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Scottish Budget Briefing

Posted: 7th February 2020

February 2020

FROM A DIFFERENT PLACE

CONTEXT

Today’s draft Scottish budget was already a source of greater contention than usual, having been delayed due to the general election and the timing of the UK budget. The chancellor will set out his tax and spending plans on 11 March, and the decisions Sajid Javid takes will have implications for the block grant and the amount of money available for Scottish public services through the Barnett formula.

However, 11 March is the legal deadline for Scottish councils to set their local tax rates and council leaders had said they would have to set these rates blind, due to the knock-on effect of MSPs not yet knowing exactly how much money they will be able to allocate to local authorities. Today’s Scottish budget seeks to provide as much certainty as possible.

The draft budget is also just that – a draft – and requires to be approved via the legislative process. The SNP does not hold a majority in the Scottish Parliament, so will need the support (or even abstention) of at least one opposition party. Therefore, today’s proposals will be subject to negotiations, the window for which is a lot smaller than usual ahead of the hard deadline for an agreed Scottish budget to be passed in time for the start of the 2020/21 period in April.

On top of this came the shock resignation of Derek Mackay as cabinet secretary for finance, economy and fair work on the morning of the budget, following the revelation that he had been sending inappropriate messages to a 16-year-old boy. As a result, Kate Forbes, minister for public finance and digital economy, stepped into the breach.

Forbes was already highly regarded, both inside and outside the SNP. She is comparatively young at 29-years-old and will have only improved her reputation further with today’s assured performance.

KEY POINTS AT A GLANCE

    • FORECASTS The Scottish Fiscal Commission forecasts that GDP growth will be one per cent in 2020 and 1.1% in 2021. This compares with 0.9% in 2019. There is reduced Brexit uncertainty, but, the long-term outlook remains subdued.
    • INCOME TAX No increases in Scottish income tax rates in 2020-21. The basic and intermediate rate thresholds will increase in line with inflation and the higher and top rates will be frozen. As a result, the SNP claims that, based on commitments made in the 2018 UK Autumn budget, there will be no further divergence in income tax between Scotland and the rest of the UK this year.
    • CLIMATE EMERGENCY £1.8 billion of investment in low emission infrastructure, including a £500 million package targeted specifically at efforts to respond to the global climate emergency; a £120 million Heat Transition Deal to decarbonise homes and buildings; an £83 million Future Transport Fund to support low emission and electric buses, bus prioritisation, and electric vehicle charging points; £85 million in active travel investment; and £64 million for investment in forestry.
    • INCLUSIVE GROWTH £220 million of direct investment for the Scottish National Investment Bank and £201 million for city region and growth deals.
    • HEALTH A £1 billion increase for health and care services, taking total health spending to more than £15 billion.
    • EDUCATION AND CHILDCARE £645 million for early learning and childcare to improve life chances of children and more opportunities for parents and carers to balance work and family life; a 13% increase in teachers’ pay; and support for closing the attainment gap, including £120 million for the Pupil Equity Fund.
    • TRANSPORT £270 million of increased investment in rail services and an additional £16 million for concessionary bus and travel services.
    • JUSTICE AND POLICING Protection of the SPA budget in real terms.
    • HOUSING Increasing investment in the Affordable Housing Supply Programme to £843 million.
    • BUSINESS RATES Poundage in Scotland capped at 49.8p and those premises with a rateable value above £95,000 will remain frozen at 2019-20 levels. A new lower intermediate property rate for properties with a rateable value between £51,000 and £95,000 will be implemented.

OUR VIEW – ANDREW WILSON

Any budget in any system is important. In a government deprived of the luxury of an overall majority – a rare luxury indeed in European democracies these days – or subject to partisan checks and balances, as in the US, passing a budget requires diligent and delicate work to build a measure of cross-party support, or at least deter partisan opposition. It’s a high-stakes game, with the attendant risk of a government falling or public services going unfunded, as happened with the US shutdown of a year ago.

The UK political system is more accustomed to majority governments seeing their financial will done. But devolution and its PR electoral system has returned a minority or coalition government to Holyrood in all but one term since the Scottish Parliament was established in 1999.

In its first term in office (2007-11), the SNP generally relied on the Conservatives for budget support. In more recent years, the Greens have determined the outcome. The outlook today is less certain, as some mood music suggests the SNP government is not minded to be boxed in by the Greens and there has been some speculation about potential support from Labour or the Conservatives this time around.

This uncertainty will dissipate as the budget bill progresses through its three stages over the coming weeks. The resignation this morning of the cabinet secretary in charge of the process, Derek Mackay, adds further complexity, to put it mildly. Mackay was well regarded across the chamber, not least for his handling of the budget process in recent years.

Today’s speech was delivered instead by Kate Forbes, the highly capable junior finance minister. Young, but with considerable intelligence and poise, she certainly has the talent to step into the position full-time, should that be the choice of the first minister.

The problem for all the parties is that if the budget falls and no alternative could be found, the likelihood is that so too would the government. Does anyone really have the appetite for another election now? It would be the fifteenth electoral event in Scotland in just over a decade.

In truth, while hugely important for the funding of public services, the stakes in a Scottish budget are far lower than at Westminster, or in any system where public borrowing cushions cyclical changes in revenues and allows far greater flexibility for the executive. Scotland’s borrowing capacity is still marginal, so it must always balance its budget. The macroeconomic impact is therefore limited to incremental spending choices and any changes to taxation within Holyrood’s jurisdiction which, to date at least, have limited the government to operating at the margins.

REACTION AND NEXT STEPS

The reaction to from opposition parties was critical but less partisan than in recent years, perhaps reflecting the fact that all the parties are open to compromise, as compared to previous budgets when a deal with the Greens offered the only viable route to consensus.

While welcoming some measures, Murdo Fraser, the Scottish Conservative finance spokesperson, said that the draft budget in its current form cannot be supported by the party, and he stressed the need for no additional tax rises or divergence between Scottish and UK taxes in future, and more money for policing.

Labour has made demands on social care, free bus travel for under 25s, higher education funding, and more cash to tackle climate change.

For their part, the Greens have asserted that it is too timid in relation to climate emergency, with Patrick Harvie, the party’s co-convener, saying that “it lacks the necessary action on the climate emergency and is an abdication of responsibility”.

Meanwhile, the Liberal Democrats have said there needs to be increased funding for struggling local councils, the police, mental health, nursery education and the environment.

Business organisations offered a cautious welcome to the proposals. CBI Scotland supported lowering the business rates poundage for some medium-sized businesses and increased investment in low carbon infrastructure, but warned that “further divergence with the rest of the UK on income tax risks making it more difficult for businesses to attract the people and skills we need to grow the economy”.

Meanwhile, the Federation of Small Businesses said that “a no-surprises budget is perhaps what was needed… following an uncertain and tumultuous period” and welcomed “sensible moves” on business rates.

The next key dates to come in the process are as follows:

Wednesday 12 February – Scottish Government minister – probably Kate Forbes after today – will appear before the Finance and Constitution Committee.

Thursday 27 February – Stage 1 debate in the chamber.

Wednesday 4 March – Stage 2 consideration at Finance and Constitution Committee.

Thursday 5 March – Stage 3 debate and the vote in the chamber.

 

info@charlottestpartners.co.uk

www.charlottestpartners.co.uk

 

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