LABOUR Chancellor Rachel Reeves has throttled Scotland’s economic growth, according to new expert analysis.
Strathclyde University’s Fraser of Allander Institute said Labour’s tax hikes would mean fewer job opportunities.
And spending cuts mean Holyrood’s budget is due to be £900 million less in five years’ time, the top economists said.
Reeves used her first budget to increase employers’ National Insurance contributions, which is widely expected to mean firms make redundancies and take on fewer workers.
In their latest analysis of the Scottish economy, the institute said that growth would flatline at 0.9% this year before increasing slightly to 2026, a downgrade from previous forecasts.
And while inflation fell unexpectedly to 2.8% in February, offering some relief after major price hikes, services inflation remains high at 5% meaning that the Bank of England is unlikely to cut interest rates this year, according to the respected economic research institute.
Data from the Fraser of Allander’s Scottish Business Monitor showed that 94% of firms expected cost pressures to increase over the first half of the year, with three in four blaming National Insurance increases.
Professor Mairi Spowage, Fraser of Allander’s director, said: “Economic conditions in 2025 are turbulent and uncertain, and are likely to remain so throughout the year. Therefore, the picture is still one of subdued growth. Many of the challenges businesses faced in 2024 – from rising costs to policy uncertainty – have not gone away.
“Added pressures from National Insurance changes and geopolitical instability risk dampening confidence and growth further. These tax changes will start to hit businesses next week, with many scaling back plans for workforce expansion and recruitment as a result.”
Labour’s plans to cut £5 billion from the welfare budget – predicted to plunge 250,000 people into poverty – will also heap further pressure on Scotland’s books, the institute predicted.
Joao Sousa, Fraser of Allander’s deputy director, added: “The Spring Statement had clear implications for Scotland. Although there is a modest short-term funding increase, the medium-term outlook is significantly more challenging, with Holyrood’s budget for day-to-day spending expected to be nearly £900m worse off by 2029-30.
“We’ll learn more about what this means for Scotland when the Scottish Fiscal Commission publishes its next forecast in May, but it’s certain to be another significant pressure on the Scottish Government’s desk.
“The Chancellor has staked all her credibility on meeting her fiscal rules, but the buffer remains very small against the many risks encircling the UK economy, including those from global trade shocks. If any of those materialise, then we might be back in a similar position in the autumn.”
Scotland’s Finance Secretary Shona Robison will lead a debate on the Spring Statement in Holyrood today, warning that Labour were seeking to “balance the books on the backs of disabled people”.
She said that cuts to disability benefits, as well as the UK Government’s “refusal” to fund its National Insurance hike for Scottish public sector employees, would have a “devastating impact” on Scotland’s finances.
Robison added: “The UK Government’s decisions risk serious social and economic damage – and we will continue to press them to change course.”
Scottish Greens co-leader Lorna Slater said Labour were “failing on all of its own economic metrics” and punishing pensioners, people on benefits and the climate.
She added: “The UK is one of the wealthiest societies there has ever been, but far too much of that wealth is being hoarded away by a small number of very rich people who have never had it so good.
"If Labour was to tax that wealth properly and ask the super-rich to pay their fair share, we could raise the funds to end the child cap, restore Winter Fuel Payments and undo so much of the damage that has been done.”
