Breaking down the Budget’s impact on Scotland

This was done in direct contravention of Parliamentary procedure, in a way that would have seen ministers resign not many years ago, and Labour would have complained about it had they still been in opposition.

The Speaker rebuked them thoroughly, but – of course – lacks the power to actually sanction anyone involved (in Holyrood, the Presiding Officer could have technically cancelled the Budget speech but even when the Scottish Government has leaked material like this, they’ve managed to stay on the side of a mere threat).

READ MORE: Is Scotland being short-changed on funding technicality in the Budget?

Nevertheless, the Budget was delivered and it’s worth us taking a look at just a few of the things that happened that will affect Scotland.

Balancing The Books On Your Shoulders

Labour's obsession throughout this Budget was to “balance the books” with one of their self-imposed fiscal rules being that the Government’s revenue sheet (the day-to-day spending, like running a hospital, not the “capital” spending of building one) has to be “balanced”.

In terms of numbers, the Budget announcement this week said that the UK would remain in deficit for the next two years but then move into surplus to the tune of around £10 billion per year after that.

The problem with this idea is that Government isn’t an island of isolated tax and spending. The Government can create money and spend it into the economy before taxing it back out to avoid inflation or to avoid that money pooling in the wrong places.

When they do the opposite – when they tax out more than they inject in – then someone else needs to fill that budgetary hole on the other side of the books.

READ MORE: Lower pay rises likely as result of Budget tax increases, Rachel Reeves admits

To give an example, imagine you need £1000 of healthcare in a year – currently funded by the Government via the NHS, perhaps via a free medical prescription as we have in Scotland. But the Government decides to close its budget deficit by £1000 and does it by cancelling that free prescription.

What happens? You still need £1000 worth of medicine except now you need to buy it yourself, which means you stop spending on something else – maybe that restaurant you like loses a customer, which means they lay off staff or go out of business, hitting their suppliers in their pockets too. The Government’s deficit is YOUR surplus.

And, on the contrary, the Government’s surplus is YOUR deficit. What this Labour Budget is, in effect, promising to do is to suck £10bn per year out of the economy for no reason other than to meet a Budget rule they imposed on themselves to (unsuccessfully) attract Conservative voters during the election campaign.

Labour vs Capital

Where the Government extracts that surplus from is also important and we saw some of their intentions this week – though not all because, as Richard Murphy has pointed out, there are still huge and inexplicable gaps in areas like how they’ll actually tax “non-doms” in practice.

One of Labour’s other self-imposed rules during the election was to avoid tax rises on “working people” which, of course, meant that they had a full-on flounder about what that actually meant, how they could create loopholes around that promise and how badly could they answer questions from the media like “Is a millionaire like Keir Starmer a “working person”?”

One of their loopholes was to increase the employer’s contribution to National Insurance (NI). This is the roughly half of NI that is paid based on your salary but is kept off of your payslip specifically to allow for loopholes like this.

If it was on your payslip then there would be absolutely no doubt that this would be a tax on “working people” but when you twist words till they scream, you can drown out the dissent.

As an aside I haven’t seen mentioned, this will have a knock-on effect on the UK’s new freeports (and Scotland’s “Green Freeports”) where one of the major “perks” is up to 100% relief from employers’ NI which will only increase the likelihood of these freeports causing problems for the normal economy by sucking in more companies but it at least proves the point that myself and others have made about them.

If Labour’s logic is that a rise in employer’s NI isn’t a tax rise for workers, then the freeport tax relief can’t be a tax cut for workers either.

READ MORE: Labour Budget raises '£500 million questions for Scotland', First Minister says

There was a small rise in capital gains tax albeit not the full equalisation with income tax that many have called for. One implication of this will come up in the Scottish Budget.

One of the justifications for not increasing the top rate of Scottish income tax is that it’s too easy to shift higher incomes into capital (for a director to take shares in the company instead of a salary, for instance) and so Scotland could lose out.

However, if the difference between capital gains and income tax has closed slightly then that should open up some room for Holyrood to nudge up the tax on the highest earners – we’ll see in December if they do so.

Devolution

Much has been said about “highest-ever” block grant given to Scotland, though there are a few devils in the details. The first is that the “£3.4bn” sum quotes isn’t likely to be the true sum handed over.

The fiscal framework that governs how much money Scotland actually gets each year was made much more complex than that in, say, Wales as a result of the Scotland Act 2017 which itself came out of the promises made to keep Scotland in the UK in 2014.

I challenge anyone who reads this to say they understand the complexities of that framework and I challenge anyone who can to explain it in a way that mere mortals can understand. In short though, there will likely be deductions from that number depending on what Scotland does with its own taxes in December.

More certain is that at least some of that money is already spoken for – a good chunk of it will go straight back to Westminster to pay for the National Insurance rises on Scottish public sector workers, for instance.

Another aspect of the UK Budget is that amid the cuts to, for example, social security for older people, there has been a promised rise in military spending.

The UK will soon spend around £5 on war for every £1 it spends on foreign aid, including (but not exclusively) to help the victims of those wars.

But where social spending in England triggers a Barnett Consequential and boost to the Scottish budget, spending on bombs and the means to drop bombs does not.

If the £3bn promised in the Budget to the military had instead been spent on English public services it would have triggered a Barnett Consequential that would have boosted the Scottish budget by a further £240 million next year – enough to have maintained the Universal Winter Fuel Payment and still have around £100 million left to spend elsewhere.

Climate

Climate was barely mentioned in this Budget but the impact that policies will have is stark. Almost every year for the past 20 years, the UK Government has promised a rise in fuel duty then “backed down” come budget day.

This year was no different, but was coupled with a rise in the cap in bus fares in England (Scotland is different – we allow much more profiteering in our private bus networks while denying councils the funding, if no longer the power, to renationalise them).

READ MORE: Greens demand SNP stick to council tax reforms pledge ahead of Scottish Budget

So once again, the climate credentials of the UK Government are thrown to the car sales and fossil fuel lobbies who want to keep us stuck burning fuel in traffic jams. Their surplus (avoiding public transport investments) is your deficit (in time, money and a liveable biosphere) here too.

Conclusion

This wasn’t the budget of 2010 and massive austerity but neither has it been a return to the traditional Labour values of putting workers first. There may yet be significant harm done both in terms of regional inequality and on workers themselves who have been played off against capital in this Budget.

Despite the major impacts it will have on Scotland, it’s still a budget that has been set far away and with a focus on somewhere else.

December will be key now – how will Holyrood respond?

Dr Craig Dalzell is head of policy and research at Common Weal