Scottish Government left with “no choice” following funding cut
Plans to means-test Winter Fuel Payment in England and Wales will see the Scottish Government’s funding cut by up to £160 million.
Social Justice Secretary Shirley-Anne Somerville has confirmed the Scottish Government therefore has ‘no alternative’ but to replicate the decision in Scotland and restrict payments to pensioners who receive eligible benefits.
Social Justice Secretary Shirley-Anne Somerville said: “Despite all efforts to review our financial position we have been left with no choice but to follow the UK Government and restrict payments to older people who receive relevant eligible benefits.
“This is a necessary decision when faced with such a deep cut to our funding and in the most challenging financial circumstances since devolution. The reduction we are facing amounts to as much as 90% of the cost of Scotland’s replacement benefit, the Pension Age Winter Heating Payment.
“Given the UK Government’s decision to restrict payments to those in receipt of means-tested benefits, such as Pension Credit, and the implications for the Scottish Government detailed above, I have urged the Secretary of State for Work and Pensions to undertake a benefits take-up campaign for Pension Credit and to move forward with plans for a social energy tariff.
“Both of these measures will provide some further protection to energy customers in greatest need.”
Deputy First Minister Kate Forbes commented:
The UK Government’s decision to means-test the Winter Fuel Payment in England and Wales will see our funding cut by up to £160 million.
The Scottish Government has been left with no choice but to replicate the decision in Scotland.
Age Scotland: Winter Fuel Payment decision ‘brutal’ for Scottish pensioners
Age Scotland is continuing to urge the UK government to reconsider plans to scrap the winter fuel payment for pensioners who do not receive pension credit.
The charity has responded to news that, following the UK Government’s plans to means-test the Winter Fuel Payment, the Scottish Government will have no alternative but to replicate the decision in Scotland.
Age Scotland’s Policy Director, Adam Stachura, said: “It’s infuriating that huge numbers of older people will miss out on the vital Winter Fuel Payment when it is devolved to Scotland.
“We recognise the financial challenge the Scottish Government would face to make up the shortfall to keep the payment universal, but we desperately hoped there could be a more effective delivery of this payment and that it could have looked more generous than the UK Government’s new, and meagre, approach.
“At minimum, a quarter of a million pensioners in Scotland on the lowest incomes or living in fuel poverty will no longer receive this vital financial support over the winter months, while hundreds of thousands more on modest incomes are going to struggle with their energy bills even more than normal as a result.
“This brutal decision by the UK Government was made too fast, cuts too deep and its impact will be severe. It’s important that they rethink this move, as it has a huge impact on the devolution of social security and the needs of Scottish pensioners who live in some of the coldest homes in the UK.”
Visit www.age.scot/SaveWFP to sign Age Scotland’s petition to save the Winter Fuel Payment.
The UK Government has set out the next steps for tax measures from the manifesto on which the Government was elected, including policies to close tax loopholes and tackling tax avoidance.
This is to provide taxpayers with certainty ahead of their final confirmation at the Budget on 30 October 2024.
Further details on all policies including costings will be published at the Budget, and will be certified by the Office for Budget Responsibility.
Ending tax breaks for private schools and raising revenue to fund state education priorities
The Government is publishing a technical note setting out its plan to introduce 20% VAT on education and boarding services provided by UK private schools from 1 January 2025.
o 20% VAT will also apply to pre-payments of fees for terms starting on or after 1 January 2025 made on or after 29 July 2024.
Over 94% of school children in the UK attend state schools and ending the tax breaks on VAT and business rates for private schools will secure additional funding to help recruit 6,500 new teachers and roll out breakfast clubs to all primary schools.
These changes will not impact pupils with the most acute special educational needs, where their needs can only be met in private schools. Where pupils’ places in private schools are being funded by local authorities (LAs) because their needs can only be met in private school (e.g. in England, where attendance at that private school is required by a child’s Education, Health and Care Plan (EHCP), LAs will be able to reclaim the VAT so it does not apply to those fees.
This change will only apply to tuition fees and boarding fees charged by private schools. The VAT treatment of other services or goods provided by private schools – such as nursery care, wrap-around childcare, school meals and holiday clubs, and part time classes operated by third parties within schools – such as music and drama clubs and Sunday schools – will not change. The VAT treatment of state boarding fees will also continue to be exempt from VAT.
The government will also end business rates relief for private schools. This change means private schools in England will no longer be eligible for charitable rates relief and will pay their full business rates liability. This is intended to take effect from April 2025, subject to Parliamentary passage.
The VAT changes will be legislated for in the Finance Bill introduced following the Budget. The business rates changes will be legislated for through a Local Government Finance Bill led by the Ministry for Housing, Communities, and Local Government (MHCLG).
Non-Doms: Removing domicile status from the tax system and implementing a new internationally competitive residence-based regime
The Government is committed to addressing unfairness in the tax system, so that everyone who makes their home in the UK pays their taxes here.
That is why the Government will remove the outdated concept of domicile status from the tax system and replace it with a new internationally competitive residence-based regime, focused on attracting the best talent and investment to the UK.
A policy note has been published to set out the government’s plan to end the use of offshore trusts to avoid inheritance tax and scrapping the 50% tax reduction on foreign income in the first year of the new regime.
From April 2025, anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains (FIG), as is the case for other UK residents. This is a simpler and clearer test, with less scope for ambiguity than the current regime.
New arrivals to the UK will benefit from 100% UK tax relief on their FIG for their first four years of tax residence, provided they have been non-resident for the last 10 years. This is more attractive than the current approach, as they will be able to bring FIG into the UK without attracting an additional tax charge, encouraging them to spend and invest these funds in the UK.
To support transition and provide time for adjustment, a Temporary Repatriation Facility (TRF) will be available for individuals to bring pre-6 April 2025 FIG held offshore into the UK at a reduced rate of tax, to encourage these funds to be spent and invested in the UK.
Behavioural impacts and costings will be published at the Budget.
Energy Profits Levy
The Government is publishing a policy document that confirms its intention to increase the rate of the Energy Profits Levy (EPL) by three percentage points to 38% from 1 November 2024.
The levy will also be extended from 31 March 2029 to 31 March 2030.
The Government will remove unjustifiably generous investment allowances from the EPL, starting by abolishing the levy’s core investment allowance from 1 November. The decarbonisation allowance will be retained.
The Government will reduce the generosity of capital allowances (including First Year Allowances) when calculating EPL profits – providing further details on these changes at Budget.
The Energy Security Investment Mechanism will remain, helping to provide operators and their investors with confidence the levy will no longer apply if prices fall to, or below, historically normal levels for a sustained period.
Further details on the Government’s approach to all allowances in the EPL, and costings, will be set out at the Budget.
The Government recognises the importance of providing the oil and gas industry with long-term certainty on taxation after a period of change. The government will work with the industry and others to develop and implement a successor regime for responding to price shocks after the EPL ceases.
The UK Government is also:
Publishing a call for evidence confirming its intention to take action against the carried interest loophole, and to form the basis for detailed engagement with expert stakeholders.
o Carried interest is a form of performance-related reward received by fund managers, primarily within the private equity industry.
o Reforms will ensure fairness, whilst also recognising the vital role that our world-leading asset management industry plays in channelling investment across the UK.
Tackling the tax gap. Reforming the tax system by making policy changes to simplify tax, close loopholes and reduce non-compliance, designing out non-compliance before it happens. At the Budget, the government will provide an update on the implementation and development of measures that form its plan to close the tax gap.
The government will invest in HMRC’s compliance work, hiring around 5,000 additional staff to recover more tax revenues. HMRC has already started the process of recruiting additional staff into compliance roles.
The government will also invest in HMRC’s technology infrastructure, helping to make HMRC more efficient and improve taxpayers’ experience of interacting with HMRC.
Chancellor reveals £22 billion of unfunded pressures inherited from the previous Government
Findings of a Treasury spending audit reveal £22 billion of unfunded pledges inherited from the previous Government this year.
Chancellor takes “difficult decisions” to find £5.5 billion of savings this year and £8.1 billion next year.
A set of non-negotiable fiscal rules will be confirmed at Budget on 30th October, alongside further difficult decisions on tax and spending.
Finalised departmental budgets for this financial year and the next will be confirmed in October and a multi-year Spending Review will conclude in Spring 2025 to embed mission-led government and transform public services.
Addressing the House of Commons today (Monday 29th July) the Chancellor pledged to ‘restore economic stability’ after revealing £22 billion of unfunded pressures inherited from the previous Government.
Findings from a Treasury audit commissioned by the Chancellor expose billions of pounds of unfunded commitments from the previous Government, including the Rwanda scheme, the Advanced British Standard and the New Hospital Programme.
The previous Government also failed to increase Departmental budgets to cover public sector pay settlements, which were £11-12 billion higher than accounted for at the last Spending review. All of which were made on top of pressures resulting from higher inflation, increased asylum costs and funding for Ukraine.
Taking immediate action, the Chancellor announced £5.5 billion of savings this year and £8.1 billion next year to tackle the overspend. She also commits to set out full fiscal plans, alongside a Spending Review, at the Budget on 30th October.
Chancellor of the Exchequer, Rachel Reeves said: “This is not the statement I wanted to give today, and these are not the decisions I wanted to make. But they are the right decisions in difficult circumstances.”
The difficult decisions taken by the Chancellor have secured savings including over £1 billion next year, rising to over £4 billion by 29/30 by not proceeding with the previous government’s unfunded adult social care charging reforms.
Around £1.5 billion will be saved per year by targeting Winter Fuel Payments meaning households with someone aged over State Pension age receiving Pension Credit, Universal Credit, Income Support, income-based Jobseeker’s Allowance and income-related Employment and Support Allowance will continue to receive Winter Fuel Payments. This will better target support for heating costs at those who need it.
Immediate savings include £800 million this year and £1.4 billion next year from scrapping the Rwanda migration partnership and scrapping retrospection of the Illegal Migration Act, £70 million this year by cancelling the Investment Opportunity Fund and other small projects, £185 million next year from cancelling the Advanced British Standard and £785 million next year from stopping unaffordable road and railway schemes.
The Chancellor also announced a review of the underdelivering New Hospital Programme.
To provide certainty for public sector workers and help put an end to devastating strikes costing billions of pounds, the Chancellor accepted the independent Pay Review Body recommendations and confirm pay uplifts averaging 5.5% for public sector workers.
To ensure that no Government is faced with a spending cliff-edge like this again the Chancellor set out plans to ensure Spending Reviews are set every two years to cover a three-year period, with a one year overlap with the previous Spending Review, helping build in greater certainty and stability over public finances.
Transparency over in year spending pressures will also be enhanced, with more information being provided to the OBR. In the House the Chancellor also re-committed to a single major fiscal event a year.
The Chancellor also outlined long-term plans to tackle unacceptably high levels of welfare fraud and error as well as addressing falling public sector productivity and a new Office of Value for Money.
During her statement the Chancellor outlined next steps in delivering tax commitments from the manifesto, to provide taxpayers with certainty ahead of their final confirmation at the Budget.
This includes ending the VAT tax breaks for private schools from 1 January 2025 to help recruit 6,500 new teachers, as well as replacing the outdated non-domicile regime with a new internationally competitive residence-based regime.
As also set out in the manifesto, the Chancellor confirmed plans for the Energy Profits Levy to be extended one year to 31 March 2030, have its investment allowances tightened and to increase the rate of the levy by three percentage points to 38% from 1 November 2024.
A call for evidence confirming the government’s intention to take action on the carried interest loophole has also been published, as well as a commitment to update on policies at the Budget to help close the tax gap further.
Further details for all tax policies, including costings certified by the Office for Budget Responsibility, will be published at the Budget.
Chancellor of the Exchequer Rachel Reeves statement to the House of Commons on 29/07/2024:
Mr Speaker, on my first day as Chancellor of the Exchequer, I asked Treasury officials to assess the state of public spending.
That work is now complete, and today I am presenting it to this House.
In this statement, I will do three things.
First, I will expose the scale – and the seriousness – of what has been uncovered.
Second, I will lay out the immediate action we are taking to deal with the inheritance.
And third, I will set out our longer-term plans to fix the foundations of our economy.
Let me take each of these in turn.
First, the inheritance.
Before the election, I said that we would face the worst inheritance since the Second World War.
Taxes at a seventy year high.
Debt through the roof.
An economy only just coming out of recession.
Mr Speaker, I knew all those things.
I was honest about them during the campaign.
And the difficult choices it meant.
The British people knew them too.
That is why they voted for change.
But upon my arrival at the Treasury three weeks ago, it became clear that there were things I did not know.
[Redacted political content]
That is why we are today publishing a detailed audit of the real spending situation, a copy of which will be laid in the House of Commons Library.
I want to take the opportunity to thank Treasury officials for all their work in producing this document.
Let me explain what it has uncovered.
Mr Speaker, the government published its plans for day to day departmental spending at the Spring Budget in March.
But when I arrived at the Treasury…
… on the very first day…
… I was alerted by officials that this was not how much the previous government expected to spend this year.
Not even close.
In fact, the total pressure on these budgets across a range of areas was an additional £35bn.
Once you account for the slippage in budgets you usually see over a year…
… and the reserve of £9bn to deal with genuinely unexpected events…
… it means, Mr Speaker, that I have inherited a projected overspend of £22bn.
A £22bn hole in the public finances now – not in the future.
[Redacted political content]
If left unaddressed it would have meant a 25% increase in the government’s financing needs this year, pushing gilt issuance further into record highs outside of the pandemic.
So I will today set out the urgent work I have already done to reduce that pressure on the public finances by £5.5bn this year and over £8bn next year.
And let me be clear: I am not talking about bills for future years they signed up to but did not include, like the compensation for infected blood.
I am not talking about the state of public services in the future, like the crisis in our prisons, which they have left for us to fix.
I am talking about the money they were spending this year and had no ability to pay for…
[Redacted political content]
Resulting in the position that we have now inherited:
The reserve, spent three times over only three months into the financial year.
[Redacted political content]
Mr Speaker, the scale of this overspend is not sustainable.
Not to act is simply not an option.
We have already seen official ONS figures this month showing borrowing is higher this year than the OBR expected. [Redacted political content]
[Redacted political content]
There are very clear instances of specific budgets that were overspent…
… and unfunded promises that were made…
…but that, crucially, the OBR were not aware of for their March forecast.
I will now take each of those instances in turn.
First, the asylum system.
The forecast for the number of asylum seekers has risen dramatically since the last Spending Review, and costs for asylum support have risen sevenfold in the last three years.
But instead of reflecting those costs in the Home Office budget for this year, the previous government covered up the true extent of the crisis and its spending implications.
The document I am publishing today reveals a projected overspend on the asylum system, including their failed Rwanda plan, for this year alone of more than £6.4bn.
That was unfunded and undisclosed.
Next, in the wake of the pandemic, demand for rail services fell.
But instead of developing a proper plan to adjust for this new reality, the government handed out cash to rail companies to make up for passenger shortfalls, but failed to budget for this adequately.
Because of that, and because of industrial action, there is now an overspend of £2.9bn in the transport budget.
That was unfunded and undisclosed.
Mr Speaker, since 2022, the government – with the support of this whole House – has rightly provided military assistance to Ukraine in response to the Russian invasion.
The spending audit has found that there was not enough money set aside in the reserve to fund all these costs.
We will continue to honour these commitments in full.
[Redacted political content]
On top of these new pressures, since 2021, inflation was above the Bank of England’s target for 33 months in a row – hitting 11% at its peak.
But the government has not held a Spending Review since 2021.
That means they never fully reflected the impact of inflation in departmental budgets.
This had a direct impact on budgets for public sector pay.
When the last Spending Review was conducted, it was assumed that pay awards would be 2% this year.
Ordinarily, the government is expected to give evidence to the Pay Review Bodies on affordability.
But extraordinarily, this year, the previous government provided no guidance on what could or could not be afforded to the Pay Review Bodies.
This is almost unheard of.
But that is exactly what they did.
[Redacted political content]
I will not repeat their mistakes.
Where the previous government provided no transparency to the public, and no certainty for public services…
… we will be open about the decisions which are needed…
… and the steps we are taking.
That begins with accepting in full the recommendations of the independent Pay Review Bodies, and the details of these awards are being published today.
That is the right decision for the people who work in and most importantly the people who use our public services…
… giving hardworking staff the pay rise they deserve…
… while ensuring we can recruit and retain the people we need.
It should not have taken this long to come to these decisions.
And I do not want us to be in this position again.
So, I will consider options to reform the timetable for responding to the Pay Review Bodies in the future.
This decision is in the best interests of our economy too.
The last government presided over the worst set of strikes in a generation.
This caused chaos and misery for the British public.
And it wreaked havoc on the public finances.
Industrial action in the NHS alone cost the taxpayer £1.7bn last year.
That is why I am pleased to announce today that the Government and the BMA have agreed an offer to the Junior Doctors, on which my RHF the Health Secretary will set out further details.
And let me pay tribute today to my RHF, whose leadership on this issue has paved the way to ending a dispute which has caused waiting lists to spiral, operations to be delayed and agony for patients to be prolonged.
Today marks the start of a new relationship between the government and staff working in our National Health Service – and the whole country will welcome that.
Mr Speaker, where the previous government ducked the difficult decisions, I am taking action.
Because knowing what they did about the state of the public finances, they continued to make unfunded commitment after commitment that they knew they could not afford.
[Reacted political content]
Leaving us with an overspend of £22bn this year.
Where they presided over recklessness, I will bring responsibility.
I will take immediate action.
Let me set this out in detail.
First, pay.
I have today set out our decision to meet the recommendation of the Pay Review Bodies.
Because the previous government failed to prepare for these recommendations in departmental budgets, they come at an additional cost of £9bn this year.
So, the first difficult choice I am making is to ask all departments to find savings to absorb as much of this as possible…
… totalling at least £3bn.
To support departments as they do this, I will work with them to find savings ahead of the Autumn budget…
… including through measures to stop all non-essential spending, such as on consultancy and government communications.
And I am asking departments to find 2% savings in their back-office costs.
I will now deal with a series of commitments made by the previous government which they did not fund.
Because if we cannot afford it, we cannot do it.
First, [Redacted political content] the former Prime Minister announced the introduction of a new qualification: the “Advanced British Standard”.
That is a commitment costing nearly £200m next year, rising to billions in future years.
Mr Speaker, this was supposed to be the Prime Minister’s legacy.
But it turns out, he didn’t put aside a single penny to pay for it.
So we will not go ahead with that policy.
Because if we cannot afford it, we cannot do it.
Next, the Illegal Migration Act, passed by the previous government, made it impossible to process asylum applications or remove people who have no right to be here.
[Redacted political content]
We need a properly controlled and managed asylum system where rules are properly enforced so that those with no right to be here are swiftly removed.
So we have scrapped their failed Rwanda scheme, which placed huge pressure on the Home Office budget.
To bring down these costs as soon as possible, my RHF the Home Secretary has already laid legislation to remove the retrospective element of the Illegal Migration Act…
… which will significantly reduce the use of hotel accommodation.
These measures will save nearly £800m this year and avoid costs spiralling even further next year.
This was a bad use of taxpayers’ money and we will not do it.
Mr Speaker, the previous government claimed it was “levelling up” our country.
[Redacted political content]
At Autumn Statement last year, the former Chancellor announced nearly £150m for an “Investment Opportunity Fund”.
But not a single project has been supported from the Fund.
So, following discussions with my RHF the Deputy Prime Minister, I am cancelling it today.
The previous government also made a series of commitments on transport.
Promises that people expected to be delivered.
[Redacted political content]
We have seen from the National Audit Office the chaos that the previous government presided over.
Projects over budget and delayed again and again.
The spending audit has revealed nearly £800m of unfunded transport projects that have been committed next year.
So my RHF the Transport Secretary will undertake a thorough review of all these commitments.
As part of that work, she has agreed not to move forwards with projects that the previous government refused to publicly cancel, despite knowing full well they were unaffordable.
That includes proposed work on the A303 and the A27…
… and my RHF will also cancel projects in the “Restoring our Railways” programme which have not yet commenced.
If we cannot afford it, we cannot do it.
Mr Speaker, the previous government had plans for a retail sale of Natwest shares.
We intend to fully exit our shareholding in NatWest by 2025-26.
But having considered advice I have concluded that a retail share sale offer would involve significant incentives that could cost taxpayers hundreds of millions of pounds.
It would therefore not represent value for money, and it will not go ahead.
This is a bad use of taxpayers’ money and we will not do it.
Next, let me address the unfunded pressures in our NHS and our social care sector.
In October 2020, the government announced that 40 new hospitals would be built by 2030.
Since then, only 6 have started their main construction activity.
And less than half of the 40 hospitals have even started construction.
The National Audit were clear that delivery was wildly off track.
But since coming into office, it has become clear that the previous government continued to maintain its commitment to 40 hospitals…
… without anywhere close to the funding required to deliver them.
[Redacted political content]
We need to be straight with the British people about what is deliverable and what is affordable.
So we will conduct a complete reset of the New Hospitals Programme, with a thorough, realistic and costed timetable for delivery.
Mr Speaker, adult social care was also neglected by the previous government.
The sector needs reform to improve care and to support staff.
In the previous parliament, the government made costly commitments to introduce adult social care charging reforms.
But then, they pushed them back repeatedly…
… including just two years ago…
… because they knew that local authorities were not ready…
… and that their promises were not funded.
So it will not be possible to take forward these charging reforms. This will save over £1bn by the end of next year.
Mr Speaker, the previous government made commitment after commitment without knowing where the money was going to come from.
They did this repeatedly, knowingly and deliberately.
[Redacted political content]
And I am taking the first steps to clean up what they have left behind.
But the scale of the inheritance we have been left, means the decisions we have so far announced will not be enough. This level of overspend is not sustainable.
It therefore falls to us to take further difficult decisions on spending that generate in year savings.
Mr Speaker, the last Labour government lifted over one million pensioners out of poverty.
And I repeat today the commitment we gave that we will protect the Triple Lock.
But the scale of the situation we are dealing with means incredibly tough choices.
So that is why today, I am making the difficult decision that those not in receipt of Pension Credit will no longer receive the Winter Fuel Payment from this year onwards.
The Government will continue to provide Winter Fuel Payments worth £200 to households receiving Pension Credit…
… or £300 for households in receipt of Pension Credit with someone aged over 80.
Let me be clear: this is not a decision I wanted to make.
Nor is it one that I expected to make.
But it is a necessary and urgent decision I must make – It is the responsible thing to do to fix the foundations of our economy and bring back economic stability.
Alongside this change, I will work with my Right Honourable Friend the Work and Pensions Secretary to maximise the take up of Pension Credit by…
… bringing forward the adminstration of Housing Benefit and Pension Credit, pushed back by the previous government…
… and working with older peoples’ charities and local authorities to raise awareness of Pension Credit, and help identify households not claiming it.
Mr Speaker, this is the beginning of a process, not the end.
I am announcing today that I will hold a Budget on October 30th alongside a full economic and fiscal forecast from the Office for Budget Responsibility.
I have to tell the House that Budget will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax. [Redacted political content]
It will be a Budget to fix the foundations of our economy.
And it will be a Budget built on the principles that this new government was elected on.
First, we will treat taxpayers’ money with respect by ensuring that every pound spent is well spent…
… and we will interrogate every line of public spending to ensure it represents value for money.
Second, I can repeat – from the despatch box – our manifesto commitment that we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.
And today my Right Honourable Friend the Exchequer Secretary is publishing further detail on our manifesto commitments to close tax loopholes and clamp down on tax avoidance…
… to ensure we bring that money in as quickly as possible.
My third principle is that we will meet our fiscal rules.
We will move the current budget into balance…
… and we will get debt falling as a share of the economy by the end of the forecast.
These are the principles that will guide me at the Budget.
But let me be honest: challenging trade-offs will still remain.
So today I am also launching a multi-year Spending Review.
The review will set departmental budgets for at least three years, providing the long-term certainty that has been lacking for too long.
As part of that process, final budgets for this year and budgets for next year – 2025-26 – will be set alongside the Budget on 30th October.
I will look closely at our welfare system…
… because if you can work, you should work.
That is the principle of this government.
Yet under the previous government, welfare spending ballooned while inactivity has risen sharply in recent years.
So we will ensure the welfare system is focused on supporting people into employment…
… and we will assess the unacceptable levels of fraud and error in our welfare system, and take forward action to bring that down.
Mr Speaker, to fix the foundations of our economy, we must ensure that never again can a government keep from the public the true state of our public finances.
The fiscal framework which I have inherited had several flaws.
It allowed the government to run down the clock on departmental budgets…
… avoid difficult decisions
[Redacted political content]
So I am announcing the most significant set of changes to our framework since the inception of the Office for Budget Responsibility, which will come into effect this Autumn.
First, we have introduced legislation to ensure every significant and permanent tax or spending announcement must be accompanied by an OBR forecast through our “fiscal lock”, so we can never again see a repeat of the mini-budget.
Second, we will require the Treasury to share with the Office for Budget Responsibility its assessment of immediate public spending pressures, and enshrine that rule in the Charter for Budget Responsibility…
… so no government can ever again cover up the true state of the public finances.
And finally, we will ensure that never again do public service budgets get set at only a few months’ notice.
Instead, Spending Reviews will take place every two years, with a minimum planning horizon of three years, to avoid uncertainty for departments and to bring stability to the public finances.
I have already spoken to the Chair of the Office for Budget Responsibility to brief him on the findings of our audit and our reforms.
He has welcomed those, and will initiate his own review into the information provided to the OBR by the Treasury ahead of the Spring Budget. The Treasury stands ready to support this work.
Mr Speaker, by launching the Spending Review I am also today firing the starting gun on a new approach to public service reform to drive greater productivity in the public sector.
We will embed an approach to government that is…
… mission-led…
… that is reform driven, with a greater focus on prevention and integration of services, at both a national and a local level..
… and that is enabled by new technology, including through the work of my RHF the Secretary of State for Science, Innovation and Technology on the opportunities of AI to improve our public services.
And we will establish a new Office of Value for Money, with an immediate focus on identifying areas where we can reduce, stop or improve the value of spending….
… and we will appoint a Covid Corruption Commissioner, to bring back money owed to taxpayers after contracts worth billions of pounds were handed out by the previous government during the pandemic.
Ahead of the Spending Review, I will also review the cost of our political system, including restricting eligibility for ministerial severance payments based on time in office.
I expect all levels of government to be run efficiently and effectively and I will work with leaders across our country to deliver that.
That means effective local government …
… a civil service delivering good value for the British taxpayer…
… and reform of our political institutions, including the House of Lords, to keep costs as low as possible.
The Budget and Spending Review will also set out further progress on our number one mission: to grow our economy.
Because economic growth is the only way to sustainably improve our public services and sustainably improve our public finances.
So we will use the Spending Review to prioritise specific areas of capital investment that leverage in billions more in private investment.
It won’t happen overnight.
It will take time and it will take focus.
But we have already made significant progress.
Planning reforms to get Britain building.
A National Wealth Fund to catalyse private investment
A pensions investment review to unlock capital for our businesses.
Skills England to create a shared national ambition to boost skills across our country.
And work across government on a new industrial strategy…
… driven forward by a Growth Mission Board to ensure we deliver on our commitments.
We have fundamental strengths on which we can build.
And I look forward to welcoming business leaders to the International Investment Summit in Britain later this year.
Because I know that if we can create the stable conditions which investors need to thrive, we can build on the UK’s strengths and return confidence to our economy..
… so that entrepreneurs and businesses big and small know that this is a place to do business as that is the bedrock on which economic growth must be built.
Mr Speaker, the inheritance from the previous government is unforgiveable.
Chancellor to pledge to ‘fix the foundations of our economy’ as she unveils the spending inheritance left by the previous government.
Reeves to set out reforms to deliver economic stability and protect the public finances, as she announces date of Budget later this year.
Office of Value for Money formed to challenge government to deliver better value for money for taxpayers.
Chancellor of the Exchequer Rachel Reeves will this afternoon (Monday 29 July, after 3:30pm) vow to ‘fix the foundations of our economy’ as she publishes an audit of the spending inheritance left by the previous administration.
Accusing the previous government of ‘covering up the true state of the public finances,’ the Chancellor will announce immediate action to restore economic stability and deliver departmental savings this financial year.
The announcements will be a response to the findings of the Treasury’s spending audit, which shows that the previous government overspent this year’s budgets by billions of pounds after making a series of unfunded promises.
The Chancellor will confirm that she has commissioned an Office for Budget Responsibility forecast to coincide with a Budget and Spending Review to be held later this year.
The Budget will set out how the government’s robust fiscal rules will be met: balancing the current budget so that day-to-day costs are met by revenues and getting debt falling as a share of the economy by the fifth year of the forecast.
Speaking in the House of Commons later today, the Chancellor of the Exchequer Rachel Reeves is expected to say: “Before the election, I said we would face the worst inheritance since the Second World War.
“Taxes at a seventy year high. Debt through the roof. An economy only just coming out of recession. I knew all those things. I was honest about them during the election campaign. And the difficult choices it meant.
“But upon my arrival at the Treasury three weeks ago, it became clear that there were things I did not know. Things that the party opposite covered up from the country.”
She will add: “It is time to level with the public and tell them the truth.
“The previous government refused to take the difficult decisions. They covered up the true state of the public finances. And then they ran away. I will never do that.
“The British people voted for change and we will deliver that change. I will restore economic stability. I will never stand by and let this happen again.
“We will fix the foundations of our economy, so we can rebuild Britain and make every part of our country better off.”
The Chancellor will announce she is committing the government to one major fiscal event per year to put an end to ‘surprise budgets’ which have previously caused uncertainty for both the markets and family finances across the country.
A new Office of Value for Money will be established, using pre-existing civil service resource, to put an end to wasteful spending in government, providing targeted scrutiny of public spending so that value for money governs every decision government makes.
The Office will immediately begin work on identifying and recommending savings for the current financial year, while also establishing where targeted reforms of the system can ensure that poor value for money spending is cut off before it begins.
Reforms bearing down on waste in the public sector will also be announced today, driving efficiency through government departments and arms length bodies (ALBs). Immediate action will be taken to stop non-essential spending on consultants, alongside disposing of surplus estates and hastening delivering admin efficiencies in departments.
Earlier this month, the Government introduced the Budget Responsibility Bill at the King’s Speech to deliver economic stability by guaranteeing that never again can a government play fast and loose with the public finances.
The Bill ensures all significant fiscal announcements on tax or spending which are worth more than 1% of the UK’s GDP will be subject to scrutiny by the independent Office for Budget Responsibility. This will guard against large-scale unfunded commitments in the future.
FORMER Tory Chancellor Jeremy Hunt said the new Labour government is ‘peddling nonsense’. He added: “The books were wide open and what they show is a healthy, growing economy.”
The Conservatives claimed throughout the recent election campaign that Rachel Reeves secretly plans to raise taxes.
27 million people across the UK will benefit from a yearly tax cut worth hundreds of pounds from today, meaning a household with two average earners will save nearly £1,000 per year.
27 million people to get tax cut from today as the main rate of employee National Insurance will be cut by two percentage points, from 12% to 10%.
Change in gear for government, cutting taxes for ‘hard working people’ so they have more money in their pocket.
Online tool launched to help workers estimate their savings.
The main rate of National Insurance has been cut by 2p from 12% to 10% today (Saturday 6 January 2024). This reduces National Insurance by more than 15%, saving £450 this year for the average salaried worker on £35,400.
Millions of people working different jobs across hundreds of industries will now be better off. An average full-time nurse will save £520, a typical junior doctor £750 and an average teacher £630.
In the past year, inflation has halved; the economy has recovered more quickly from the pandemic than first thought; and debt is on track to fall. With a renewed focus on the long-term decisions to strengthen the economy, the government is changing gear and cutting taxes for hard working people, giving them the opportunity to build a wealthier, more secure life for themselves and their families.
Prime Minister Rishi Sunak said: ““We have made tough decisions on the economy, supporting people through global shocks such as the pandemic and Putin’s illegal invasion of Ukraine. It is because of the tough decisions this government has taken that today we are able to cut taxes for 27 million people across the UK.
“Today’s tax cuts will directly reward hard working people, putting £450 back in the pocket of the average worker and helping them make ends meet.”
Chancellor of the Exchequer Jeremy Hunt said: ““With inflation halved, we’ve turned a corner and are cutting taxes – starting with today’s record cut to National Insurance worth nearly £1,000 for a household.
“From nurses and brickies, to cleaners and butchers, 27 million hard-working Brits will have a little more cash in their pockets.”
The cut means that for those on average salaries, personal taxes would be lower in the UK than every other G7 country, based on the most recent OECD data. The UK also has the most generous starting allowances for income tax and social security contributions in the G7.
To mark the tax cut, HMRC have launched an online tool to help people understand how much they could save in National Insurance this year.
The tool will use salary information to give employees personalised estimates of how much they could save because of the government’s changes, and will be hosted on the government’s cost of living support website on GOV.UK.
The last major cut to the current personal tax system of today’s magnitude was when the National Insurance personal allowance increased from £9,880 to £12,570 in July 2022. This was the largest ever cut to a personal tax starting threshold, allowing working people to hold on to an extra £2,690 free from tax whilst taking 2.2 million people out of paying tax altogether.
Today’s tax cut combined with above-inflation increases to tax thresholds since 2010 means that the average earner will pay over £1,000 less in personal taxes than they otherwise would have done.
At the Autumn Statement the Chancellor Jeremy Hunt announced the biggest package of tax cuts to be implemented since the 1980s. In addition to today’s action, the Chancellor also announced a National Insurance cut for 2 million self-employed people, which will take effect on 6 April 2024 and is worth £350 for the average self-employed person on £28,200.
He also announced the biggest ever increase to the National Living Wage, effectively cut corporation tax by more than £55 billion as he made full expensing permanent to help businesses invest for less, froze alcohol duty for six months and extended cuts to business rates relief for the high street.
Today’s ‘historic’ National Insurance cut takes effect following the government stepping in to support households during the Covid-19 pandemic and throughout Putin’s barbaric war in Ukraine.
The government ‘took the decision to manage the public finances responsibly by not saddling future generations to help pay down debt’.
A new income tax band will raise additional revenue to deliver high quality public services and support the social contract with Scotland’s people, Deputy First Minister and Finance Secretary Shona Robison has announced.
The Advanced rate band will apply a 45% tax rate on annual income between £75,000 and £125,140. Other changes include an additional 1p being added to the Top rate of tax and the Starter and Basic rate bands increasing in line with inflation. There are no changes to the Starter, Basic, Intermediate and Higher tax rates. The Higher rate threshold will be maintained at £43,662.
The Scottish Fiscal Commission estimates that overall Income Tax will raise £18.8 billion in 2024-25.
The Commission also estimates that next year the Scottish Government will raise around £1.5 billion more in income tax revenue than if it had followed the Income Tax policy of the UK Government, as a result of changes to rates and bands it has brought in since 2017-18.
The Finance Secretary also announced plans to:
Freeze the non-domestic rates poundage at 49.8 pence, delivering the lowest poundage rate in the UK for the sixth year in a row. The Intermediate Property Rate and Higher Property Rate will rise in line with inflation to 54.5 pence and 55.9 pence respectively
Offer 100% rates relief for hospitality businesses in island communities, capped at £110,000 per business
Maintain existing Land and Buildings Transaction Tax (LBTT) rates and bands at their current levels. Relief allowing first-time buyers to claim a reduction in the amount of LBTT they need to pay will continue
Increase the standard and lower rates of Scottish Landfill Tax to continue to support Scotland’s circular economy ambitions, while ensuring these do not encourage cross-border movement of waste
Ms Robison said: “Managing the cumulative impacts of the UK Government’s disastrous Autumn Statement, high inflation and ongoing economic damage from Brexit means we have had to make difficult choices and prioritise support for those who need it the most.
“We are proud that Scotland has the most progressive Income Tax system in the UK, protecting those who earn less and asking those who earn more to contribute more. This in turn allows us to provide a more comprehensive set of services than in the rest of the UK.
“These targeted tax decisions are expected to increase our Income Tax revenue by £389m and have been carefully balanced with the needs of individuals, businesses and the wider economy, while ensuring we continue to build upon our progressive approach to taxation.
“Our decisions on tax in this budget – including both Income Tax policy changes and the freeze in Council Tax – provide a net benefit to around 60% of Scottish households, with around 80% of households paying no more tax as a result of these measures.
“On non-domestic rates, the support I have outlined for businesses is estimated to be worth £685 million this year and ensures that over 95% of non-domestic properties continue to be liable for a lower property tax rate than anywhere else in the UK.”
The Scottish Conservatived responded: “Scotland is already the highest taxed part of the UK. But today’s Budget means that 100,000 more Scots are now paying the higher rate of tax.
“Scots are paying more and getting less under this financially incompetent SNP Government.”
The Scottish Income Tax bands and rates proposed in the 2024-25 Budget are:
2024-25
Band
Rate
Starter
£12,571 – £14,876
19%
Basic
£14,877 – £26,561
20%
Intermediate
£26,562 – £43,662
21%
Higher
£43,663 – £75,000
42%
Advanced
£75,001 – £125,140*
45%
Top
Above £125,140
48%
*Under the UK Government’s Personal Allowance policy, those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.
The UK Government confirmed in the 2023 Autumn Statement that the UK-wide Personal Allowance will remain frozen at £12,750.
The Small Business Bonus Scheme, which offers up to 100% relief from non-domestic rates, will be maintained at the rates and thresholds introduced in 2023-24. 100% rates relief will also be available for hospitality businesses on islands, as defined under the Islands (Scotland) Act 2018.
The standard and lower rates of the Scottish Landfill Tax will increase to maintain consistency with planned UK Landfill tax increases to:
From £102.10 to £103.70 per tonne (standard rate) from 1 April 2024
From £3.25 to £3.30 per tonne (lower rate) from 1 April 2024
The Scottish Government has allocated £144 million to enable local authorities to freeze council tax rates at their current levels. Final decisions by councils on the rates in their respective areas are expected to be made by mid-March 2024.
Increasing housing availability using the tax system
New powers enabling councils to charge up to double the full rate of council tax on second homes have been agreed by the Scottish Parliament.Councils will be able to increase the charges from 1 April 2024, with rates for the first year being based on those from 2023-24.
The change brings second homes into line with council tax policy on long-term empty homes and aims to increase housing availability by encouraging more homes to be used for living in.
New owners of properties that have previously been empty for more than twelve months will now have a six-month grace period, during which they will be protected from paying double the full council tax rate, with the potential for the six months to be extended by councils. This is subject to evidence that renovations or repairs are being undertaken by the owner with a view to the building being brought back into use.
Public Finance Minister Tom Arthur said: “I’m pleased Parliament has backed this important legislation. These changes to council tax were a commitment made in our Programme for Government and aim to make sure the tax system works as an incentive to prioritise homes for living in.
“A majority of those who responded to our consultation earlier this year supported councils being able to charge a council tax premium on top of regular rates for second homes.
“By protecting those renovating an empty home from paying the empty home premium, we are incentivising new ownership and giving them time to organise and undertaken the work necessary to bring it back into use.”
Councillor Katie Hagmann, COSLA’s Resources Spokesperson, said: “I am delighted that this important legislation has now been given Parliamentary approval. COSLA very much welcomes the ability for councils to take the decision to increase the premium on second homes in their areas.
“This supports our long-standing position that councillors who are closest to their communities should be empowered to take the decisions about what best works in their local communities, demonstrating the value of the Verity House Agreement.”
A second home is classed as any home that is not used as someone’s primary residence but that is occupied for at least 25 days in a year.
Latest figures show that at the end of September 2022, there were 24,287 second homes in Scotland.
Second homes are currently subject to a default 50% discount on council tax. However, local councils can vary council tax charges and the majority already charge second home-owners the full of council tax, the maximum currently allowed.
Humza Yousaf addressed the Scottish National Party Conference for the first time as First Minister, in a speech that contained a few new proposals. We’ll take you through some of the main consequences of what was announced (writes MAIRI SPOWAGE, Director of the Fraser of Allander Institute).
Council tax frozen, but at what cost?
The centrepiece announcement was that 2024-25 council tax rates across Scotland would remain the same as in 2023-24. This was a surprise to many – including COSLA – although the Scottish Government has said it “will fully fund the freeze to ensure councils can maintain their services.”
What does that mean in practice? Councils will already have been in the process of deciding what council tax policy will be for the 2024-25 financial year – many of us will have seen consultations and discussions in our local area about this. As they are constrained to fund current spending out of current sources of revenue – of which council tax is a significant component – decisions on spending going forward may have already been taken on the basis of future income from council tax. The First Minister’s announcement changes that prospective revenue.
Whether or not the promise of “fully funding” the freeze in council tax will depend on what the Scottish Government assesses as the counterfactual for what increases in rates would have been – and how that will be put into practice.
Our calculations indicate that accounting for growth in the number of properties expected in 2024-25, total net revenue from council tax will be £2,865m.
But it we assume councils would have applied the same increases as they did last year (which averaged 5%), revenues would have been £3,013m. And if the proposal for increasing multipliers for the higher bands in the recent council tax consultation had been taken forward revenues would have been higher still, at £3,196m.
In summary then, the freeze in council tax – assuming that councils would have followed the increases from the previous year – will cost £148m. In addition, the decision not to increase the multipliers as has been consulted on will cost £183m.
The true size of the shortfall will depend on what councils were actually budgeting for. If we assumed an 8% increase was being planned – which is lower than some councils implemented last year, and would still not bring much in terms of real increases in funding for local authorities – the total shortfall would be £417m (£229m from the freeze plus £188m from not increasing the multipliers).
How much of the shortfall is covered by the First Minister’s funding pledge will be the subject of a negotiation process with COSLA, and we’ll need to wait to see how it plays out. But ultimately it could lead to councils having less spending power than was expected if the definition of “fully funded” is in dispute.
The Scottish Government was already facing challenges on its budgetary position, given the gap it set out in the Medium Term Financial Strategy in May, of an estimated £1 billion gap between its commitments and likely resources.
Despite a better outturn on income tax than expected, and an increase in borrowing powers, prior to the Programme for Government this was still likely to be around £600m. It is not clear where the extra funding will come from to pay for the council tax freeze – and indeed the announcement on health below.
An “additional” £100m a year to cut NHS waiting lists – but within the fixed envelope
The First Minister also outlined a proposal to spend an extra £100m a year on reducing the NHS waiting lists. The goal is to reduce waiting list by 100,000 by 2026.
As with so many of these proposals, the devil is in the detail, and in this case, the additionality of the pledge is questionable. While the First Minister has announced that more money will be spent on this particular issue, there was no detail where the money was coming from.
With the Scottish spending envelope through the Block Grant largely fixed, spending commitments well ahead of funding sources (as discussed above) for 2024-25, and limited options in terms of yield from tax rises, this announcement seems like it will lead to a reallocation of funding, either from other areas of the health service or from other areas of government spending rather than actual additional spending.
Scottish bonds for capital investments announced – how and why?
The FM announced plans to issue the first-ever government bonds for Scotland to finance infrastructure.
In theory, the power to issue government bonds was devolved as part of the Scotland Act 2012, with the power given full effect in April 2015.
So what would be the process for this? One of the key steps is likely to be establishing a credit rating from major rating agencies. This would provide potential investors with a professional evaluation of Scotland’s creditworthiness.
This process is likely to be fairly involved, consisting of a detailed assessment of Scotland’s economic, fiscal and political environment.
Two questions we’ve been asked already are (i) what will this rating (and therefore the likely interest rate that would have to be paid) be compared to UK government bonds and (ii) to what extent does this tell us about the likely cost of borrowing for an independent Scotland?
The answer to the first question is that there is likely to be a premium to be paid by Scotland compared to UK Government bonds (i.e. it will be more expensive), as a new entrant to the bond market. However, given that ultimately the borrowing is underwritten by the UK Government, it may be that the premium is fairly small. But it will of course depend on the rating and then investors’ reaction to that.
The answer to the second is much more unknown. Given this is underwritten by the UK Government, it is likely that this tells us little about the interest rate that may need to be paid by an independent Scotland.
It is worth underlining that this plan does not increase the borrowing available to the Scottish Government. The annual limit (of £450m in 2023-24 prices) and total cap (of £3bn in 2023-24 prices) will still apply. Rather, it is an alternative to borrowing from the National Loans Fund (essentially from the UKG).
It’s unlikely that the terms of borrowing through issuing bonds will be more favourable than borrowing from the National Loans Fund, which tends to be very close to Bank Rate plus a minimal spread.
Another point to note is that the Scottish Government in recent years has used its capital borrowing powers extensively. In the current year, its debt stock sits at 73% of the debt cap already – forecast to rise to around 80% by the end of the parliament. Therefore the borrowing that will be possible may be more limited by the end of the parliament, particularly as borrowing costs are rising.
The FM set out why they may wish to do this in his speech – focussing on the enhanced profile it could give Scotland internationally, and the additional investment it could attract from international investors. It may be that the process of establishing and issuing the bonds is seen as strengthening the Scottish state in advance of a future independent Scotland.
But in a constrained fiscal environment, it will be fair to ask whether borrowing in a more expensive way makes sense.
TUC General Secretary Paul Nowak declares “now is the time to start a national conversation about taxing wealth”
The TUC has called for a national conversation on taxing wealth, as it publishes new analysis which shows a modest wealth tax on the richest 140,000 individuals – which is around 0.3% of the UK population – could deliver a £10.4 bn boost for the public purse.
The analysis sets out options for taxing the small number of individuals with wealth over £3 million, £5 million and £10 million, excluding pensions.
The TUC says these options are illustrative examples of what a wealth tax could look like, using Spain’s existing policy as a potential model.
“It’s time for a national conversation”
The TUC says it is publishing the analysis to “kickstart a conversation” about tax – with the TUC general secretary Paul Nowak declaring “now is the time to start a national conversation about taxing wealth”.
According to analysis commissioned by the TUC, conducted by Landman Economics, a cumulative one-off wealth tax (excluding pensions wealth) on:
A wealth threshold of £3 million with a marginal tax rate of 1.7% would yield £2.7 billion (with the tax payable on wealth above £3 million by 142,000 individuals or 0.27% of adults in the UK)
A further wealth threshold of £5 million with a marginal tax rate of 2.1% would yield an additional £3.2 billion (with the tax payable on wealth above £5 million by 48,000 individuals or 0.09% of adults in the UK)
A further wealth threshold of £10 million with a marginal tax rate of 3.5 % would yield an additional £4.6 billion (with the tax payable on wealth above £10 million by 17,000 individuals or 0.02% of adults in the UK).
Together this could raise more than £10 billion for the exchequer.
The tax would apply as a marginal rate on wealth and assets above each threshold – in the same way income tax works. For example:
Someone with £3 million wealth would pay nothing.
Someone with £4m wealth would pay tax on £1m of their wealth – paying £17,000.
Someone with £9m would pay tax on £6m of their wealth – paying £118,000
Analysis reveals that of those with wealth over £3 million (excluding pensions), three quarters derives from wealth other than their primary residence, and over half comes from financial wealth:
Net financial (non-pension) wealth: 53.3%
Primary residence: 23.6%
Other residences: 18.7%
Physical wealth: 4.4%
The TUC says further debate is needed on what type of wealth is included in this kind of tax.
The union body has already called on the government to equalise capital gains tax with income tax which could raise around £14 billion.
The union body says it is inherently “unfair and unjust” that people who get income from assets or property get off more lightly than someone who relies on work.
Tale of two Britains
The TUC says increasing wealth inequality is resulting in a “tale of two Britains”.
While working people have been “hit by a pay loss of historic proportions” after the longest wage squeeze in modern history, the wealth of multimillionaires and billionaires has boomed.
Financial wealth over the decade from 2008-10 to 2018-20 increased by around £0.9tn (80 per cent) from £1.1tn to £1.9tn.
TUC General Secretary Paul Nowak said: “It’s time to start a national conversation about how we tax wealth in this country.
“It is absurd that a nurse pays a bigger share of their income in tax than a city trader does on profits from their investment portfolio.
“That’s not only fundamentally unfair and unjust – it’s bad for our economy too.
“Our broken tax system means those at the top are hoarding wealth and getting richer and richer, while working people struggle to get by.
“That is starving our economy of spending – as it’s working people who spend their money on our high streets – and it’s starving our public services of much-needed funds.
“This research sets out potential options for getting those with the broadest shoulders to pay a fairer share.
“This is a debate we should not be afraid of having. The Chancellor should use his autumn statement to make sure the wealthiest pay their fair share of tax.”
Commenting on widening inequality over the past decade, Paul added: “Widening wealth inequality means we are seeing a tale of two Britains.
“While working people are suffering the longest pay squeeze in modern history, the super-rich are coining it in.
“Porsche sales are at record highs, bankers’ bonuses are at eyewatering levels, and CEO pay is surging.
“Enough is enough. We need an economy that rewards work – not just wealth.
“Fair tax must play a central role in rewiring our economy to work for working people.”
The outlook for Scotland’s budget in 2023-24 has undoubtedly been made more challenging due to factors wholly outwith the control of the Scottish Government, but there are decisions that Deputy First Minister John Swinney can make to ease the path ahead for Scotland, according to a report published yesterday by the Fraser of Allander Institute.
In its-pre Budget report, the University of Strathclyde-based Institute says that in the face of high inflation, the UK Government’s Autumn Statement provided some comfort with additional transfers that will more or less offset the impacts of inflation over the next two years.
The Scottish Government now needs to set out how it will use its significant devolved tax powers and whether to use them to generate more revenue for public services, including public sector workers.
The Resource Spending Review, published in May this year, provided a blueprint for spend over this parliament, but we have already seen deviations from planned spend in this financial year, and changing priorities may see further revisions when the draft Budget is set out on the 15 December.
The Fraser of Allander Institute’s annual pre-budget report, published today (12 December) examines the context to the budget and the key decisions facing the Scottish government in 2023-24.
Its findings include:
the economic situation has deteriorated markedly since the 2022-23 budget was presented, with high inflation set to eat away at living standards over the next two years.
the high inflation environment eroded the value of the Scottish Government’s budget in 2022-23 meaning that the present financial year’s budget is worth about £1bn less in real terms
Despite fears of cuts to the near-term budget, the announcements made by the UK Chancellor more or less offset the impacts of inflation on the Scottish budget in 2023-24 and 2024-25
the Scottish Government has significant devolved tax powers and therefore has decisions to make on Thursday about whether or not to use them to generate more revenue for public services.
Professor Mairi Spowage, Director of the Institute, said: “John Swinney is getting set to present his first budget in seven years, in what he has acknowledged is an unprecedentedly tricky time for the Scottish public finances.
“The challenges he has been dealing with for 2022-23 ease a bit for 2023-24: there was some additional money announced at the Autumn Statement which generated around a £1bn of consequentials, offsetting the inflationary pressures on the budget.
“But there are also flexibilities that the Deputy First Minister has for the next financial year that were not available to him for this year – the Scottish Government does have tax powers that could be used, if he wishes, to raise more revenue.”
Emma Congreve, Deputy Director, said: “In amongst all the headline-grabbing decisions, it will be important to take a step back to see how this Budget helps Scotland achieve its long term ambitions.
“We are expecting that the government will set out, clearly and transparently, the choices it has made and what the impact, both good and bad, will be for policy outcomes and the impacts on different groups.”
