Will Derek Mackay’s First Scottish Budget Deliver the Goods?

Few Scottish budgets have been more keenly anticipated than this one, writes David Johnstone, from Grayling Public Affairs.

Few Scottish budgets have been more keenly anticipated than this one. With the introduction of new tax-raising powers, the SNP were handed some of the fiscal levers that they have been demanding for many years. However, anyone expecting radical changes was to be disappointed as Derek Mackay, the new Finance Secretary, produced a relatively conservative budget.

The Government committed to spending extra money on the NHS, childcare, homebuilding and schools. However, most of the initial attention has been on the Scottish Rate of Income tax, and the cuts that are being imposed on local authorities and universities.

Income Tax

The new Scottish Rate of Income Tax (SRIT) has become the main point of contention, and will likely prove to be an effective line of attack against the SNP government.

As long as some people pay more income tax in Scotland than they would in the rest of the UK, the Scottish Conservatives will keep hitting the SNP on issues of fairness and reduced competitiveness. The taxation differential is only set to grow, as the UK Government raises its top-rate threshold to £50,000 , suggesting that this will be an ongoing battleground over the course of the parliament.

Adding to the SNP’s misery is that they are also getting hit on taxation from the left, with Labour and the Greens strongly in favour of an increase on the highest earners. Both parties are quick to point out that the SNP are doing very little with the powers they’ve been demanding for years.

Local Authorities Question Funding Gap

The government U-turned on plans to take new council tax revenue away from local authorities to fund an increase in school spending; councils will now be able to spend the £111m as they see fit.

In addition, local authorities will also have the ability to increase council tax by 3% in order to raise additional funds. However, with local elections in May it is unlikely that any council will use this power until after the elections. Regardless, the government claims this additional support for local government will provide them with over £240m of additional spending power to support local government services.

Despite this claim of additional revenue, local authorities have hit back at the Government, arguing that the changes actually amount to a £300m funding drop. Labour-led councils of Glasgow and Fife have criticised the proposals, and there is likely discontent amongst the SNP’s own ranks, with many expecting the party to take control of more councils in the upcoming election. Despite this, the strength of these voices are unlikely to change the Government’s minds, with local SNP councillors unlikely to do battle with their own Party.

Sustainable Universities?

While colleges were undoubtedly winners in the budget, universities suffered a 1.3% cut in cash terms. This move was largely unexpected, especially given the Auditor General’s warning earlier this year, that universities were not sustainably funded.

Universities have been quick to criticise the move, but the issue is unlikely to be fought over by opposition parties who have higher priorities. The issue of under-funding for universities will likely resurface over the next few years, as Brexit further squeezes their finances. With the SNP firmly tied to free tuition fees, the universities will have to convince the government of their need for more funds, as they have fewer options for raising funds externally.

Passing the budget

With a minority government in place, there is no guarantee that the budget will get through unscathed and minority parties are already posturing. The SNP only need the support of one party, so the question turns to who?

The Conservatives are determined to present themselves as the strong opposition, so it might be assumed that they will remain opposed. However, there are some murmurings that the Conservatives might be willing to deal over cuts to Air Passenger Duty.

Labour are at pains to draw distinctions between themselves and the SNP so seem unlikely to vote with the government. The Greens want a large increase in the top tax rate, but might be willing to deal over more money for energy efficiency or for those on low incomes. The Lib Dems are closest with the Government over income tax, and could be swayed with more money for mental health.

The SNP have plenty of options, and could minimise changes to their budget by playing the various parties off one and other. There will be plenty horse-trading over the next few weeks.

The SNP have once again argued that painful cuts are the result of UK Tory austerity, but the new powers, coupled with the length of time they have been governing, are starting to erode the strength of this argument. With the Scottish deficit at record levels, and poorer employment and growth figures than the rest of the UK, the SNP’s handling of the economy is increasingly becoming fertile ground for the opposition.

 

 

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