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Scottish budget risks and uncertainties – implications of Covid-19

The Scottish Budget 2020/21 was published and agreed before Covid-19 was perceived as posing a significant health risk to the UK. This post examines how the policy response to Covid-19 will affect the size of the Scottish budget, the outlook for devolved revenues, and the financial risks the budget is exposed to. It also considers longer-term implications for the devolved fiscal framework.

Unforeseen uncertainties

In what feels like a different age, but was in fact earlier this year, the Scottish Government had expressed concern over the uncertain environment in which it had to prepare and publish its budget plans for 2020/21. Linked to this was a concern that parliament might scrutinise draft spending plans that were subsequently subject to substantial change.

These risks had nothing to do with a perceived threat of Covid-19 (the budget published on 6 February makes not a single reference to coronavirus or covid-19), but reflected the necessity to publish Scottish tax and spending plans a month before the UK budget.

As it happens the outlook for the 2020/21 budget has turned out to be far more uncertain that anyone could have anticipated, not because of surprise fiscal announcements from a buoyant new Westminster government, but from the necessity to shutdown large swathes of the economy to mitigate the impacts of Covid-19, and the resultant policy response.Continue reading

A question of risk

One of the striking things about this crisis is that, in many ways, we have known it has been coming.

Pandemics have been a constant feature of global risk registers for a generation. Indeed, infectious diseases have featured regularly in the World Economic Forum’s annual Global Risks Report. The UK Government has also recognised the threat in each in every one of their own civil contingency risks.Continue reading

This isn’t a v-shaped recession….

Just three weeks ago, the OBR published forecasts of 1.1% growth in 2020.

How times have changed.

On the very same day, the Chancellor warned us to ignore these forecasts and to prepare for a ‘significant impact’ on our economy.

Since then the situation has deteriorated further. Hopes that the recession that we are now in would be ‘v-shaped’ – i.e. a sharp downturn followed by a bounce-back in the months to follow – have sadly largely disappeared.

The latest data, and emerging insights from on the ground, suggests that the effects of this crisis are going to be long-lasting.

In this blog we assess why.

A brief comment on coronavirus and the Scottish economy…

We’ve been asked in recent days for our take of the impact of the coronavirus on the Scottish economy.

Of course, it goes without saying that the economy is very much secondary to the health implications and the risks to individuals and families.

So before going any further, it’s important that we take a step back. This is primarily about people – people being ill and not being able to work or because they have been advised to self-isolate; and people not travelling, congregating or spending like they would normally because they are self-isolating or trying to limit their exposure to the virus.

Budget 2020: Scottish implications

This was one of the most significant UK budgets in recent years – although it has very limited ‘Scottish specific’ implications.

What a difference a decade makes. Less than 10 years ago (in June 2010) George Osborne set out plans for a major fiscal consolidation which aimed to reduce public spending below 40% of GDP by 2015/16. The plans involved reducing the fiscal deficit to 1 per cent of GDP by 2015, as part of plans to prevent the debt to GDP ratio exceeding what was framed as an unsustainable level of 70%.

Today Rishi Sunak commended his expansionary budget which will see the deficit rise to 2.4% of GDP this year whilst the government now seems quite relaxed about a debt-to-GDP ratio stabilising closer to 80% than 70%. And these forecasts were largely made before major concerns about the impact of coronavirus materialised.Continue reading