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by Kirsteen Paterson
28 September 2022
First Minister: UK economic crisis has wiped £1.7bn from value of Scottish budget

First Minister: UK economic crisis has wiped £1.7bn from value of Scottish budget

First Minister Nicola Sturgeon has raised serious concerns over the "rapidly deteriorating economic and financial crisis" affecting the UK.

The pound slumped again today after the Bank of England announced measures to buy government debt as part of stabilisation efforts. 

That comes after Sterling dropped to a 40-year low against the US dollar in the wake of a mini-budget delivered by new Chancellor Kwasi Kwarteng on Friday.

The package, which includes tax cuts for higher earners, has been criticised by the International Monetary Fund.

Today Sturgeon raised serious concerns about the likely growth of "extremely fuel poverty" and the impact on the NHS budget.

Appearing before a panel of MSPs, she said the value of the Scottish Budget passed earlier this year "is already worth £1.7bn less than it was because of the effects of inflation".

And she said: "We have the Bank of England staging an emergency intervention, not to respond to some external shock or global event but to try to reduce the damage of the UK Government's own policies. It is really extraordinary and unprecedented and I do think there needs to be very urgent and immediate action taken. 

"I don't think we should see the policies announced on Friday as inevitable. I think as an immediate symbol of some kind of good sense being restored, the decision to abolish the top rate of tax should be reversed."

The FM was appearing before the latest meeting of the Scottish Parliament's Conveners Group and said "it's going to be ordinary people who pay the price" of the unfolding crisis, stating: "I don't think we've had a more serious economic situation, possibly even including 2008 which was a global financial crash, but in the UK probably not a more serious situation in our memories, so that has a big impact.

"Our analysis has to continue as this situation unfolds."

Sturgeon said it is "hard to overstate the impact that Friday's budget will have on poverty, inequality and the financial stress that millions of people are going to be living under", calling the tax cuts for high earners "very difficult" to defend. 

She told MSPs: "We are very starkly realising now that the wider impacts of the budget are likely to be much greater than those immediate effects. Since Friday, we've seen the collapse of the pound. That will fuel inflation, which will make the cost-of-living crisis worse. We're already seeing the cost of borrowing increase.

"There is now, I think, the inevitability of a sharp rise in interest rates, which is going to have a very profound impact on those with mortgages, those with credit card debt, and that will put more people into very serious financial stress."

The Scottish Government is awaiting clarity over whether an energy price guarantee directed by the Chancellor at businesses will also apply to schools and hospitals. Sturgeon said: "As more of our health budget is taken up with paying the rising costs of energy, then clearly that means there's less of that budget can be spent on frontline patient care, so it has a very, very direct impact."

She went on: "I'm profoundly concerned by all of these things. We are working within a spending envelope right now effectively determined by the last UK Government spending review. The UK Government appear to have indicated that they are not intending to open that. That was set at the time inflation was, I think, three or four per cent; it's now almost in double figures, so not to open that is eroding the budgets that we have right now. 

“The budget that we passed as a parliament at the start of this financial year is already worth £1.7bn less than it was because of the effects of inflation."

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