Monday morning seems like an age ago, and the political circus is likely to continue into next week (writes Fraser of Allander Institute’s MAIRI SPOWAGE).
On Monday, the new chancellor undid pretty much every tax measure in the ex-Chancellor and soon-to-be ex-PM’s “mini”-budget. Only those already legislated for will proceed (the scrapping of the health and social care levy and the stamp duty cuts in England will still happen).
Although the PM has resigned, it still looks like the Fiscal Plan will be presented on 31st October, which is an interesting political situation given that presumably means that Jeremy Hunt will remain as Chancellor whoever wins the leadership election over the next week. But perhaps the last wee while has taught us that presuming anything is foolish!
For Scotland, the extra funding that was going to be generated by these tax measures for the Scottish Budget has now largely disappeared, with only the stamp duty reductions generating additional funding for Scotland.
This presents significant challenges for the Deputy First Minister in managing an already very stretched budget.
Economic Case for Independence published
Somewhat overshadowed by events at Westminster, the Scottish Government published the third in their series of papers to set out a new case for independence on Monday. This paper, “A stronger economy with independence” was expected to set out the economic case, covering issues such as currency, trade, and public sector finances.
We published analysis of the paper on Monday – and look out for our Guide to the Economics of Independence which we’ll be publishing soon and updating as more information is released by the Scottish Government.
Inflation goes back above 10%
The Office for National Statistics (ONS) published September inflation data, which showed that CPI inflation had gone back into double digits, running at 10.1%.
Underneath the headline rate, food and non-alcoholic beverages inflation is now estimated to be 13.1%. There was a slight downward pressure from motor fuels, as the prices at the pumps fall back from the peaks they reached in July.
These data still do not capture the energy price rises households are now experiencing as of 1st October, so expect there to be further increases in the rate when that data is published next month.
Interestingly (well, if you are interested in economic statistics, come on!) it may be that the change in the way the government is supporting households on energy may change the outlook for inflation. If, as is expected, the help after April is more targeted as cash transfers to those households most in need, then this will not put downward pressure on the actual price of energy.
We’ll be looking out for the OBR and Bank of England’s (3rd November) view on the pathway for inflation given these changes.
New Public Sector Finance Data published this morning (Friday)
ONS have also put out the latest public sector finances release, which contains public finance statistics (including deficit and debt) up to September 2022.
These have the first statistics on revenue generated by the Energy Profits Levy, which shows that £2.7 billion was generated from this tax in the year to date. It will be interesting to get the OBR’s independent view of the likely take from this tax over the next few years – and obviously to see if the Chancellor chooses to extend this in some way in the Fiscal Statement.
More broadly, it contains up-to-date statistics on the size of the UK National Debt. Debt has reached £2.5 trillion, which is equivalent to 98% of GDP – levels not seen since the 1960s.
This reminds us of the challenging fiscal environment, which sets the backdrop for the statement by the Chancellor in 10 days time.
No confirmation on the Scottish Government’s Emergency Budget Review
As we write this, we have no confirmation whether the Scottish Government’s Emergency Budget Review (EBR) will go ahead next week, as previously indicated.
Remember, this review is to look at in-year (2022-23) spending to balance the budget in the face of higher than expected (at the time of the last budget) inflationary pressures, particularly in relation to the public sector pay bill.
We wrote yesterday about employability support, one of the areas that John Swinney has already indicated will be cut. A number of questions remain to be answered. and we hope the EBR will be clear in laying out the evidence considered when deciding where the axe will fall.
The response to whatever is set out by the UK Chancellor on the 31st October will come in the Scottish Government’s draft budget for 2023-24 on the 15th December. For fiscal fans, the fun is due to continue for some months yet!