Scottish Government 'as guilty' as Tories on finances amid £1.5bn black hole, says Chancellor Rachel Reeves

Chancellor Rachel Reeves has said the Scottish Government is “as guilty” as the previous Tory government over the country’s finances, as the SNP were accused of refusing to “listen” to warnings on spending.

The Chancellor declined to rule out an inheritance tax hike, after the Prime Minister warned of a “painful” Budget in October, during a visit to the National Manufacturing Institute Scotland near Renfrew on Wednesday.

But she used her visit north of the Border to specifically hit back at the Scottish Government, which has repeatedly blamed decisions made at Westminster for the country’s financial strife.

Experts at the Scottish Fiscal Commission (SFC) said on Tuesday that Scottish ministers may struggle to balance the country’s budget due to above-expectation public sector pay deals, the council tax freeze and benefit reforms, as well as uncertainty about the level of funding coming from Westminster.

First Minister John Swinney and Chancellor of the Exchequer Rachel Reeves during during a visit to Atlantic Quay in Glasgow. Picture: Andrew Milligan/PA Wire | Andrew Milligan/PA Wire

The warning came after the SFC used its report to say much of the financial pressures facing the Scottish Government were down to decisions made in Holyrood, not Westminster.

The Scotsman has been told all major government departments, including health, education and justice, could bear the brunt of spending cuts.

Ms Reeves said: “The SNP Government is as guilty as the Conservative government of spending more than they were bringing in, and now the Scottish Government are having to make difficult decisions.

“Anas Sarwar and the Labour opposition in Scotland were warning the SNP about the unsustainable position they were in. They SNP refused to listen, they made decisions that were not sustainable and now it is Scottish people who are paying the price for the decisions of the Scottish Government.”

Chancellor of the Exchequer Rachel Reeves during her visit to the National Manufacturing Institute Scotland in Paisley. Picture: Andy Buchanan/PA Wire | Andy Buchanan/PA Wire

Ms Reeves’s comments come after Prime Minister Sir Keir Starmer warned of a “painful” budget coming in October in a major speech from the Downing Street Rose Garden on Tuesday, where he asked Britons to “accept short-term pain for long-term good”.

Responding to the Chancellor’s comments, First Minister John Swinney said during a visit to Stirling on Wednesday: “The Scottish Government has balanced its budget for every single year – we have lived within the resources available to us.

“The problem we’ve got is that the UK government has not faced up to the reality of the pressures and the issues that have faced our public finances.

“I was warning throughout the election that there was a cumulative problem arising out of high inflation and the pay claims that had been settled, that we were facing enormous pressure within our budget.

“I was told by the Labour Party there was nothing to worry about and there will be no austerity – yet here is the Labour Party inflicting austerity on the people of Scotland.”

The First Minister said the Scottish Government would make “hard choices” on public finances in the coming days, but he signalled there would not be a move away from universalism in public services and benefits.

When the Scottish Parliament returns from recess next week, Finance Secretary Shona Robison will update MSPs on the cost-saving measures the Government is taking to balance the books.

Ms Robison has said the country faces the “most challenging financial situation since devolution” following Ms Reeves’s Commons statement last month in which she revealed a £22 billion black hole in the UK’s finances.

Reports emerged earlier this week that free prescriptions and university tuition could be among areas targeted in Scotland to cover a massive Budget shortfall. Caroline Lamb, director-general for health and social care and chief executive of NHS Scotland, said “universal benefits” needed to be reviewed as government departments looked to dramatically cut spending.

But Mr Swinney said on Wednesday: “There’s an important social contract that’s available in Scotland which provides a range of services that are available to every single citizen.

“On the flip side of that, we’ve taken hard decisions to ask those on higher incomes to pay more in taxation. That’s the basis of that contract, some people pay more in taxation and everybody get access to a range of services. That’s the way I want it to stay.”

The First Minister added: “The Scottish Government is going to have to make some hard decisions about living within the resources that we have available to us.

“We’re having to deal with the consequences of very significant levels of inflation that have eroded the value of public finances. We’re also having to deal with understandable pay claims from public sector workers that we are keen to resolve.”

A Scottish Government spokesperson added: “The Scottish Government’s commitment to free tuition in Scotland is absolute.”

Ms Reeves used her visit north of the Border to meet with Scottish business bosses from research, professional services, aerospace, clean energy and manufacturing industries. She also met with Mr Swinney in Glasgow later on Wednesday, where the two shook hands before attending a formal meeting.

The Chancellor stressed that sustainable economic growth was the UK government’s number one priority and insisted a partnership between the public and private sector would be crucial.

She said: “We need every part of the UK working towards the same goal to reach our full potential – and Scotland will be central to our national mission for growth.

“That is why the feedback and buy-in I heard from Scottish businesses this morning is so important. It is by working with business that we can fix the foundations of our economy and make every part of Scotland better off.”

Margaret Simpson, interim CBI Scotland director, said: “We were delighted to welcome the Chancellor to Glasgow to meet with CBI members in her first official visit to Scotland and to discuss the key opportunities and challenges facing the Scottish economy.

“Business welcomes the government’s commitment to making growth its defining mission and stands ready to play its part in delivering the investment and expertise needed to power the economy in the years ahead.”

Labour has faced criticism following Sir Keir’s Rose Garden speech, with Tory leadership candidate Robert Jenrick claiming the UK government has “laid the groundwork for huge tax rises”.

When questioned on tax increases during her visit to central Scotland, Ms Reeves said she would be making “difficult decisions in a range of areas”.

She said: “The UK economy is just emerging from the recession that we entered into last year, and two quarters of positive economic growth is not going to reverse more than a decade of economic stagnation.

“Much work is needed to rebuild the foundations of our economy so we can rebuild Britain and make working people better off, and that is why growing our economy is absolutely essential.

“Unless we grow the economy, we’re going to continue to be in a situation where taxes are at too high a level and public spending is not sustainable. We’ve got to break out of this doom loop, which is why growing the economy is the number one priority of this new government.”

Asked directly whether she could rule out an increase in inheritance and capital gains tax, she replied: “I’m not going to write a Budget two months ahead of delivering it. We’re going to have to make difficult decisions in a range of areas.”