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The Scottish Budget - Walking a Fine Line

Aidan Reid

When people speak of budgets, they too often think of the wrong circus performer. At least at the UK level, the focus is almost always on the magician. Able to perform feats of illusion and tricks on the eye, Chancellors of the Exchequer are expected to leave the Opposition dazed, wondering just how they managed to place a scrapping of stamp duty for first-time buyers behind their ear. Scottish Budget statements have tended to avoid such flamboyance, however, in part because of the demand they remain steadfastly cost-neutral. Instead, it is the simpler pursuit of the tightrope walker which Cabinet Secretary for Finance & Constitution, Derek Mackay, will be likeliest to emulate on Thursday.


Up on display for all to see, the (near) majority willing him to make it across, the rest of the chamber not so secretly hoping for an embarrassing fall. To avoid the latter, it is expected the Cabinet Secretary will have to perfectly balance the political and fiscal needs of his Government. Push too hard one way, and one policy becomes the headline for days and damages both his and his party’s credibility. All the while, there is a need for enough of the Budget to be palatable to the Liberal Democrats or the Greens to ensure the ground for negotiations and compromise is prepared. It is the Greens who are likeliest to find the budget to their liking, so an angry response from Patrick Harvie would be tantamount to failure on Derek Mackay’s part.


In terms of balancing the fiscal and the political, there are announcements which will be enthusiastically received on both counts. Funding for the South of Scotland enterprise agency will be warmly welcomed, and will produce a clear medium-term economic dividend. The same again applies to the National Manufacturing Institute announced on Monday. The potential investment and skills this centre will create is likely to cover the £65m cost. The Scottish National Investment Bank, announced during the closing address to the SNP Conference by the First Minister, also has the potential to both drive economic growth and gain traction with the public.


There are initiatives which have cross-party support, but are less clear in their immediate economic outcomes. While all parties have generally welcomed what has been said so far on how low emission zones will be designed, there are concerns on the speed of transition and the need to help businesses adapt to changes it will create. How this is managed through funding provisions may well decide whether it receives unanimous approval or faces opposition in Parliament.


The same applies to public sector pay rises. With possible Air Departure Tax cuts postponed until next year, the Scottish Greens will likely enter into a budget agreement provided an above-inflation pay rise for public sector workers is offered. Finding room for such an increase, though, will require much in the way of number crunching, particularly with local authorities, schools and NHS health boards all requiring organisational budget increases as well as pay rises for their staff. They have faced the consequences of UK-wide austerity for nearly ten years, and many within and outwith the SNP would hope increased investment in public services more widely is forthcoming.


There are also measures which, while fiscally sound, could cause political bun fights. Last week’s announcement that local authority arms-length external organisations would be exempt from business rates both avoided a likely defeat in Parliament and served notice of further troubles lying ahead. The need for changes to business rates to be cost-neutral means that funds will have to be found elsewhere. Considering the number of organisations already convinced they have been hard done for by the Barclay Review, creating further have-nots will likely only stoke anger towards it.


Finally, we come to the issue which it’s arguably impossible for Derek MacKay to get right in either the political or fiscal sense. Income tax, and any changes to its bandings, will likely dominate the responses to the Budget statement from opposition spokespersons. While the income tax paper published by the Scottish Government outlined what modest rises may or may not produce in terms of extra revenues, modest raises will satisfy few on the opposition benches. Scottish Labour will be joined by the Greens in calling for higher tax rises for the wealthiest to fund policies such as a public sector pay rise, while on the other side of the chamber, the Conservatives will claim tax rises are wholly unnecessary and will reduce the Scottish Government’s finances in the long run. The policies previously discussed also require funds and both the politics of selling their position to the Scottish Greens in the chamber and the Scottish public outwith will need kept firmly in mind. What rates rises are chosen and how they are justified will therefore be crucial. Taking a leaf out of the Liberal Democrats policy book, and directly linking a rise to new funding in policy areas such as health and education, may be one tact which is tried.


With the balance between the political and fiscal facing him, Derek Mackay will rise alone on Thursday, and wait for that first cheer or boo as he enters the ring. Based on the analysis published by the Fraser of Allander Institute, he is likely to be afforded very little room to manoeuvre up on the tightrope, less so arguably than any of his predecessors. If he makes it across unscathed, with his political reputation and fiscal calculations intact, the standing applause he is due to receive from SNP colleagues will have been well earned.

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