Bill Jamieson: Sceptical of Osborne’s deficit vanishing act

The Chancellor resembles Gordon Brown in his tinkering with the economy. Picture: Justin Tallis/Getty Images
The Chancellor resembles Gordon Brown in his tinkering with the economy. Picture: Justin Tallis/Getty Images
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IT was an Osborne Budget too far, stretching credulity to the limit. But Scots can be certain of one thing – higher taxes north of the Border, writes Bill Jamieson

Last Wednesday’s Budget sent businesses, savers and investors back into another frenzied huddle over their calculators. And in its aftermath the SNP’s reaction has left a deeply depressing outlook for many thousands of Scottish taxpayers.

This was the fourth Budget in little over a year, and while measures for the self-employed and small and medium-sized businesses were welcome, this was for many just one Budget too far.

We had the pre-election Budget last March; the post-election Budget in July, then the lengthy Autumn Statement in November – and now last week’s download deluge of new tax thresholds, downgraded forecasts, upgraded projections, revised estimates… and new taxes.

This near-constant rain of budget adjustments makes it more difficult for businesses to plan ahead with confidence. And the more frequent the budgets, the greater the opportunity for gimmicks. The Treasury may think it is providing the country with fresh forecasts that give a more timely set of projections for the future. What I suspect they also do is reinforce public scepticism about official forecasts given that they are now chopped and changed with unnerving regularity.

Here in Scotland, the picture is all the more complicated – and depressing. The Holyrood administration has been given substantial new powers on tax and spending. This may help the tax system to be more responsive to our particular circumstances. But with a whopping budget deficit of £15 billion – equivalent to almost 10 per cent of Scottish output and close to double the comparable figure for the UK as a whole – it is higher, not lower taxes that look more likely.

It didn’t help Scottish taxpayer confidence last week when, within hours of Osborne delivering his Budget, Stewart Hosie, the SNP’s finance spokesman at Westminster, said he would not back the Chancellor’s plans to raise the starting point for the higher rate of income tax.

With new powers from April 2017, the Scottish Government can – and says it will – veto the UK Chancellor’s plan to raise the top threshold from £42,385 to £45,000. As matters stand a relatively small number of Scottish taxpayers will continue to do the hefty tax lifting while counterparts down south get a tax cut, exposing Scotland to the danger of tax migration and exodus of aspirants.

Coupled with pending – but still to be clarified – changes to local business rates and different Revenue reporting systems, Scotland is heading into a higher tax regime whatever the rest of the UK does.

And there is growing concern over the failure to date of Holyrood to allow a “grace period” for the sale of one home and the purchase of another, exposing “accidental” second home owners to the 3 per cent L&BTT surcharge. Osborne last week signalled a 36-month grace period for England and Wales. John Swinney now needs to follow suit.

Now much of this could be said to be an inevitable by-product of devolution and of a more politicised age. Governments take every opportunity to flex their tax muscles and grandstand on their activist programmes. Indeed, two of Osborne’s latest four Budgets – that in March 2015 ahead of the May UK general election and last week’s Budget ahead of the EU referendum on 23 June – were strongly coloured by political considerations.

But it is not just the frequency of Budgets but their content and length that is daunting. Last week’s Budget contained no fewer than 77 measures. And the reach of chancellors into areas of policy that are not strictly within the bailiwick of the Treasury is being constantly extended.

The chancellorship of George Osborne was supposed to mark a break from the obsessive micro-tinkering of the Gordon Brown era. But last week’s offering marked an extension of the already overlong reach of HM Treasury. It included details of how the £530 million raised from the new tax on sugary drinks was to be spent, together with the proceeds of the 5 per cent tax on sanitary products (the “tampon tax”) – two examples of pre-assigning the proceeds of a tax, or “hypothecation”, to which we have been told for decades the Treasury was vigorously opposed.

The Budget speech crammed in all manner of extraneous detail – for example on “the treatment of free plays from remote gaming providers”; new elected mayors in English counties and a West of England Mayoral Authority”. What has all this to do with the Budget? These are matters that surely should have been left to the Local Government and Communities minister to announce.

We were told of the “Thames Estuary Growth Commission”, and new powers for Greater Lincolnshire; cultural infrastructure projects from Truro to Hull; a new Shakespeare North theatre and an extra £20m for the Cathedral Repairs Fund.

Desirable though these announcements may be, they have a tangential relationship at best with the overall stewardship of the UK public finances and smack of Treasury grandstanding.

What further highlights their strange inclusion in the speech was the lamentable lack of detail on how exactly an increase in the budget deficit in the period ahead is to morph into a budget surplus in 2019-20. Indeed the budget surplus for that year is not only restated but is fractionally raised – from £10.1 billion to £10.4bn – a degree of micro projection four years out that would have drawn derisory howls had Gordon Brown announced it.

So a major mystery of this Budget remains – how an increase in the budget deficit in the years 2017-18 and 2018-19 together totalling an additional £30bn – becomes a surplus a year later. Little wonder the Institute for Fiscal Studies has raised searching questions on this forecast without further recourse to further spending cuts or tax rises. As if we haven’t got tax misery enough here in Scotland.