need to. It highlights the failure of the SNP to meaningfully articulate any concrete constitutional case in any terms at all — and spare us all Sturgeon’s ‘White Papers on Independence’ trite civil-service manufactured documents merely gathering dust.

The third is the absence of industrial policy headroom. As with the deindustrialisation discussed in the previous section, the Scottish Government’s tools for responding to the whisky sector’s difficulties are limited to advocacy and moral support. It cannot adjust the tax environment. It cannot negotiate market access. It cannot deploy the kind of targeted sectoral support — export credits, trade promotion infrastructure, tariff negotiation leverage — that a fully sovereign government might bring to bear. What it can do is express concern, which it does with considerable fluency.

John Swinney has discussed the tariff problem with the US president. The conversation has not produced a result. The whisky sits in the warehouses. And Scotland’s most globally recognised industry waits for decisions made in Washington and Westminster to break one way or another — entirely outside the control of the government that claims, with some regularity, to speak for Scotland’s economic interests.

IV. The Tax Divergence Trap

In December 2025, Finance Secretary Shona Robison stood before the Scottish Parliament and delivered what she described as a Budget that asked the wealthiest to “contribute that little bit more.” She announced two new council tax bands on properties valued above £1 million — a mansion tax, in the vernacular — and a levy on private jet departures from Scottish airports, to take effect from 2028. She raised the basic and intermediate income tax thresholds by 7.4 per cent, more than inflation, and noted with satisfaction that 55 per cent of Scottish taxpayers would pay less income tax than their counterparts in the rest of the UK.

It was a politically accomplished performance. As an economic programme for a government facing a £1.3 billion social security shortfall, an accelerating deindustrialisation problem, and an export sector absorbing simultaneous shocks from Washington and the UK Treasury, it was something closer to…distraction.

The Gesture and the Gap

Start with the mansion tax. The principle is defensible. The current council tax banding structure, frozen in 1991 valuations, is genuinely regressive in its upper reaches: the owner of a £1.5 million Edinburgh townhouse pays council tax at a rate that bears no rational relationship to their property’s value relative to more modest homes. Introducing new bands above £1 million addresses a real anomaly.

The problem is not the principle. It is the quantum. Robison announced the policy without specifying how much it would raise. In the context of a social security overspend approaching £1.5 billion per year, a new council tax band on Scotland’s relatively small stock of million-pound properties will generate a revenue figure that is, at best, a rounding error on the problem it is implicitly presented as addressing. The Scottish Government committed to publishing the revenue projections ahead of implementation. That commitment to retrospective transparency — announcing the policy first and the numbers later — is either an administrative oversight or more likely a typical example of the SNP’s deliberate preference to avoid any obvious comparison between the headline and the reality.

The private jet levy is more straightforward to assess. It will raise negligible revenue. Scotland does not have a large private aviation sector by European standards. The levy’s purpose is not fiscal. It is communicative — a signal to a particular electoral constituency that the Scottish Government shares its values about wealth and environmental responsibility. There is nothing improper about using fiscal instruments for signalling purposes. There is something worth noting about a government that reaches for signals when what the situation requires is solutions.

The Income Tax Problem

The more consequential element of the Budget — and the one that received less critical attention than it deserved — was the continuation and deepening of Scotland’s income tax divergence from the rest of the UK.

Scotland now operates a five-band income tax structure. Higher and additional rate taxpayers in Scotland pay more than their counterparts in England, Wales, and Northern Ireland. The divergence has been building incrementally since Holyrood acquired income tax powers, justified at each stage by the Scottish Government’s commitment to a more progressive system and its need to fund public services at a higher level than the block grant alone permits.

The case for progressive taxation is not in dispute here. The question is what the divergence costs at the margin, and whether that cost is being honestly accounted for.

Michelle Ferguson, director of CBI Scotland, was characteristically direct in her response to the Budget: “Continuing tax divergence from the rest of the UK — particularly for middle earners up — leaves firms unable to recruit highly skilled employees from across the UK and beyond and risks pushing even more talent south.” This is not an ideological objection to progressive taxation. It is a labour market observation. Scotland is competing for mobile skilled workers within an integrated UK labour market. When the effective cost of working in Scotland — relative to Manchester, Bristol, or London — rises with each incremental tax divergence, the decision calculus for a senior engineer, a specialist consultant, or a financial services professional shifts accordingly.

The SFC’s own forecasts show Scotland’s income tax revenues persistently underperforming relative to projections. That underperformance has multiple causes, including slower earnings growth and demographic headwinds. But the tax divergence contributes to it by making Scotland a less attractive destination for the higher-earning workers whose income tax receipts disproportionately fund public services. The government’s response to underperforming income tax revenues has been to continue the divergence that partially drives the underperformance. The circularity of this is not acknowledged in the Budget documentation.

The Middle Earner Arithmetic

It is worth being precise about where the divergence bites hardest, because the political framing — that only the very wealthy are affected — is not accurate.

Scotland’s intermediate rate of 21 per cent applies from £14,877 to £31,092. The higher rate of 42 per cent kicks in at £43,662, compared with £50,270 in the rest of the UK. This means that a Scottish worker earning £50,000 — a salary that describes a competent professional in mid-career, not a member of the wealthy elite — pays meaningfully more income tax than an equivalent worker in Newcastle or Leeds. The gap widens further up the income scale, but it begins at earnings levels that describe exactly the skilled, mobile workforce that the Scottish economy most needs to attract and retain.

Robison’s claim that 55 per cent of Scottish taxpayers pay less than their UK counterparts is arithmetically accurate and rhetorically misleading. It is accurate because the majority of Scottish taxpayers earn below the threshold at which divergence becomes costly, and because the threshold uplifts announced in the Budget genuinely benefit lower earners. It is misleading because the 45 per cent who pay more are not randomly distributed across the workforce. They are disproportionately concentrated in the skilled professional and managerial occupations whose income tax contributions fund the services that benefit the 55 per cent, and whose location decisions are most sensitive to relative tax burdens.

What the IFS Said

The Institute for Fiscal Studies’ assessment of the SNP’s 2026 manifesto provided the most authoritative external verdict on the fiscal programme as a whole. The conclusion was not kind. The manifesto’s approximately £1.4 billion in new annual spending commitments by 2031-32 rested on funding assumptions the IFS described as not credible. This sits alongside the Spending Review’s £1.5 billion savings target, which the SFC noted would be challenging to deliver. The two assessments together describe a government that has committed to spending considerably more than it has, saving considerably more than is realistic, and funding the gap with revenue projections that do not hold up to independent scrutiny.

This is not a marginal error in the modelling. It is a structural mismatch between the Scottish Government’s public commitments and its fiscal position — dressed up in Budget documentation and manifesto costings that require independent analysis to unpick. The IFS performed that analysis. Its findings were reported, noted, and then largely set aside as the election proceeded.

Revenue Theatre

Step back from the individual measures and the Budget of December 2025 reveals a consistent underlying logic. The mansion tax signals commitment to fairness without specifying what it raises. The private jet levy signals environmental seriousness while raising negligible revenue. The income tax threshold uplift for lower earners is genuine and defensible, but it coexists with a continued higher-rate divergence whose labour market costs the government does not publicly account for. The new spending commitments are substantial. The funding assumptions are not credible. The savings targets are challenging.

What the Budget is not is a response to the structural problems identified in Sections I through III. It does not address the social security overspend. It does not provide an industrial retention strategy. It does not create the conditions — lower business costs, competitive tax rates for skilled workers, improved infrastructure — that might slow the outward drift of mobile capital and talent. It is, in the language of a government that has governed for nearly two decades, the kind of Budget that a party produces when it is more focused on winning an election than on solving the problems an election victory will require it to address.

Shona Robison told MSPs she was asking the wealthiest to contribute that little bit more. John Swinney won the election five months later. The social security gap did not close. The factories did not reopen. The whisky sat in the warehouses. And somewhere in the Scottish Government’s finance directorate, the numbers continued to be what they were regardless of what the Budget said about them.

There remains one further dimension of the Scottish Government’s fiscal programme that has received less scrutiny than it deserves — one that reveals, with particular clarity, the distance between the economic challenges Scotland faces and the constitutional project its government remains committed to pursuing. It involves bonds, spreads, and a deputy first minister who described borrowing at a premium as laying the foundation stones of an independent nation.

V. The Foundation Stones of Nothing

In the spring of 2026, Kate Forbes gave an interview to the Financial Times in which she explained why Scotland was about to start borrowing money at a premium it did not need to pay. The Scottish Government’s £1.5 billion bond issuance programme — the first bonds expected to launch in late 2026 or early 2027 — would cost more than equivalent UK borrowing, she acknowledged. The extra cost was estimated at up to £2 million per bond per year. But the expense, Forbes said, was worth it. “We are putting in place the foundation stones of an independent nation,” she told the paper.

It is a remarkable sentence. Delivered by the deputy first minister of a devolved government facing a £1.3 billion social security shortfall, presiding over accelerating deindustrialisation, watching its most celebrated export industry absorb tariff shocks it cannot address, and operating a tax regime whose labour market consequences it will not honestly account for, it is the kind of sentence that deserves to be read slowly, and more than once.

Scotland is borrowing money it does not need to borrow, at rates higher than it needs to pay, in order to build credibility with the international bond markets it would depend upon if it were to become independent — a constitutional outcome that both the rating agencies and the government’s own fiscal position suggest would be, at minimum, extremely expensive, and possibly catastrophic. The taxpayers who will service this premium did not vote for independence. Approximately half of them, on current polling, support it. The other half are financing its institutional infrastructure regardless.

What the Markets Are Actually Saying

Forbes pointed to Scotland’s credit ratings — investment grade from both S&P and Moody’s, at the same level as the UK — as vindication of the underlying strength of the Scottish economy. “The fundamentals of the Scottish economy under SNP management,” she said, demonstrated Scotland’s “core strengths as a nation.” It was a characteristically confident assertion. The small print of the ratings assessments told a more qualified story.

Both S&P and Moody’s noted explicitly that moves toward independence would put downward pressure on Scotland’s ratings. S&P described the likelihood of independence as “low” but added that “material steps toward independence could affect monetary and fiscal arrangements with the UK government.” The ratings, in other words, are not a verdict on Scottish independence. They are a verdict on Scotland as a devolved component of the United Kingdom, with the full faith and credit of the UK fiscal framework behind them. They validate the union’s fiscal architecture. Forbes cited them as validation of the SNP’s stewardship.

The bond market’s actual assessment of independence risk will be expressed not in the headline credit rating but in the kilts-gilt spread — the premium Scottish bonds trade at relative to UK gilts. Investors are already pricing this in. Craig Inches of Royal London Asset Management estimated that Scottish bonds could trade at around 0.3 percentage points above UK ten-year debt in normal conditions, largely reflecting the illiquidity of a nascent market. At current levels, that implies a ten-year borrowing cost of more than 4.7 per cent. Gordon Shannon of TwentyFour Asset Management was more direct about the dynamic: the spread, he said, rises with how much markets worry that Scotland could one day be carved out and left to depend on Scottish taxation and refinancing alone.

Derek Halpenny of MUFG described the kilts-gilt spread as a potential barometer for independence risk — analogous to the spreads between Eurozone sovereign bonds, where the gap between Italian and German yields widens when markets worry about the cohesion of the currency union. The analogy is instructive. Italy does not choose to trade at a spread above Germany. It is the market’s assessment of relative risk, expressed in basis points. Scotland is about to acquire its own version of this barometer, and every time its government signals that independence remains the destination, the barometer will move.

Forbes is aware of this. She acknowledged that any change in Scotland’s constitutional circumstances would be reflected in bond yields and credit ratings. Her argument is that the investment and engagement generated by the bond programme will offset both the premium costs and the independence risk signal. It is possible to admire the boldness of this position while finding its arithmetic unconvincing.

The Deficit That Doesn’t Move

Underlying all of this is a number that Forbes did not dwell on in her Financial Times interview, and that the SNP’s independence case has never satisfactorily addressed. Scotland’s notional fiscal deficit — the gap between public spending in Scotland and the revenues raised here — ran at 11.6 per cent of GDP in 2024-25. The equivalent figure for the UK as a whole was 5.1 per cent. The gap between them represents, in concrete terms, the fiscal transfers from the rest of the UK that fund Scotland’s higher per-capita public spending.

Independence does not make this number disappear. It makes it Scotland’s problem to solve alone, without the block grant, without the Barnett formula, without the fiscal transfers, and without the UK’s borrowing capacity to smooth the adjustment. The SNP’s response to this arithmetic has always been that independence would, over time, produce better economic outcomes — that full policy autonomy would unlock growth, attract investment, and generate the revenues that devolution cannot. It is a coherent position in the abstract. In the concrete present of 2026, with a social security system haemorrhaging £1.3 billion above its funding baseline, a productive base in visible contraction, and an export sector under external pressure, the proposition that independence would immediately improve Scotland’s fiscal position requires a confidence in transformative policy autonomy that the evidence of nineteen years of SNP governance does not obviously support.

The IFS put the deficit figure on the record. The Fraser of Allander Institute has mapped its trajectory. The SFC has modelled the social security pressures that will widen it further. These are not unionist attack lines. They are the outputs of independent fiscal institutions doing their jobs. The Scottish Government has not published a credible plan to close the social security gap within devolution. It has not published a credible costing of independence. What it has done is announce a bond programme designed to signal constitutional intent, at a cost borne by taxpayers who did not specifically authorise it for that purpose.

The Barometer and the Building

Forbes’s foundation stones metaphor deserves a final examination, because metaphors in politics are rarely accidental. A foundation stone is something you lay before you build. It implies a structure to come — a building whose dimensions are known, whose design is settled, whose costs have been estimated. You do not lay foundation stones before you have worked out whether you can afford the building.

Scotland in 2026 is laying foundation stones for a constitutional project whose fiscal implications its government has not honestly set out, on ground that is softer than the credit ratings suggest, using borrowed money that signals to the markets the very risk that will make the borrowing more expensive. The kilts-gilt spread will widen each time a Scottish minister describes bond issuance as infrastructure for independence. Forbes has now done so, on the record, in the Financial Times. The markets will have noted it.

Meanwhile the foundations of the actual economy — the industrial base, the export sector, the tax revenues from skilled workers who might choose to live somewhere else — are under pressures that the Scottish Government’s fiscal programme does not address and in some respects actively worsens. The mansion tax will not close the social security gap. The private jet levy will not reopen Grangemouth. The income tax divergence will not make it easier to staff the companies that might replace what is being lost. And the bond programme will not produce a fiscal surplus from a government that has no published strategy for reaching one.

The Answer That Wasn’t Given

In 2022, John Swinney told the country that Scotland’s finances were in robust health. The claim was false. The Scottish Fiscal Commission’s own forecasts, published months earlier, showed exactly where the trajectory was heading. The question that went unanswered then was simple: where is the plan?

Four years later, the social security overspend has materialised broadly as forecast. The industrial base has continued to contract. The whisky industry is absorbing shocks that no one in Edinburgh can resolve. The tax divergence is deepening. The bond programme is being designed to serve a constitutional project rather than an economic one. And the man who made the original claim has been returned to office for a second term, having offered an IFS-assessed manifesto whose spending commitments rest on funding assumptions described as not credible.

The question has not been answered. It has simply been given five more years to become more urgent.

John Swinney’s boast, it turns out, was not merely the easy part. It was the only part. Everything since has been the bill arriving, in instalments, while the government that ran it up explains why the charge on the statement is someone else’s responsibility — Westminster’s, Washington’s, the global energy transition’s, the actuarial misfortune of a population that turned out to be less healthy than anticipated. The bill is real. The means to pay it are shrinking. And the foundation stones of an independent nation are being laid on ground that the government’s own fiscal institutions have spent four years warning was not as solid as advertised.

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My new book ‘Scotland Undone: Nationalism, Dogma, and Decline in the Devolution Era’ is available on Amazon is available here

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Dean M Thomson is currently a lecturer with Beijing Normal - Baptist University (BNBU), formerly known as Beijing Normal - Hong Kong Baptist University, United International College (UIC).

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