Derek Mackay delivers an historic budget, but his real job is just getting started

Scottish Parliament - credit: Anita Gould

Scottish politics can sometimes appear confusing, and that’s because it is. For some time now the national debate has operated on two different axes: one, based on the traditional back-and-forward between left and right, and the other, based on constitution. And with many of the key powers required to provide the tools for a normal left-right debate over tax and spending reserved, the dynamic has focused on the latter.

Questions of independence, it seemed, dominated everything. The SNP, rejuvenated after losing the 2014 referendum, thrived. The Tories too have seen electoral gains, with Ruth Davidson’s party, having taken on a new coherence, prospering under a strong opposition to separation from the UK.

And yet, following the referendum, one axis leaned on the other. The independence vote was constitutional, but its outcome – or one of its outcomes – was the transfer of new powers to the Scottish Parliament. There was a raft of these, but most important were those relating to finance and welfare.

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The Scottish Government’s budget has been transformed by the next stage of devolution. For nine years John Swinney would stand up in the Holyrood chamber and outline spending plans. Alex Salmond once dubbed him “Scotland’s merlin” for his prowess in balancing the books – but in truth, there was very little to balance. His job was to spend, not gather.

But Swinney has moved on, and Derek Mackay – long viewed as a rising star within the party – has been thrust into the finance role. They shared a job title, but the role he has taken on has changed markedly.

For the opposition, this was an opportunity. Labour in particular has long been frustrated by the SNP’s tendency to use the rhetoric of the left, while being able to blame spending cuts on the Westminster Government. To Kezia Dugdale’s party, the arrival of new powers is a chance to make the SNP put its money where its mouth is.

Meanwhile, with spending more closely linked to the performance of the Scottish economy, its performance has become more critical than ever to Scottish Government plans, and the circumstances surrounding this budget could hardly be more challenging.

Recent forecasts have certainly been worrying, with the Fraser of Allander Institute warning Scottish councils could face further cuts of £700m by the end of this parliament.

So, given the significance of this moment, Mackay could probably have been forgiven for being nervous. As he put it, standing in the chamber: “This economic uncertainty makes it all the more important that this budget provides support for the economy, for jobs and for household incomes, through a fair and balanced set of tax and spending proposals.”

And given the context, it was perhaps no surprise this budget – both in presentation and in substance – appeared to be an attempt to play it safe.

On income tax, Mackay said his refusal to “pass the costs of UK austerity on to the household budgets of the lowest income taxpayers” forced him to freeze both the basic rate of income at 20 and 40 per cent respectively, but with the higher rate payment threshold frozen in real terms at £43,430.

The additional rate of income tax, meanwhile, will remain at 45 per cent with the threshold left unchanged.

Reading directly from the script in front of him, he said: “While I sympathise with those who have argued for an increase to the additional rate, I have had to balance that with the risk to our economy and am maintaining the current rate.

“This Government’s approach is the right thing to do, for our economy, for jobs and our public services.”

Looking around the chamber, the reaction was pretty muted. Opposition party members frowned, SNP members clapped, though somewhat mechanically.

This was more or less what had been expected, with no major twists on the SNP’s 2016 manifesto.

Running through his plans, Mackay was flanked by Nicola Sturgeon and John Swinney – the man he had followed in the brief. Swinney had been moved on from finance in the last reshuffle, to take charge of education and push through Sturgeon’s stated aim to tackle the attainment gap.

Recent figures have been damning, with the most recent Programme for International Student Assessment figures showing Scottish schools to have recorded their worst-ever performance.

Swinney had described the results as “uncomfortable reading” and it was in education spending that his successor took a change in approach.

Mackay said: “At the election we pledged £750 million over the course of this parliament to the Attainment Fund. And, in a radical departure, we said that £100 million per year from that fund would be spent at the discretion of Scotland’s schools to help close the attainment gap.

“The revenue we identified to fund this new stream of direct support was the increase in council tax that will be paid by those in higher band homes. I know that many MSPs did not agree with that proposal. Parliament debated, parliament voted, and I have listened to parliament’s views.”

But instead of abandoning the plans, Mackay promised to “go further”, upping the funding provided directly to schools from £100m to £120m.

But more significantly, under Mackay’s draft plans, the money will not come from council tax, but instead from “the Scottish Government’s own resources” – that is, from central funding.

“Councils will keep the full value of the revenue from council tax re-banding,” he said. “Every penny raised locally will be spent locally, as councils see fit.”

Beyond education, there were pledges to provide £304m in resource funding for the NHS and to protect the revenue budget for policing in real terms.

Overall, he promised, local government and local services will have over £240m more available to them next year.

Yet, predictably, the opposition was unimpressed.

For the Tories, represented by Murdo Fraser, this was yet a chance to emphasise the party’s low tax credentials. Following Mackay, Fraser accused the Finance Secretary of choosing to “hike taxes on families and businesses, risking a choking of economic recovery.”

He said: “In not matching the UK increase in the threshold for the 40 per cent rate of income tax, the Finance Secretary is making Scotland the most expensive part of the UK in which to live, work and do business.”

Instead of increasing tax, Fraser said, the SNP should be growing the economy, and with it, the number of high earning taxpayers.

Mackay shot back with references to UK Government cuts to the block grant. Fraser shook his head, shouting across that a member of the SNP’s Growth Commission had made the same points.

Dugdale’s rhetoric, meanwhile, was even more forceful than Fraser’s, with the Labour leader accusing the SNP of £327m in cuts which she said would “rip the heart out of public services”.

“They’re holding councils to ransom,” Dugdale said, “forcing them to use their tax powers, while they refuse to use theirs.

“They could have asked the richest one per cent to pay a little more with a 50p tax, but they refuse.

“This budget,” she said, “passes on Tory cuts to the people of Scotland. It makes Derek Mackay little better than a Tory chancellor.”

Patrick Harvie also questioned why the party was not using new powers to increase support for social security.

Local services, were under “huge pressure”, with the Scottish Green co-convener pointing to a £71m cut in direct funding to councils, which he said will mean job losses and either a reduction of local services or increased charges.

“It’s clear that there is much to be worked on in this budget if it is to be passed,” he said, adding: “We will encourage the Scottish Government to raise its ambition ahead of next month’s vote to set income tax rates and February’s vote on the budget itself.”

With the SNP still short of the majority needed to get the budget through, and the Greens often viewed as their likeliest allies in tipping the numbers, Harvie’s concern over the ambition on show was significant. 

Similarly, Willie Rennie took the chance to bemoan Mackay’s failure to go further, telling the chamber: “We need transformation and this is not a transformational budget.”

He said: “The First Minister said today that there were acres of common ground between the parties but can I tell the Finance Secretary that he has got miles to travel before we can reach an agreement.”

Building that agreement will be the next test facing Mackay, with the draft budget due to start making its way through the committee system, with final voting taking place in February, though there will be a separate vote on the Government’s tax plans.

So although Mackay will have been relieved to get the appearance over and emerge relatively unscathed, his job is far from finished. How he can guide his draft plans through parliament, or what shape they will take after the opposition get their say, will go a long way in deciding the frame within which future political debate in Scotland will take place.