Dave Watson: Spare a thought for the finance secretary
Who would be the finance secretary today? In the early years of devolution it was all so straightforward. Gordon Brown was in his growth period, so the block grant increased each year and parliament just had to haggle over how to spend the growing budget.
As Derek Mackay consults his spreadsheets for the forthcoming Scottish Government spending plans, the picture is much more complex. The Westminster block grant is still important, constituting around half the budget. However, he had to wait for the Chancellor to set out UK spending plans yesterday – bizarrely called the “Autumn” Budget. He then has a very short time in which to digest the Barnett consequentials. The best he could probably hope for was some relaxation of austerity, by spreading it over a longer period, and some additional capital spending.
Next comes the tricky bit. Asking for all those new taxation powers is fine, until you have to decide how to use them. He can tinker with land taxes, but it’s income tax that brings in the big bucks – £11.3 billion to be precise. Taxing the rich is always popular, except with the Tories and his own right wing, but the revenue generated won’t cover austerity. Putting a penny on the higher and additional rates brings in £121 million, compared with £500m for a penny on the basic rate. He could play around with thresholds. For example, freezing the higher rate threshold again this year brings in £87m and similar options bring in significant, but not game-changing, levels of revenue.
Finally, there is the really complicated bit – the financial framework. In simple terms the actual revenue generated depends on the performance of devolved tax revenues relative to the rest of the UK. This is why today’s finance secretary is much more interested in how the Scottish economy is performing compared to the rest of the UK. It also matters what the chancellor does with his tax powers. Both of these, the finance secretary has little control over and the current numbers are not good.
The Scottish economy has had slower growth in the past two years - 0.4 per cent compared to 1.9 per cent for rUK. The Scottish Fiscal Commission, which is tasked with forecasting, is unlikely to be over optimistic on this score. The numbers are not marginal. For example, if wages grow 0.3 per cent more slowly in Scotland, that means £115m less income tax revenue next year.
These three elements make up the income side of the Scottish budget. Then he has all those pesky politicians and lobby groups who want to spend it. However, the finance secretary has to start with what are called unavoidable commitments. For example, our ageing population means we need an additional 2 per cent on budgets like health and social care, just to stand still.
Then there are a range of manifesto commitments to increase or protect budgets like health and police. This means he can’t touch half the budget and his former colleagues in local government make up most of the other half. Cuts of 9 per cent to 14 per cent will rightly set Cosla growling after councils have borne the brunt of austerity for years. He has at least managed to find an excuse to defer a cut in Air Departure Tax. This was the daftest manifesto commitment that would have taken £294m out of the budget at full cost and wrecked government climate change credentials.
New social security powers are all good, but few want to cut benefits as the UK Government creates havoc with Universal Credit and its social security cuts. Luckily, Mackay doesn’t have to deal with Brexit this year, but the transport budget row will be as nothing if the same approach is taken to farming subsidies.
Unison and the other public service trade unions add to the mix with an end to the 1 per cent pay cap. In gross terms, 1 per cent extra on pay costs £150m, so a CPI inflation increase costs around £450m. Actually it’s half that according to the IPPR economic model, when you take into account tax receipts etc. It also looked likely that the Chancellor would do something on pay in England, so that will bring Barnett consequentials as well.
The really clever finance secretary would also be looking at growing the tax base. New taxes on tourism, paper cups and derelict land are just some of the suggestions. He could also save money by adopting some of Unison’s combating austerity ideas on PPP schemes, borrowing and municipal enterprise. Others will argue universal benefits need looked at, but that is probably in the box marked “too difficult”.
So, spare a thought for Derek Mackay as he examines his spreadsheet. Some tricky decisions and that’s before he has to stitch together a Holyrood majority to vote the budget through.
Dave Watson, Head of Policy and Public Affairs, UNISON Scotland