Bill Jamieson: SNP budget problems not down to Brexit

The Scottish Government's Budget statement from Derek Mackay is unlikely to be full of festive cheer, says Bill Jamieson.

It has been a timeless preoccupation of government to provide good cheer, to boost civilian morale and keep us smiling.

But today the Scottish government is of a different mind. It is the broadcaster of woe. It has filled the air with the darkest forebodings. In the “chaos caused by Brexit”, to quote the finance minister, its approach to lifting our spirits is akin to hanging loudspeakers on the lamp-posts and blaring out Twilight of the Gods.

If you’re smiling there must be something wrong.

Now a few weeks ago there was a glimmer of light: Chancellor Philp Hammond was poised to open the public spending spigots in his Autumn Statement on 23 November. Deficit reduction targets were to be scrapped and “austerity” modified. Billions would be made available for infrastructure projects.

It was not a prospect the Holyrood administration could cheer politically. But at least it offered hope. Finance Secretary Derek Mackay faces his budget day of destiny just ahead of Christmas, on 15 December. Might it mean he would make it safely down the chimney with a sack of goodies?

Sadly, Santa Derek is more likely to land empty-handed in a cloud of soot.

Mr Hammond is said to have told the Cabinet this week to expect only a modest fiscal stimulus, with a programme of new infrastructure spending expected to run to just the low billions of pounds a year.

Now this is set to herald another burst of tears and misery from Mr Mackay. “The UK government’s austerity,” he declared recently, “means we are already facing a 10 per cent real terms cut to our budget over the 10 years to 2020 - now the chaos caused by Brexit threatens to make those cuts even harder.”

But Holyrood needs to take a closer look at why the chancellor is rowing back on earlier talk of big spending giveaways.

The economy is not in the state of Brexit blue funk as many – including the Treasury - feared it would be. From former chancellor George Osborne came the prediction of “an immediate and profound shock” if we voted to leave the EU. Many joined in the biggest Project Fear since, well Project Fear.

But as we learned last week, UK growth hit 0.5 per cent in the third quarter, giving a resilient 2.3 per cent annual rate. That’s way above Treasury forecasts, and also those from the Bank of England which forecast in August that growth would relapse to just 0.1 per cent and sink to zero in the final three months of the year.

Ah, say the critics, Brexit gloom and doom is just round the corner. Stand by for a miserable 2017. But both the Confederation of British Industry and the National Institute for Economic and Social Research have just raised their 2017 forecasts to 1.3 per cent and 1.4 per cent respectively.

Now comes the latest Purchasing Managers survey this week showing UK construction growing for a second successive month in October and at the fastest rate since March. Of particular note is that housebuilding activity expanded for a second month in October and at a rate close to September’s eight-month high.

Ah, but this surely can’t apply to Scotland, already suffering a slower growth rate and where business is mired in that “chaos caused by Brexit”. The much-quoted Fraser of Allander has kept up a constant wail of Brexit foreboding. Its report this autumn read thus: “Under all modelled scenarios, Brexit is predicted to have a negative impact on Scotland’s economy … Over the long-term a reduced level of trade is expected to result in Scottish GDP being between two per cent and five per cent lower than would otherwise be the case.”

As for the immediate impact, it forecasts growth here will slow to 0.9 per cent this year, to 0.5 per cent next and to 0.7 per cent in 2018 – notably lower than rival forecasts from E&Y and Inverness-based Mackay Consultants.

Yet through the clouds, glimpses to the contrary can be seen. A survey this week from business advisors Grant Thornton finds more than half of business leaders questioned are confident about the economy over the next year. It also found confidence was among the highest in Europe and the G7.

Debbie Mayor, from Grant Thornton in Scotland, says the latest set of data provided some reassurance during a time of great uncertainty: “Businesses in Scotland remain resilient and focused on driving forward their growth ambitions.”

Now let’s not doubt that a fog of uncertainty has rolled in. Investment and expansion plans have been hit. And lack of clarity from the government over its Brexit plans is deeply frustrating. Next year will not be smooth.

But this report follows similar findings from the Scottish Chambers of Commerce survey last month, covering almost 400 firms. This noted a pick-up in construction activity in the third quarter. Both housebuilding and public sector contracts returned to growth, with almost 45 per cent of all businesses in the sector stating that total sales had increased.

Optimism in financial and business services also “returned to positivity” for the first time in more than a year. Manufacturers reported a higher trend in export growth than in the previous quarter. Tourism businesses also reported positive growth over the summer period, but at a lower rate than they enjoyed the previous year.

It’s hard not to conclude that the gloomier official forecasts reflect the predilections of the authors – the anti-Brexit tone of much of the Treasury’s briefings being a striking example.

So is Mr Mackay off the hook and able to fill us with good cheer next month? Unfortunately not – and it has little to do with Brexit. The ever-cheerful FoA warned that a combination of Scotland’s sluggish economy, austerity and Brexit means the First Minister “should prepare for a worst case scenario of spending falling by £1.6 billion in real terms by 2020/21” and that the prospect of another independence referendum “could also increase economic uncertainty”.

It added that when the cost of a series of expensive SNP spending pledges are taken into account, “unprotected” government departments face cuts of up to 17 per cent. Among SNP election promises it highlighted are providing ‘free’ university tuition, doubling ‘free’ childcare, increasing health spending by £500 million more than inflation, raising the police budget in line with inflation, creating a more generous welfare system and cutting air passenger duty.

The analysis concluded that delivering them will require a “serious re-prioritisation” of their spending commitments, with councils likely to bear the brunt. It predicted their government grant could be cut by £1 billion.

Might this be why Scotland looks set for hard times, while the rest of the UK fares better? It looks to be a slump brought on more by Sturgeon and the SNP’s spending free-for-all, than by Brexit.

And of those muted tweetings of cheer from business, you won’t hear much. They’re being drowned out by Holyrood’s Symphony of Sorrowful Songs – Gotterdammerung by official request. Let’s play it again, Sam –and turn up the volume.