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Scottish budget hamstrung by Brexit aims to support public services – but no Income Tax cut for higher earners

Trying to set a Scottish budget when you don’t know whats going to happen with Brexit, whether there is a General Election, or a second EU referendum about to happen and when a possible no deal scenario would be economically devastating, is an impossible job.  Derek McKay’s budget may be a bit timid but it would be foolhardy to be otherwise, given that it might all unravel due to Brexit and leave any undelivered promises hostages to fortune.

Nevertheless the Scottish Draft Budget was delivered today by Finance Secretary Derek McKay. Income tax rates will remain the same, which means that 99% of taxpayers will not see an increase in taxation. However, the starter and lower rates threshold will be increased by inflation. The underlying principle of the budget draft is to safeguard what matters most, Derek McKay says. The package for social care and integration is being increased to more than £700m, while the funding for local government will increase to £11.1bn. This is a real terms increase in revenue and capital funding for councils, as McKay says. NHS is now projected to make up 47% of the total budget.

Income tax bands

 

 

 

 

The business end of the budget?

The Finance Secretary emphasised the importance of infrastructure investment; the draft budget includes capital investment of £5bn over the coming year, including £1.7bn for transport, £180m on city region deals and £175m on nursery and childcare buildings. Also, the government will invest £2.4bn in skills and enterprise agencies. In addition, £5m will be invested over three  years to support women returning to work after a career break. The government projects that capital investment will be increased by £1.56bn per year by the end of the next parliament.

“This government will continue to tackle poverty and support new families,” he says. For instance, £435m will go towards new benefits, including a Carers’ Allowance supplement, the Best Start Grant, and the Funeral Expense Assistance. The Bedroom Tax will continue to be mitigated, and the Fair Food Fund budget will be increased. No consensus has been reached with regards to an alternative to Council Tax.

Business rates poundage has been capped below inflation at 49p, or 2.1% for 90% of properties, and SMEs will pay less than the previous year compared with the rest of the UK. Meanwhile, in terms of GDP growth, the Finance Secretary said that GDP will increase 1.4% in 2018, an increase in the Scottish Fiscal Commission’s May forecast. 

In relation to Brexit and its possible impact on the Draft Budget, Mr McKay says that “economic consensus warns us of the damage of Brexit,” no matter what kind of Brexit is secured. Brexit is “reckless and unnecessary,” he says, and adds the forecasts are subdued as a consequence. Significant resources have had to be diverted across the public sector to prepare for Brexit, says Mr McKay. It is disappointing but necessary to say that, in the case of a no deal Brexit, “I may be required to revisit our budget priorities at a later date,”  Go figure, as our American friends sometimes say.

Thoughts on the business issues from BfS.

I can’t really complain about a budget delivered under these circumstances, not just the Damoclesian sword of Brexit hanging over the Scottish would-be chancellor’s head, but the politics has been Westminster-esque; Labour grandstanding with un-costed ask after uncounted ask that just don’t add up, but the Lib Dems essentially refusing to take part in negotiations unless the SNP abandons its support for independence is astounding. Let’s put it this way – the Lib Dems, by refusing to get on with the day job of being the opposition because they feel that the constitution is more important than reducing child poverty, funding the NHS and growing the economy, simply demonstrates they are dedicated to the cause of British Nationalism in a way the SNP has never been to Scottish independence. 

Anyway, the next budget will be the important one because we will know what’s happening with Brexit and if we are going to have a second independence referendum.  The UK Chancellor Philip Hammond has stated that there will be an emergency UK Budget in April 2019, after Brexit and thus any Scottish Budget now is only really a budget for the first quarter of 2019. It is not until after (Brexit deal or no deal or no Brexit) that any real financial planning can be done by the Scottish Government. 

What would I like to see in the next budget?  Even more money for the Scottish Investment Bank to invest in Scottish fast growth potential businesses in the renewables, life sciences and IT sectors, and oil in particular.  A Scottish Citizens’ Bank that could start by nationalising rural bank buildings and those on the high street and providing what would eventually be community owned banks / post offices and shops.  A strong first step into boosting rural economies and protecting population numbers.  

We clearly need to look at Scottish ports; if Brexit has taught us anything it’s that five days food supplies that are dependent on a potential log jam at Dover means Scotland is not food safe and that our exports will be disproportionately damaged by future worsening trade relations with Europe.  And finally, the single most important move the Scottish Finance Secretary could make is ending the late payment culture that holds back Scotland’s SME sector (the backbone of Scotland’s economy).  

Let’s hope the Brexit fog clears soon and Scotland can get down to business and – hopefully – set an independent path to prosperity.

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

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