{"id":2861,"date":"2016-03-17T15:24:43","date_gmt":"2016-03-17T15:24:43","guid":{"rendered":"https:\/\/sceptical.scot\/staging\/?p=2861"},"modified":"2025-12-27T13:24:51","modified_gmt":"2025-12-27T13:24:51","slug":"taxing-cocktail-of-political-risks-for-sg","status":"publish","type":"post","link":"https:\/\/sceptical.scot\/staging\/2016\/03\/taxing-cocktail-of-political-risks-for-sg\/","title":{"rendered":"Taxing cocktail of political risks for SG"},"content":{"rendered":"\n

Chancellor George Osborne couldn\u2019t resist a sideswipe at the Scottish Government when he announced the \u201cvirtual abolition\u201d of Petroleum Revenue Tax, but it was another of his Budget measures, the sugar levy, which had the most immediate effect. Shares in AG Barr, maker of Scotland\u2019s favourite hangover cure, Irn Bru, plunged by 5%.<\/strong><\/p>\n\n\n\n

That was enough for Twitter wags to call for a second referendum on independence \u2013 although whether First Minister Nicola Sturgeon would feel that met her \u201cmaterial change\u201d test to justify another vote so soon, is, to say the least, doubtful.<\/p>\n\n\n\n

The Scottish Government has been reluctant to take the first step on taxing sweetened food and drinks, despite urging by Food Standards Scotland and health campaigners. But it is unlikely to oppose a measure which might help to combat Scotland\u2019s obesity problem.<\/p>\n\n\n\n

Whether it welcomes the slashing to zero of the rate of PRT is another matter. It has been calling for further tax concessions from the UK Government to stimulate the flagging oil industry, but the retention of the Supplementary Charge \u2013 albeit at half its previous rate \u2013 means that the Chancellor is still taking money out of the industry and gives the SNP a reason to be critical.<\/p>\n\n\n\n

However, the main cause of the steady decline in oil production and the dramatic drop in exploration expenditure to an eighth of its previous average, is not tax, but the continuing low oil price, which neither the Chancellor nor the Scottish Government can do anything about.<\/p>\n\n\n\n

The market does not believe that situation will change in a hurry. You can buy Brent Crude for delivery in five years\u2019 time at $52 a barrel. That is higher than the current price of around $40, but still less than half of the level on which the Scottish Government based its forecasts in its 2014 independence white paper.<\/p>\n\n\n\n

Hence Mr Osborne\u2019s reference to 24 March 2016 \u2013 the day Alex Salmond, then First Minister, had set as \u2018independence day.\u2019 Had Scotland voted yes, the Chancellor said, the Scottish Government \u201cwould have struggled from the start with a fiscal crisis under the burden of the highest budget deficit in the western world.\u201d<\/p>\n\n\n\n

Offshore woes hit onshore growth<\/h2>\n\n\n\n

As Ms Sturgeon told her party faithful at their recent conference, the Scottish economy is a lot more than oil. But the problems of the oil industry are having a knock-on effect on the rest of the country. Redundancies, already in five figures and rising, will reduce purchasing power (and, incidentally, income tax receipts). The supply industry is also suffering and Aberdeen and the North-east have seen activity slow markedly.<\/p>\n\n\n\n

This is at a time when the general economic outlook \u2013 George Osborne\u2019s \u201ccocktail of risks\u201d \u2013 is not good for either the UK or Scotland. No reputable forecaster sees an imminent risk of recession, but growth rates on both sides of the border are being revised downwards.<\/p>\n\n\n\n

That has implications for government revenues. Lower growth means earnings rise less quickly and there is less economic activity which can be taxed \u2013 in Scotland\u2019s case largely property or development related. The Scottish Government is now responsible for raising nearly half of income tax in Scotland and from next year will have full responsibility.<\/p>\n\n\n\n

It will gain through the Barnett formula from some of the extra spending announced in the budget, but that amounts to only a \u00a3658 million rise in the block grant over the next four years \u2013 roughly a 2% increase in cash terms over that period, meaning a real terms cut even with inflation at record low levels.<\/p>\n\n\n\n

These facts point to very difficult decisions to be made in the next Scottish Parliament. We have yet to see the SNP manifesto, but the First Minister was giving broad hints of her taxing and spending plans in her conference speech.<\/p>\n\n\n\n

The basic rate of income tax (which accounts for the bulk of revenues which can be raised by the Scottish Government) will not rise. Yet there will be extra spending on the NHS resources budget, five new elective treatment centres, more money for primary, community and social care and an additional \u00a350 million for radiotherapy services.<\/p>\n\n\n\n

The provision of free early years education and childcare will be doubled, there will be free school meals for two, three and four-year-olds in Scotland\u2019s nurseries and her government would deliver superfast digital broadband to every building in Scotland.<\/p>\n\n\n\n

These are all attractive commitments, but how will they be paid for if income tax is not to rise and the block grant from Westminster remains static or declines? Something will have to be cut, but so far we are not being told what.<\/p>\n\n\n\n

This blog was first posted by the David Hume Institute<\/a> and is reproduced with permission<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Something will have to give if Nicola Sturgeon is to finance her admirable policy wish-list for the next five years. After the UK Budget we can only see a shortfall that will have to be made good by – what? The SG’s tax-and-spend options are unclear.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[319],"tags":[62,36],"class_list":["post-2861","post","type-post","status-publish","format-standard","hentry","category-economy","tag-oil","tag-scottish-government"],"_links":{"self":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/2861","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/comments?post=2861"}],"version-history":[{"count":1,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/2861\/revisions"}],"predecessor-version":[{"id":18098,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/2861\/revisions\/18098"}],"wp:attachment":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/media?parent=2861"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/categories?post=2861"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/tags?post=2861"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}