Scottish finance secretary Derek Mackay and Scottish Labour leader Kezia Dugdale have written separately to Philip Hammond urging investment rather than cuts in his Budget update on Wednesday.
The first Autumn Statement since the Brexit vote will also be the first of Theresa May’s government. Financial experts are predicting that falling tax revenues mean borrowing will come in about £7.5 billion higher in 2016/17.
According to economic forecasters the EY Item Club, the shortfall is down to disappointing receipts from income tax, national insurance contributions and capital gains tax.
In his letter, Mackay called on Hammond to commit to continued membership of the EU single market, increase North Sea support, reverse the benefits freeze and the reduction of the benefits cap, and bring the Scottish emergency services in line with others in the UK by letting them reclaim VAT.
He said: “The Chancellor has taken no action to ease the uncertainty felt in the wake of Brexit – it is now more essential than ever that we invest in our economy and stimulate growth.
“I have written to the Chancellor to urge him to end the damaging austerity agenda and set out key measures he should take such as providing support for the North Sea industry, which continues to be impacted by low oil prices, and ensuring continued access to the single market for our businesses and consumers.”
He added: “This government is already facing real-terms cuts from the UK government every year until at least 2019-20 – further reducing funding for our public services and undermining our work to build a fairer country. Our discretionary budget will have been cut by £3.3bn in real terms, or 10.6 per cent, since 2010-11 and, within this, our capital budget will have fallen by £600 million or 15.7 per cent – this is unacceptable.”
Dugdale urged Hammond to end austerity by increasing investment, stopping cuts to Scotland’s block grant, reversing cuts to Employment Support Allowance and Universal Credit and increasing support for oil and gas. She wrote: “With austerity having failed and Brexit a profound threat to the Scottish and UK economies, a change of course on the economy is both necessary and highly desirable.”
A UK government spokeswoman said: “The UK government has increased the personal tax allowance so people keep more of the money they earn, given the lowest paid a pay rise through the National Living Wage, increased the state pension to give people greater security in retirement, and is helping parents with the cost of childcare. We’ve done more than any other government to support our oil and gas industry in the face of falling prices, with a radical £1bn package of tax reforms.
“The Scottish Government are taking on landmark new powers over tax and welfare – and there is nothing stopping them setting out their plans on how they will use them to shape the welfare system and economy in Scotland.”