Scottish Budget, Scottish Economy, UK Budget, UK Economy

UK Budget – our initial take!

The Budget has – quite rightly – been overshadowed by the ongoing coronavirus emergency.

At times like this, the normal budget day issues that tend to interest us economists, from Barnett consequentials through to the latest policy initiative or forecasts from the OBR, are very much secondary.

The channels through which the spread of coronavirus can feed through to the economy are complex and wide ranging.

But the Chancellor did caution that we should expect for a ‘significant impact’ on the economy.

Impacts will vary by firm, sector, market-place and supply-chain. The ability of each business to flex their activity over time to cope with disruption will be crucial.

Some impacts will be temporary, e.g. time taken off sick, or holidays postponed, with a likely bounce-back further down the line. The gumming-up of supply-chains may also be time-limited for many. Once the immediate crisis subsides, firms seek to replenish stocks and meet delayed demand.

The worry is if these impacts last for a relatively long-period of time. Here, the potential for more permanent scarring effects rises.

Most exposed during such times tend to individuals and businesses who have little buffer to cope with the pressures that an escalation in the virus would bring.

Small businesses may find themselves struggling with lost demand, at the same time as having to foot the bill for sick pay for those who fall ill or self-isolate.

For individuals who are off work, many will have recourse to relatively generous occupational sick pay schemes, but those on lower wages are more likely to have to rely on the relatively ungenerous statutory sick pay scheme. On top of this, self-employed – and gig-economy – workers don’t have the same protections.

With this in mind, the Chancellor’s measures are significant, targeted and will impact immediately. In total around £30 billion is being spent through a range of tax and spend initiatives. Of course we need to wait to see whether or not these measures prove enough or whether additional support is needed for any groups.

Those who are affected directly, including both diagnosed individuals and those self-isolating in line with government advice, will be eligible for Statutory Sick Pay. The Budget confirms that this will also be the case for people who need to care for those told to self-isolate.

For those not eligible for sick pay there has been a relaxation on some of the rules on Universal Credit for the self-employed to make it more generous. It should also be easier for anyone to access wider support as a result of coronavirus, including relaxation of the requirement to attend a jobcentre if they have been advised to self-isolate.

These measures work through reserved policy channels and hence will be available in Scotland.

The chancellor has told us to expect that up to a fifth of people at any one time may be off work. So alongside support for individuals, there was also a raft of measures to support small businesses (much of the Bank of England measures announced on Wednesday will have an impact upon larger businesses).

To mitigate impacts on costs, small businesses will be able to claim a refund for up to two weeks of sick pay. Again, as this is reserved, the measure will extend to Scottish firms.  There is a scaling up of HMRC’s ‘time-to-pay’ service which supports firms seeking to defer tax payments over a period of time. Alongside this, a new temporary loan scheme will be launched, offering support of up to £1.2m, with up to 80% of any losses covered by government.

Where policy may differ north and south of the border is with regards to business rates. The business rate holiday for firms in retail and hospitality will only apply in England. Instead, consequentials will come Scotland’s way. How – or if – a similar scheme is rolled out in Scotland is up to the Scottish Government (including whether or not the £3,000 grant for the smallest of businesses will be operational in Scotland, or whether it is subject to Barnett and for the Scottish Government to implement a similar scheme).

Amidst all of this, we have the announcement of major consequentials for the Scottish Government worth around £640m, which comes on the back of around £1.2/£1.3bn already announced for next year.  The £640m is made up primarily of capital money.

The UK Government have created a £5 billion response fund, but we’ve yet to find out how this is to be allocated.

Elsewhere, the UK Government’s commitment to ‘levelling-up’ is to be supported by a major shift in infrastructure spend. Net investment will increase to its highest level in 60 years. One of the key challenges will be ensuring that such spending is targeted at priorities where need is most, rather than high-profile political projects. That is especially true in times of crises.

Another eye-catching measure sees a major effort to shift civil service jobs out of London. Expect to see the Scottish Government come under pressure to follow-suit as part of their regional inclusive growth agenda.

But these issues are for another day. If one key message could be taken from today’s budget it is that we are entering unchartered territory and the government is readying itself to ‘do-what-it-takes’ to support people, business and the economy in these potentially unprecedented times.


The Fraser of Allander Institute (FAI) is a leading economy research institute based in the Department of Economics at the University of Strathclyde, Glasgow.