Scotland’s budget is set to rise by more than £300 million in the coming years, the Chancellor announced yesterday in his Autumn Statement.
The UK government said the budget is being “revised upwards” with cash that the Scottish Government should now commit to priorities such as improved childcare.
But finance secretary John Swinney branded it “ludicrous” to claim the picture in Scotland is improving, after spending was cut more deeply earlier this year.
The move came as a fresh row erupted over the falling value of oil and gas revenues, with the independent Office for Budget Responsibility (OBR) warning the tax take from the North Sea will be billions of pounds down on initial estimates.
An extra £308m – equivalent to about £60 for every man, woman and child in Scotland – has been allocated by George Osborne over the next two years, he told the Commons yesterday.
Local authorities will be able to access up to £250m “cheaper” borrowing at the Public Works Loan Board. Mr Osborne indicated an aim to support Glasgow in a “city deal” similar to ones set up in England to help regional economies. It means the city can retain some taxes locally to target initiatives to boost economic development.
About 330,000 couples in Scotland will also be able to benefit by up to £200 a year through a marriage tax break.
Scottish Secretary Alistair Carmichael said the figures for Scotland’s economic outlook had been revised upwards.
“As part of the UK, Scotland is benefiting from the measures that we are taking to get our economy growing again,” the Liberal Democrat coalition minister said. The rest of the UK is “already ahead” in providing childcare support, free school meals and support for the high street, he claimed.
“The Scottish Government has been given the money to do these things, too.,” said Mr Carmichael. “They can match the help that families and businesses are getting in other parts of the UK. They could crack on with the childcare package they announced last week but are making it conditional on a Yes vote to independence.
“They can do these things, or they can spend the money elsewhere. These are the choices that they must make.”
But the Scottish Government at Holyrood insisted yesterday its budget is being cut by 9.9 per cent in real terms over the current five-year spending review period, and growth is slower than predicted. “It is ludicrous for Westminster to claim increased funding for Scotland when today’s announcement does not make up the ground lost by cuts announced earlier this year,” Mr Swinney said.
“The UK government’s austerity approach has missed out on key opportunities for growth. Despite the Chancellor’s claims, by the end of 2015 the UK economy is forecast to be 5.9 per cent smaller than was projected in June 2010, and the UK economy remains smaller than it was prior to the recession.
“That missed opportunity means borrowing will be £197 billion higher than projected in June 2010. That is the cost of Westminster’s economic failures.”
Raising the age for the state pension to 69 by the late 2040s will also hit Scotland disproportionately, he suggested.
But the SNP administration came under pressure to follow a cap on business-rate hikes south of the Border announced by the Chancellor yesterday.
“It is now up to the Scottish Government to start using its powers to help businesses in Scotland,” Scottish Tory finance spokesman Gavin Brown said.
“The UK government has taken decisive action to help business – now the SNP needs to step up to the plate and do the same.”
A new forecast by the OBR downgraded oil production figures by £5.3bn over the next five years, well below the Scottish Government’s estimates.
But Mr Swinney said: “The OBR oil forecasts are simply not consistent with industry expectations for production or current price trends.
“Scotland has a vibrant oil and gas sector and will continue to do so for many decades to come.”
The issue is at the heart of the independence debate, with the SNP insisting oil and gas will boost Scotland’s economic wealth after independence.
Industry body Oil and Gas UK said it took a “less pessimistic view” of the likely outlook for the North Sea until 2018.
Chief executive Malcolm Webb said he “foresees an upturn in production beginning in 2015, which should last for the remainder of the period”.
But Labour energy spokesman Tom Greatrex claimed that oil revenue from the North Sea “will decline significantly and soon”.
He said: “Revenues to the government from the North Sea are expected to fall by 30 per cent between now and 2016-17. This work from the OBR shows that those projections are going down, rather than up.
“The SNP has characteristically and cynically inflated figures for future oil and gas revenues in pursuit of their objective of Scotland separating from the rest of the UK.
“Alex Salmond’s claim that the North Sea would be worth £48-57bn between now and 2017-18 is another example of the hyperbolic assertion that he tries to pass off as an economic case.”
John McLaren: Scotland faces tough choices, independent or not
THE UK government’s Autumn Statement offered little new to those who had been watching the news over the past week. Growth is stronger but more austerity is needed, is the key political message. Beneath that headline, though, the detail suggests a more complicated picture. Predicted growth is higher this year and next, but then is a little lower than before for the three following years. As a result, the impact on the UK’s fiscal position is not that great.
An extra year of austerity has been added, in 2018-19. So we now have three years, starting in 2016-17, of bigger annual cuts in day-to-day departmental spending than has been seen to date, but without any indication of where those cuts will fall.
If Scotland is still in the UK post-2014 then it will also need to take its share of the spending cuts pain, via the Barnett formula. This is not a very appetising thought. However, if it were independent then the revisions down of North Sea tax revenues do not bode well. Either way, the Scottish Government will be faced with big decisions on how to spend its dwindling budget.
Some interesting decisions were made by Westminster that the Yes campaign will need to consider, such as whether and how it would deal differently with the pressures to increase the retirement age.
On Corporation Tax cuts, the UK government, in its haste to deliver a blow to Labour, threw the SNP a useful titbit by issuing a paper that described the benefits to the economy of cutting Corporation Tax, a key post-independence policy. No doubt this analysis will be played back to it in the near future.
Overall, Scotland gets a little extra to spend via the Barnett formula as a result of UK budgetary increases in areas such as free school meals. But some of these extra spending commitments came about as a result of party conference pledges, setting in train a hunt for funds which might be better spent elsewhere.
• John McLaren is an economist with The Centre for Public Policy for the Regions