Budget, Brexit and a backdrop of austerity

Written by Gemma Fraser on 15 January 2019 in Inside Politics

How Scotland is attempting to weather the storm on public spending 

Image credit: Nick Ansell/PA

A handy video on the Scottish Government website that attempts to explain the budget in one simple guide lasts just 40 seconds.

It states that spending will be focused on hospitals, schools, our environment, keeping people safe, support for jobs and businesses and “much more”.

The budget statement made by Finance Secretary Derek Mackay in parliament in December lasted, in contrast, 27 minutes, but the two basically said the same thing.

Mackay talked about investment in public services, in education, in social security and older people, in justice services, in the economy, in building for the future, in business, in boosting town centres, in health, in local government and in protecting Scotland.  

So pretty much what the video outlined – plus “much more”.

“This Scottish budget prepares our economy for the opportunities of the future, enables the transformation of essential public services, and builds a more inclusive and just society,” Mackay proclaimed.

“It does so in the context of continuing UK austerity and against a backdrop of a UK Government careering toward Brexit at any cost.

“In sharp contrast to the chaos and uncertainty of the UK Government, the Scottish Government will keep on delivering good governance for Scotland.”

Mackay seemed to take great delight in having a pop at the UK Government, mentioning Brexit and austerity wherever possible.

And he took even greater delight as he delivered a joke at the expense of Theresa May.

“This is a strong government – some might say strong and stable government – doing its job, delivering for the people,” he said, looking particularly pleased with himself and pausing to allow for laughter.

But while it’s easy to laugh at May’s well-rehearsed Brexit lines, the economy is no laughing matter, as Mackay went on to outline.

“We all know, despite their promises, the UK Government hasn’t ended austerity.

“The UK budget in October 2018 failed to provide much-needed direction and leadership for our longer-term finances and wider economy.

“On spending, the Office for Budget Responsibility confirmed in October that the UK Government could  spend £15.4 billion more and still meet its fiscal rules in 2020-21.

“There can be no doubt the Prime Minister did not keep her promise to end austerity.

“Instead we have austerity, delivered by choice, not necessity. Austerity condemned by the UN. The price Scotland is paying as part of the UK is economic and social vandalism.

“The facts are these. Scotland’s resource block grant will be almost £2 billion lower in real terms in 2019-20 than it was in 2010-11. A fall of seven per cent.

“If this year’s budget consequentials for investment in the NHS are excluded, which is reasonable given our commitments to pass all of these consequentials onto health, our 2019-20 resource block grant is £340 million less in real terms than it was in 2018-19.

“That puts a huge strain on public spending, which this budget works hard to manage.”

As Mackay pointed out, the “damage of Brexit” is a key concern for the Scottish Government and for Scotland as a whole.

Analysis from the Scottish Government which was published in November revealed that the Brexit deal proposed by Theresa May could cost the equivalent of £1,600 for each person in Scotland by 2030 compared with continued EU membership.

But the Scottish Government warned this cost could be even higher given the uncertainty over whether or not a free trade deal will be agreed.

Nicola Sturgeon described May’s deal as “unacceptable” and “damaging to the people of Scotland”.

She said: “This deal will take Scotland out of the EU against our will and remove us from the European single market of 500 million people, which is eight times larger than the UK market. It will take us out of the customs union and the benefits of EU trade deals with more than 40 countries across the globe. In short, it will make us poorer.

“This deal will damage our NHS and make it harder to attract and retain the social care and health service staff we need. If the backstop is activated – as seems highly likely – it will place Scotland at a serious competitive disadvantage with Northern Ireland. It will mean promises to the Scottish fishing industry being broken.

“Perhaps worst of all, it will take away opportunities from the young people of Scotland and from the generations to come.

“Quite simply, this is a bad deal, which the UK Government is seeking to impose on the people of Scotland regardless of the damage it will cause. It will not end uncertainty. It will extend it. We are being asked to accept a blindfold Brexit with all the difficult decisions kicked down the road.”

Meanwhile, the Fraser of Allander Institute is calling for a debate about the future of public services and taxation in Scotland.

The institute’s most recent analysis shows that the outlook for the Scottish budget has improved since last year, but many portfolios will continue to face a tough financial squeeze.

Overall, the size of the Scottish budget is unlikely to be much different in 2019/20 compared to 2018/19. But the budget will still be lower by the end of the current parliamentary term than in 2010 – a cut of around seven per cent in per capita terms.

According to the institute, the outlook for the Scottish budget over the remaining years of the parliament has improved since last year, following the announcement of significant Barnett formula consequentials in the UK budget.

However, it also warned that some of this improvement is likely to be offset by weaker income tax forecasts.

Professor Graeme Roy, director of the Fraser of Allander Institute, said: “Whilst the outlook for public spending in Scotland next year has improved compared to what Mr Mackay will have been planning for this time last year, for many parts of the public sector austerity will be far from over.

“Public spending since 2010 has been focused on core areas of health, education and social care. This pattern is set to continue and whilst the outlook for unprotected areas has improved, further cuts cannot be avoided.”

Meanwhile, the latest GDP statistics – the main indicator of economic growth in Scotland – showed the Scottish economy continued to have stable growth for the fifth consecutive quarter.

The stats, published in December, showed that Scotland’s GDP grew by 0.3 per cent in real terms during the third quarter of 2018. Compared to the same quarter last year, it has grown by 1.5 per cent and follows stronger growth in the first half of 2018.

However, Scotland’s GDP is lagging behind the rest of the UK, which grew by 0.6 per cent as a whole during the same period.

The Scottish Conservatives have warned that the widening tax gap between Scotland and the rest of the UK will further harm the Scottish economy.

Dean Lockhart, Scottish Conservative shadow economy secretary, said: “It’s quite clear that Scotland’s economy is trailing the rest of the UK, despite the fact that we are facing the same challenges at present.

“The SNP is far more concerned with raising taxes than energising the Scottish economy.

“It is no coincidence that the UK economy is performing better than the Scottish economy, given the widening tax gap. The shocking drop in forecast income tax revenue of £500 million and predictions for another four years of economic underperformance show that Scotland’s economy is facing an SNP downward spiral.”

The SNP’s budget will be debated by parliament at the end of the month, ahead of a final vote which is likely to take place in February.

But it will need support from other parties to pass, and for the past two years, the Scottish Greens have provided that support.

However, they have already said that they will not even enter formal negotiations unless councils are given the “tax powers they need”.

Patrick Harvie said: “Derek Mackay has a brass neck trying to pass off hundreds of millions of pounds in council cuts as a funding increase. National policies like childcare expansion should be funded from national resources, not from a raid on council budgets.

“Councils across Scotland will now be forced to consider cutting vital services – threatening jobs – unless the Finance Secretary changes course and delivers a real real-terms funding increase.

“The First Minister knows that Greens remain the only party ever to bring down a Scottish budget. There’s no way Greens will back a double-whammy of council cuts and no new action on local tax reform. Her own councillors have backed plans for tourism and parking levies because they know how absurdly dependent councils are on central government grants.”

Speaking on Sunday Politics Scotland, Mackay admitted he has a lot of work to do ahead of the next stages of the budget process.

He said: “I recognise we are a minority government and I need to find a consensus in the Scottish Parliament.

“We are growing our economy, we are protecting our public services and we are providing stability for our country right now whilst there is chaos in Westminster.

“Why should any opposition party vote for it? Because it’s £2 billion for our public services and protecting and stimulating our country.”

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