THE Finance Secretary offered a good news Budget – but intense scrutiny is on the way, writes Bill Jamieson
Take a bow, John Swinney. His Budget yesterday was a masterclass in bullet-dodging of which Wyatt Earp would be proud.
He swerved away from any change to income tax, though he had the power to raise or cut. He dodged growing pressure to end the council tax freeze. And he has avoided the worst of the spending pain for the SNP administration by passing on some £300 million of spending cuts to Scotland’s local authorities.
Instead, the 182-page draft Budget for 2016-17 bends under the weight of good news, high purpose and lofty intention. There is more heavy investment in infrastructure – the new Queensferry Crossing, hospitals, schools, railways, broadband connectivity, housing and roads: all working to modernise services and boost economic growth.
Scotland groaning under the hammer blows of austerity? Yes, there is certainly pain to come for local authorities. But the Scottish Government’s total budget for next year from Westminster is up by £400m. Key budgets have been protected. Staff numbers are at record levels in the National Health Service. There is the £38m Welfare Fund, and pledges to address deep inequalities.
Truly Mr Swinney has delivered a masterclass in presenting good news while denouncing Westminster austerity.
So let’s enjoy the John Swinney Magic Hour while we can – for this may prove the last Budget of its type. The thundering hooves in the background are not just the enthusiastic charge towards extensive new tax powers for the Smith Commission due to kick in from 2017.
The sound also heralds the approach of the pointy-nosed assessors of the new Scottish Fiscal Commission. They may not be quite the Four Horsemen of the Apocalypse slashing and burning through Holyrood’s lofty ambitions and spending rhetoric. But the arrival of a Scottish Office for Budget Responsibility will mean far greater independent scrutiny of the administration’s tax and spending plans, its forecasts for the economy and its overall fiscal performance – not least in insisting on thorough and transparent disclosure of budget deficit and debt control.
It might be thought that the Budget Statement of the Scottish Government could usefully begin with a clear and bold summary of the key metrics of fiscal management: the amount to be spent, the amount being raised in tax, the amount being borrowed, the overall debt level and the cost of that debt by way of annual interest charge.
It’s not much to ask. Indeed, these are basic facts and figures that should be at the front of all and every annual Budget Statement. With this, voters would have a much clearer idea of the government’s finances, whether it is being overly mean or dangerously spendthrift.
Voters need also to know the amounts which changes to levels of tax – income tax, council tax, business rates and Land & Buildings Transactions Tax – are expected to cost, together with an analysis of the behavioural effects of such changes. For it is one thing to propose a rise in tax in the expectation of higher tax revenues. It is quite another to assess the taxpayers’ response – and the impact this might have on revenues.
Above all, it is imperative that all these figures are subject to independent scrutiny so that households and businesses can have confidence in the government’s financial planning. The same goes, too, for economic forecasting.
It is not that governments may intentionally set out to deceive us. But governments can be wrong. For example, barely 18 months ago when the oil price was above $110 per barrel, the SNP administration claimed the sector would generate between £15.8 billion and £38.7bn for the public purse over five years.
Instead, with the devastating collapse in the oil price to below $40, official figures point to the first oil revenue loss recorded in a six-month period since North Sea oil started production 40 years ago. While the Treasury collected £248m in corporation tax and petroleum revenue tax (PRT) in the first half of this year, it paid out £287m in rebates to producers – leaving a loss of £39m. How fortunate is Mr Swinney this week not to be presenting the Budget of an independent Scotland on the basis of a tax bonanza that has all but vanished.
There is another reason, too, why we should welcome vigorous independent oversight of the Budget of any Holyrood administration. According to a Guardian investigation published this week, public sector borrowing for schools, roads, rail and education could hit £50bn by the end of the decade, putting heavy strain on the Scottish parliament’s £30bn budget.
The scale of the debt has never been set out by ministers as clearly as it ought, or investigated by the Scottish Parliament. It has led to calls by Scotland’s auditor general, Caroline Gardner, and opposition parties for greater openness over public finances. Ms Gardner said: “It is critically important that the Scottish Parliament and the people of Scotland have got a very clear picture of what both those assets and those long-term liabilities look like.”
Ms Gardner said the need for full transparency was even more urgent given that Holyrood is due to get far greater tax-raising powers and is under significant pressure on public spending.
Angus Armstrong, director of macroeconomics at think-tank the National Institute of Economic and Social Research, and formerly a senior Treasury economist, was much more blunt.
He said: “I think it is insane that the UK government hasn’t made clear [on] any future borrowing by the Scottish Government and the institutions that belong to it, who the creating authority is [for that borrowing], who has the liabilities and in the event of default, whose responsibility it is.”
As for economic forecasting, here my sympathies are with Mr Swinney, for this is the Devil’s work. Had someone said back in 2009 that inflation would now be running at near zero it would have invited queries as to the state of their health. Had they also forecast that interest rates would still be at their emergency low level of 0.5 per cent seven years later, a recommendation to lie down in a darkened room would have been forthcoming.
As for the oil price, I can only suggest that Mr Swinney finds money in the Budget to buy his chief economist Gary Gillespie a large dartboard with generous amount of cork surround.
Meanwhile, the Bank of Scotland Purchasing Managers Index survey this week pointing to a downturn in order intake for Scotland’s manufacturers for the second month in a row is disconcerting. And three of Scotland’s leading economic forecasters – Brian Ashcroft at the Fraser of Allander Institute, Ernst & Young and Inverness-based Tony Mackay – are all forecasting a growth rate for Scotland next year at around 2.2 per cent; notably lower than consensus forecasts for the UK as a whole.
By 2017 the provision of economic forecasts will be the grim business of the Independent Fiscal Commission. And for that at least Mr Swinney may have cause to be thankful.