In the spotlight: What you need to know about the Scottish budget

Nathanael Williams

CommonSpace looks at the contents of the Scottish Government’s budget, the reaction and the consequences

THE SCOTTISH Government has today (15 December) announced its first budget since receiving new powers on tax devolved from Westminster.

The secretary for finance Derek Mackay has been under pressure from political parties in Holyrood to use new tax raising powers to mitigate the agenda of austerity from the UK Government. 

According to the Scottish Government, GDP in Scotland is expected to grow by 1.3 per cent between 2017 and 2018, a little up from 1 per cent in 2016 – a sluggish performance it blamed on “the impact of the Brexit vote”.

We look at what the government announced in the wider budget and what it means for Scotland.

What new tax powers does Scotland have?

In April this year a new Scottish rate of income tax was introduced meaning that of the 20p now being paid from £1 of basic rate income, 10p is going to the Scottish Parliament.

This 2016-2017 budget covers further financial powers coming to Holyrood, including the power to set the rates and bands of income tax on non-savings and non-dividend income, the handing over of control of half the share of VAT receipts in Scotland to the Scottish Government’s budget and power over Air Passenger Duty and other levies.

The Scottish government is still not permitted to handle corporation tax or rates of national insurance and VAT, which are substantial sources of revenue.

Taxing the rich or tax-breaks?

During the budget statmement, McKay said: “This government is committed to a principles-based approach to taxation, particularly that tax should be proportionate to the ability to pay.”

Does the budget reality match the rhetoric?

On the one hand, the Scottish Government refused to pass on the tax cut made by the UK Government as this would mean those on a higher rate of income would pay less than before. Instead, the basic rate of income tax will be frozen and the higher rate will start at £43,430.

Small businesses got a gift today as their rates are to be cut by 3.7 per cent through what is called the small business bonus scheme. The measure will impact 100,000 smaller firms.

What is the position of Scotland’s councils?

A recent report from the Fraser of Allander Institute outlined that Scotland’s councils face cuts totalling £700m. Local councils have called on the Scottish Government to help with local services as their purse strings have been cut.

The Scottish Government announced £120m of direct funding to headteachers and schools to boulster the attainment fund, a pot of money pledged by the Scottish Government to help schools improve the grade of poorer children. It will not be funded by the council tax according to Mackay, who rebuffed earlier Labour claims that Scottish councils were to be used to fund the attainment fund to improve schools. Spending on education will be increased by £170m from 2016 to 2017.

As for housing, £470m capital funding will be provided next year to ensure jobs and housing targets are reached.

Labour have been demanding a train fare freeze but Mackay stated it would cost £58m and instead said there will be £3m package of “target fare educations.”

What’s the role of the UK Government in Scottish finances?

During the Autumn Statement, the UK Chancellor Philip Hammond declared that Scotland would receive an additional £800m of spending for infrastructure projects.

Scotland spends around £35bn each year, but only a small fraction of this is raised in Scotland, largely through property levies. Most funding is provided by a block grant from the Treasury in London (which itself recieves tax revenues from activity in the Scottish economy).

The Scottish Government has said that public expenditure in Scotland has and will continue to face year on year “real term” reductions until 2020.

By 2020 it will be 12.5 per cent lower in real terms than 2010, the equivalent of one pound in every eight being cut by the UK Government.

How did of opposition parties respond to the budget?

Leader of the Scottish Greens Patrick Harvie MSP urged the Scottish Government to use the new powers over income tax to tackle poverty and protect local services such as education and social care. The Greens propose creating new rates and thresholds for income tax which they claim would generate an additional £331m for public services.

The Scottish Conservatives used a parliamentary debate yesterday (14 December) to table an amendment that would reject any proposal to lift taxes above the level of “any other part of the UK.” Their finance spokesperson, Murdo Fraser MSP, speaking to the chamber, said: “This government is either for enterprise and incentivising a skilled workforce or putting a block on growth.”

Scottish Labour used their questions during the budget to suggest that the Scottish Government were “passing on Tory cuts” to local councils and communities.

Pictures courtesy of Andreas Prier, Glastonbury Left Field, Gollos Frolling, Angel Revier & Gareth Miller

Check out what people are saying about how important CommonSpace is. Pledge your support today.