Will SNP axe or tax to plug budget hole?
There is a projected £3.5bn shortfall in the Scottish government's budget.
This is the text of my Scottish Daily Mail column for Monday, May 30, 2022.
Say the words ‘Scottish Resource Spending Review’ to most normal people and they will stare at you blankly.
Even those familiar with the publication of Scottish government planned expenditure figures do not generally consider it an exciting event.
If normal people want a thrill-ride, they go to see Top Gun: Maverick. But for us political anoraks tomorrow’s Resource Spending Review is like another Top Gun movie, a chance to revisit the delights of long-term Holyrood expenditure projections many years after their last airing. (We don’t get out much.)
When Finance Secretary Kate Forbes unveils her fiscal plans, it will be the first Resource Spending Review in over a decade. It will also capture more attention than the last one. Tomorrow is not just for the anoraks; it’s for everyone. The state of Scotland’s public finances and the backdrop of the cost of living emergency make it so.
The Institute for Fiscal Studies warns that the Scottish government will struggle to fill a £3.5bn gap in its budget, projected for financial year 2026-27. To put that in context, Scottish government spending in on course to exceed revenue and resources to the tune of £640 for every person in Scotland. The IFS cautions that the actual shortfall might be even larger.
The think tank is candid about the choices facing the Scottish government: ‘It will have to choose some combination of axing, taxing, and hoping for the UK Government to top up its spending plans’.
Kate Forbes has acknowledged this, admitting:
We face a very difficult financial position over the next few years with funding increases below inflation levels and the challenge of recovering from the pandemic without the financial tools available to every other government in the world.
That means that while the spending review is not a budget, it will include difficult decisions, to ensure we can really focus on supporting households and services at this time.
Whether she will take a hatchet to public services or do a shakedown operation on taxpayers is not yet clear. Either way, we’re in for a clobbering.
No one should be surprised by this. Few could have predicted a toxic triumvirate of inflation, energy shortages and war in Europe, but the fundamentals of Scotland’s public finances have been unsound for some time. That’s what happens when the government spends like a teenager left unsupervised with mum’s Visa card.
This is the problem that must be addressed but talk is likely to turn instead to the Scottish government’s need for more control over its fiscal situation. That is certainly the SNP position and Forbes will almost certainly make pointed reference to it.
The devolutionist hears these grumblings and rushes to the constitutional cupboard in search of additional tax or borrowing powers to throw at the Nationalists. It will not work. It never does.
We have been here before with the Smith Commission and the Scotland Act 2016, when the leading lights of pro-UK politics heralded more financial autonomy as the way to strengthen the Union. Transferring income and other tax powers from Westminster would make Holyrood grow up. Fiscal responsibility was sure to engender political responsibility.
That was the theory. The practice has been somewhat different.
Theory: Since they would raise much of the revenue they spent, Scottish ministers could no longer claim Westminster was underfunding them.
Practice: Kate Forbes introduced her 2022-23 budget by complaining: ‘Our day-to-day funding next year is significantly less than in the current year, at a time when we undeniably need to invest in the economy and help public services recover’.
Theory: The SNP would lose its favourite justification for failure or inaction, that all the key economic levers lay at Westminster.
Practice: When was the last time a Scottish government minister trotted out the excuse that ‘the UK Government holds many of the levers’? Thursday. John Swinney. Cost of living.
Theory: The Nationalists would have to reckon with the ‘culture of free’ and the hard choices involved would shift Scottish politics off the constitution and back onto economics.
Practice: The 2021 SNP manifesto promised free school breakfasts, free school lunches, free laptops, free internet connections, free bikes, free dental care, free bus travel for under-22s. And, of course, a referendum on independence.
I owe a measure of contrition for I was one of the devolutionists who put their faith in this false gospel. Mea culpa, mea culpa, mea devomaxima culpa.
This is not a historical argument. The IFS observes that ‘a large part of [the Scottish government’s] funding reflects UK Government decisions on spending and tax’ and that Holyrood ‘has very limited powers to borrow or save’.
It also notes ‘growing calls to enhance the borrowing powers of the devolved governments’, while acknowledging that ‘even if the UK Government heeds these calls, the figures discussed… would only address part of the shortfall, and only temporarily as borrowing has to be repaid eventually’.
So we can expect another round of dire warnings of the consequences of not devolving more responsibilities to Holyrood. Hands will be wrung, knees will bend, heads will nod sagely. The proposition that the Union can be fortified by giving more powers to its enemies will be tested to destruction and the Union along with it.
For UK ministers to sign up to yet another tranche of extra powers would be foolish and, bluntly, cowardly. It would not demonstrate their engagement with Scottish politics or their willingness to make devolution work. It would signal their indifference to ever-weakening union and their eagerness to make another Scotland problem go away. It would confirm that the Tories are an English national party, saddened by but not willing to resist Scotland’s drift towards independence.
There is an argument that, although politically undesirable, more borrowing powers for the Scottish parliament would be fiscally prudent. The shortfall is there and giving St Andrew’s House more leeway is preferable to seeing ministers cut services or hike taxes. The logic may appeal but it is another disjuncture between theory and practice.
In theory, substantial borrowing powers could ease the squeeze on public finances and give Scottish ministers more freedom to help families through the cost of living crisis. In practice, this would require a competent government that spent taxpayers’ money providently and understood the need for competitive rates of taxation.
It would require ministers for whom sound fiscal management and alleviating the financial burden on struggling families were priorities rather than necessary lip-service in pursuit of their true goal. In practice, the SNP government would bank the additional powers, use them for its own ends, then come back for more.
The Chancellor will have to decide whether to hand devolved administrations more cash in Barnett consequentials. Rishi Sunak has taken a conservative approach to inflationary rises in the cost of food, fuel and other household essentials. The sums he has parted with look big on paper but are unequal to the scale of economic punishment ordinary Brits are enduring.
A Chancellor more in touch with Vauxhall Dads and Tesco Mums would grasp what they’re up against every time they fill up a petrol tank or a shopping trolley. He would act accordingly because, although all this economic intervention will have to be paid for eventually, the needs of the present are too great not to act. In doing so in England, he would unlock additional resources for Holyrood and the other devolved governments.
It is unlikely it would be enough to make up Scotland’s shortfall and so it would be up to SNP ministers to find the rest. Even then, the Nationalists would decry this as a cruel Tory imposition on the Scottish government, and in a sense it would be. It would force them to do some governing.
Beyond what, if any, additional consequentials the Chancellor delivers, the answer to Holyrood’s fiscal problems must be found at Holyrood. Not in more powers from Whitehall but in more responsible decision-making from St Andrew’s House. In a recognition that devolved government is not a spot of cosplay on the road to independence and the Treasury a limitless piggy bank to fund it.
You wanted your hands on the public purse. You got it. Now show you can handle the purse strings.
Originally published in the Scottish Daily Mail on May 30, 2022.
In short the SG has run out of road . Their use of electoral treating and general bribery has come home to roost . All fur coat and nae drawers . What happened to Scotland’s ability to produce enough revenue to run the country ….it doesn’t appear that they can even with the Barnett Formula parachute . Westminster are perhaps , through necessity turning the fiscal screw in order to see how the SG can fare with less . Doubtless the SG will blame Westminster but they are not and never have been wonderful examples of financial prudence . I wonder if the Chief Mammy will be well enough to attend . Failing that poor Kate Forbes will have to kick the can further down the road , all by herself .
This useless assembly just want to shout about all the free stuff and crow look what we are doing. When reality is we cannot afford to. They are unable to run devolved matters but want to put the blame on WM. They hope we will all fall for it. Sadly 31% of the population do. I wanted devolution but wish it was never introduced. Holyrood is embarrassing unfortunately all because of SNP abusing the powers or inept in carrying out their duties.