Scotland spending review: Why there are reasons to despair and the bigger decisions are still to come - John McLaren

When it is agreed that a ministerial statement covering three key Budget reports should only require ten minutes, you begin to despair. Furthermore, most of that ten minutes was taken up by scene setting, not given over to detail. As the papers appeared, and that detail was examined, the desire for such a curtailed statement became clear.

To pick out just a few of the less welcome budgetary decisions:

- No cash terms increase over the next three years for the education and skills, day-to-day, spending budgets nor for that of local government;

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- No cash terms increase over the next four years for the police, prisons or courts budgets;

Finance secretary Kate Forbes. Picture: PAFinance secretary Kate Forbes. Picture: PA
Finance secretary Kate Forbes. Picture: PA

- Illustrative pay award scenarios for the next four years that go no higher than 3 per cent a year.

So where does the extra £3.8 billion going into the Budget between this financial year (2022/23) and 2025/26 end up?

Ninety per cent of the extra spending goes to either health and social care or to social security. While these might be worthy winners, it seems odd that areas like early learning – to help reduce education inequality – and skills – to help with post-Covid economic recovery – see their budgets falling each year, in real terms, at the same time.

Not only are the cuts harsh in many areas, including local government, but as taxpayers, it is assumed that Scots will not be getting the 1p cut in income tax planned for the rest of the UK for 2024/25.

The reason for such a difficult Budget outlook is that the Scottish Government is increasingly going its own way on social spending. This creates a funding gap that is exacerbated by the Scottish economy growing more slowly than the UK economy, a situation that, post devolution of tax powers, hurts the Scottish Budget. Furthermore, the Scottish Fiscal Commission forecast that Scotland is set to continue to grow more slowly than the UK, with further budgetary implications.

The Scottish Government is now at the stage where, if it wants to maintain this approach, then it needs to decide how to better square the circle.

It could happen by having faster economic growth, thereby raising tax revenues, but that would still take time and the Economic Transformation Strategy is underwhelming as a vehicle for this.

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Or it could happen by accepting the more Scandinavian-style level of citizen support the Government is pushing towards also requires more Scandinavian-style levels of taxation.

This would require devising a new tax strategy that looks again at the main Scottish taxes – income tax, council tax, business rates, land and buildings tax and possibly new ones like a tourist tax – and how best to raise them to meet the funding needs the Scottish Government aspires to.

At present, the Scottish Government is trying to square the circle by freezing non-priority budgets instead of raising taxes. But many of the budgets affected by this are still affected by past years of austerity and no amount of “reforms” will allow for the maintaining of current standards. This does not seem like a sustainable position.

Big decisions have been taken in this budgetary round, but even bigger ones may lie ahead.

- John McLaren is a political economist for the Scottish Trends website

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