Scottish Budget: initial reaction & comment from the Fraser of Allander Institute at the University of Strathclyde

Joao Sousa (Fraser of Allander Institute at the University of Strathclyde)

RESPONDING with initial comments to the Scottish Budget announced earlier today by Deputy First Minister (DFM) and Finance Secretary Shona Robison, Joao Sousa, Deputy DIrector of the Fraser of Allander Institute at the University of Strathclyde, said: “It was widely trailed that this would be a difficult budget and it has proved so. The DFM made much of the tax measures, but combined (income tax and non-domestic rates) they add £50m to next year’s budget. This included a new 45p ‘advanced’ rate between £75,000 and £125,140, and increasing the top rate of income to 48p, which together raise around £80m. On non-domestic rates, the poundage was frozen, although the supplements for larger properties were increased.

“On council tax, the Scottish Government continued to claim it was ‘fully funding’ the freeze in rates for next year, and allocated £140m on the basis of a 5% increase. While this is about right for an average 5% increase in rates, some Councils would have been planning on increasing rates by more than 5%, and are unlikely to receive compensation for that. And it also excludes compensation for the planned increase in multipliers for higher band properties, which was consulted on over the Summer and many Councils would have assumed in their planning, and which would have required an additional £180m.

“A lot of the story will be in the detail, and we’ll be combing through the Fiscal Commission’s and Scottish Government’s documents, but cuts have come hard in some unprotected sectors. The £100m cut to the Scottish Funding Council has been made permanent, and there have been significant cuts to woodland grants (nearly £80m) and enterprise support (over £60m). Capital funding in particular has been cut heavily, with a 4% cut in real terms next year alone. These cuts reflect the fact that even with some better news on taxes, the DFM’s budget has had to face up to the fact that spending commitments were well in excess of funding available, which in the Scottish Budget cannot manifest itself in practice.

“There were also some tax measures which were not what they seemed – for example, one might have expected the threshold for the basic and intermediate rates of income tax to have gone up by inflation from what was said in the chamber, but they have only increased by 1% and 3.4% respectively, meaning that fiscal drag is still bringing people into paying more tax than beforehand.”

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