It has been a grim few days for the Scottish Government. First of all, the Finance Secretary, Shona Robison (pictured), outlined how an extra £1 billion of funds had to be used to fill a fiscal hole for this financial year. Leaving us wondering what on earth she was going to do for next year.
Then, in the shadow of this dismal prognosis, the First Minister, John Swinney, attempted to present a positive outlook on what the Scottish Government is going to achieve in the next twelve months. Where does it all leave us?
Let’s start with the money
Budgets are tight. The new, Labour -led, UK government has decided to stick with fiscal rules akin to those of the previous, Conservative-led, government. This means that debt, as a percentage of national income, has to start falling in the medium term, which in turn means borrowing has to be restrained. At the same time pledges have been made that the big tax revenue sources – Income Tax, VAT and National Insurance – wont be hiked up. So there’s not much in the way of new money to fund public services until the economy starts to grow faster – which is by no means guaranteed. Whether you agree with this approach or not, you couldn’t say it came as much of a surprise after the UK election campaign.
So why the extra Scottish cuts?
First, the Scottish Government refused to set, and set aside funds for, realistic wage settlements in the public sector for this financial year. As the IFS and others have pointed out, this was naive at best.
Second, as a result of past decisions, Scotland has a relatively bigger public sector and they earn higher average wages than across the UK as a whole, a point highlighted by the Scottish Fiscal Commission last week. So matching any UK settlement is going to cost more in Scotland than it does for the UK Treasury.
Third, it went ahead with a Council Tax freeze that no-one was calling for and that was regressive in nature. Pure politics. Not good finances.
Going wider than this financial year, there are other causes
Scottish exceptionalism means that the newly devolved Social Security powers are consuming almost £1bn of funds over and above what is transferred from the UK. Which is fine, if that’s what you want to do, but don’t be surprised if it results in the need for cuts elsewhere. Furthermore, the cost of continuing to provide free, universal, public goods like public transport, university tuition and prescriptions is particularly expensive at a time of high inflation.
For some time now the Scottish Government’s approach has been to be more generous than the UK Government. Partly this is paid for through higher taxes and partly through lower budget rises in areas like Health – where the historic Scottish advantage over England, in spend per head of population terms, has virtually disappeared. But there comes a point when this won’t work anymore and it looks like we’re fast approaching it.
There are a couple of political knockabout points in this field that are also worth clarifying.
First, the claim-come-boast that the Scottish Government always balances its Budget. This isn’t quite true – it can, and does, borrow – but even if it were, it is a UK Government imposed restriction. Is the SNP really saying that the UK Government should be credited for forcing them to do this? Of course not, which is why it is ridiculous to keep trotting it out.
Second, Swinney’s claim that without SNP tax decisions the Scottish Budget would have been lower by £1.5bn this year. We can quibble over the exact size but, taking 2022-23 (the latest year that the Scottish Fiscal Commission published figures for last week) then, of the near £900m tax policy related changes which benefitted the Scottish budget, other factors – mainly a more slowly growing economy – reduced this figure down to £257m, around 30% of the potential.
So, devolving Income Tax to the Scottish Government has allowed for higher taxes and more revenues going to fund public services but much of this increase would have occurred if Scotland had just continued to get its share of UK income tax revenues. So it has been a pretty inefficient way of topping up the Budget. Is this really a gain, or a loss? Debate.
Next, let’s consider the policy side of things.
What does the Programme for Government tell us about the priorities of the Scottish Government? Not much.
Poverty, the economy, the environment, public services. Well, that just about covers it.
There is an on-going pretence that the ‘eradication’ of child poverty is the uppermost priority. It isn’t. I have written here about why its eradication is next to impossible and even achieving a 10% rate (the best achieved in any other country) is hugely ambitious and costly.
So, while there is considerable room for progress in Scotland and the UK, what hope for ‘eradication’ if even very wealthy, high tax, countries struggle to get the child poverty rate below 10%?
From what was said this week by the FM even a reduction is far from certain as there were no new commitments of any significance and the further expansion of free schools meals is no longer a given.
Beyond that top priority it is perhaps not surprising that there was equally little in the way of big statements made and almost no new money allocated. ‘We will try and keep doing what we’re already doing’ seemed to be the message. Inspiring stuff.
Bigger picture
The Scottish Government is in turmoil. Its finances are a mess. Instead of rolling out more progressive policies that contrast it with a mean spirited UK Government, it is struggling to shore up the existing ones. There seems to be little in the way of radical thinking for how to address this, or even clear thinking in terms of prioritisation.
Questions like – are free tuition fees a better use of money than directing it towards reducing child poverty? – remain unaddressed. The Scottish Government is reactive to UK policy and funding and therefore constantly in catch up mode.
Based on the latest Programme for Government and Fiscal Statement it is hard to see where any good news, or electoral momentum, is going to come from for the SNP prior to the next visit to the polling booths.
Would any other party or coalition do any better? It’s difficult to be inspired looking around the chamber, and there wouldn’t be a magical avalanche of new money but there might at least be the chance to get rid of some old shibboleths.
Featured image via Scottish Government flickr CC BY 2.0 Generic
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