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

April 28, 2020

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

March 11, 2020

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.

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Higher income taxes and public spending in Scotland?

Since February’s Budget, there has been discussion about income tax in Scotland and public spending.

Oddly, the debate was sparked by adverts – rather good ones we might add! – on the Tube promoting Scotland as a place to live.

Some – such as London MP Greg Hands – have responded by arguing that moving to Scotland would mean paying higher taxes.

This has been countered by others who argue that whilst (some) taxes may be higher, the quid-pro-quo for paying more tax is higher public spending and benefits such as free University tuition, more generous childcare, free personal care, free prescriptions etc.

So who is right?

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When’s a bridge not a bridge? When it’s a tunnel, apparently…

It is perhaps a sign of the times that political stories, which wouldn’t even have seen the light of day in the past, gain traction.

The latest is the proposal of a bridge (although we’re told that was a metaphor, and it may now be a tunnel that’s being proposed) to link Scotland and Northern Ireland.

This is the idea – and this is not an April Fool – to consider a 21-mile road link between Scotland and Northern Ireland over the Irish Sea.

Somewhere, engineers will be debating the technical challenges of building a bridge over deep water, or a tunnel across a difficult underwater terrain. Geographers will be working out the average windspeeds that traffic will be able to withstand. And munition experts will be discussing how to avoid Beaufort’s Dyke.

But before this gets any further, hopefully the government will ask their civil service economists for some advice.

What will they say?

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March 9, 2020