Analysis: The message is: straight ahead and steady as we go

THE big message from the 2012 Budget was short and concise, despite the length of the speech – “We are sticking with Plan A and getting borrowing under control”.

There were a lot of policy tweaks around this central statement, but the Budget was essentially fiscally neutral.

As a result, both the Barnett consequentials for the Scottish Budget, at £20 million, were minimal and the impact of the policy measures on UK economic growth had, according to the Office for Budget Responsibility (OBR), “limited effect on our economic forecast”.

The UK government’s fiscal targets remain in place, although this merely confirms the slippage, by two years, originally announced at the time of the Autumn Statement.

However, the impact of these extra two years of cuts on public spending, which affects the Scottish Budget (via departmental expenditure limits), has been enhanced. Now the resource budget is to be cut, in real terms, by an average of 3.8 per cent in these extra years, well above the average cut of 2.3 per cent a year over the period 2011-12 to 2014-15.

In terms of the UK economy, the OBR’s forecast of growth barely changes. On inflation, it forecasts CPI to be within the Bank of England’s 2 per cent target by early 2013.

This is after more than seven years of nearly always missing the target, often by a substantial margin.

The oil and gas sector has seen further changes to its taxation environment as a result of the Budget.

It is seeking greater certainty on who pays for decommissioning: effectively the government appears willing to commit to sharing the costs of removing North Sea structures at the end of their effective life.

The overall effect of the 2012 Budget measures in this area is to encourage more, hard to get at or incremental, production. This is forecast to lead to a projected net increase in North Sea tax revenues.

However, this policy-related increase is not the only change to North Sea revenues that the OBR foresees in their new forecast.

They have, once again, revised down such revenues post 2011-12.

By 2016-17, UK oil and gas revenues are now forecast to be £5.3bn, less than half of the estimate for 2011-12 (£11.2bn) and less than half of what was being estimated by OBR in its Report on the Budget of 2011 (£11.1bn).

However, the better news would appear to be that higher investment in the North Sea should sustain revenues in the longer term, post 2016-17. All this has implications for the UK Treasury, but equally affects the environment in which the discussion of greater fiscal powers to Scotland will take place.

The 2012 Budget was not a game-changing one: rather, it was one which confirmed the direction of travel that had been outlined in previous Budgets and Autumn Statements.

• John McLaren is a professor at the Centre for Public Policy for Regions at Glasgow University.