Scotland faces ‘return to austerity’ without spending powers, says Kate Forbes

Scotland is facing “deep cuts” to public services as a result of the coronavirus pandemic unless Holyrood is handed significant new spending powers, the finance secretary has warned.

Kate Forbes has said that a “return to austerity” cannot be ruled out unless Scotland is given new borrowing powers to offset the impact of the pandemic on Scotland’s £40 billion annual budget.

The UK government has so far rejected the calls and said last night that Scotland has benefited from an “unprecedented package” of Treasury support during the pandemic.

The finance secretary will set out the prospect of looming summer revisions to the 2020-21 budget she delivered at Holyrood just a few months ago when she appears before MSPs later this week.

Finance secretary Kate Forbes, with First Minister Nicola Sturgeon. Picture: Jane Barlow/PA

In an article for The Scotsman today, Ms Forbes says that the bulk of a £4 billion tranche of emergency cash to tackle the pandemic in Scotland comes from UK government spending north of the Border.

But she warns this will not be enough to meet the additional needs of the NHS, business and third sector in Scotland which are being prioritised in the current emergency.

Ms Forbes writes: “The devolved arrangements were not designed for a health emergency and an economic crisis of this scale.

“With a global pandemic raging, fast decisions on public spending are required and it is critical that we have borrowing powers and greater financial flexibility to respond effectively.

“Otherwise, the only way the Scottish Government will be able to fund our ongoing response would be to make deep cuts to other public services.”

The situation has been compounded, according to the SNP minister, because funding earmarked to Scotland, such as a recent £70 million pledge for businesses and charities, did not materialise.

“Additional funding is always welcome, but if there isn’t going to be anything further then at the very least we need the powers to manage financial uncertainty and the guarantees of current promises,” Ms Forbes adds.

“The Scottish Government will always resist a return to austerity, but only with greatly enhanced fiscal powers can we ultimately reject it.”

The Scottish Government does already have some limited borrowing powers for resource funding. These are capped at £1.75bn and ministers have already set out plans to borrow just over £200m in the current financial year. But the coronavirus pandemic has thrown the annual budget process, set out in March, into disarray with much of the figures in that document effectively “out of date” as emergency funding has been diverted to meet the costs of the pandemic.

Ms Forbes will address the issue when she appears before MSPs on Holyrood’s finance committee on Friday.

But a UK government spokesman said: “Scotland is benefiting from an unprecedented package of UK government support.

“The Scottish Government receives a share of UK government borrowing through the Barnett formula, which is currently providing £3.7bn of funding. This is on top of the UK-wide measures such as business loans and the job retention scheme.

“The Scottish Government additionally has its own agreed borrowing powers and a £700m Scotland Reserve.”

First Minister Nicola Sturgeon last week said Scotland would apply for new borrowing powers if its lockdown lasted beyond the dates set by the Treasury for providing support to UK companies and workers.

Chancellor Rishi Sunak has set out a timetable for winding down the furlough scheme and the levels of support available, but he made no reference to the different lockdown timings in the four nations.

Ms Sturgeon insisted there must be an ability to respond to increases in transmission, either nationally or locally.

She said discussions with the Treasury are ongoing and will continue.

Labour Finance spokeswoman Jackie Baillie warned against any return to austerity but said the devolved fiscal framework must be more flexible.

Ms Baillie said: “Kate Forbes is right to recognise the scale of the threat that the pandemic poses to our economy and there is clearly a need to consider greater flexibility in the fiscal framework to cope with these unprecedented times.

“Unfortunately, the fiscal framework agreed by John Swinney has tied the hands of the Scottish Government in this crisis.

“It is absolutely clear that we cannot have more austerity, so to prevent this happening there is a need for more flexibility in the fiscal framework. So far the SNP has failed to get support to councils timeously and has failed to stand up for renters and care workers so they really must focus on their own actions as well.”