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Scottish Budget 2023 – this year [and next?]

Budgets come in 3 forms….

There are the dull [ though we have not had many of those in recent memory].

Those that explode spectacularly [ think Kwasi Kwarteng just a few months ago and the Gordon Brown 10p tax rate budget].

Those that unravel gradually, perhaps because they gloss over or omit some fundamentals that we need to know, and also because they [sometimes intentionally] disguise their actual impact.

This last budget type may be the best way to the budget Mr Swinney presented last week.

Budget Commentary

One big ticket time this time round was his announcement of some £500M additional for Scottish local government. Unfortunately, within 24 hours both CoSLA , The Fraser of Allander Institute and the Institute for Fiscal Studies  had all pointed out some of the gaps and some of the anomalies in the budget . They have since been joined by others such as the publication ‘Public Finance’.

CoSLA rapidly calculated that the promised £500M only actually amounted to some £70M and so far, it appears that this view is shared by all 32 councils, regardless of their political control.

The CoSLA Resources Spokesperson, [SNP] Councillor Katie Hagmann commented:

“Council services will now be at an absolute breaking point, and some may have to stop altogether…. Council leaders were unanimous today that we need to work together, with one Local Government voice, to raise our concerns at the highest level.”

The Scottish Parliament Information Centre has also produced an analysis on the budget.

There are also other aspects of the budget that have the potential to blow up in public. So, the cut in budget for Creative Scotland [ the impact of which will be seen in the New Year] possibly heralds the kind of furore seen in the arts down south after cuts and reallocation of budgets by Arts Council England, although CS is currently trying to mitigate the impact.

Taxes…taxes [some of them]

Of course, for some commentators the big story was the increase in tax rates for higher and top rate earners, a line that plays well to the hysteria that poorly understood tax changes can often generate. The Herald [18th December] headlined this as ‘Tax raid on middle class earners ‘. As we pointed out in a pre-budget blog, actually the households that have some income in the higher rate band are sometimes a fair bit beyond the ‘middle ‘. Reasonable modelling of such households suggests that they are certainly in the top 30% of households by income and if there are two higher rate earners, then in the top income decile. Such overstated reactions also overlook the possibility of developing forms of taxation that do reach the asset rich such as multiple property owners, although the use of the Additional Dwelling Supplement is a move in that direction.

Future Years

The foreseeable budgetary and political problems for the Scottish government have also been signalled by budget commentators such as Fraser of Allander. The omission by Mr Swinney of any guidance on public sector pay, particularly in light of the Medium-Term Financial Strategy which signalled the urgent need for ‘public sector reform ‘, a view which he echoed in weekend media interviews.

The medium to longer term political problem is curiously and widely signalled by the emphasis of so many people [both for & against] on ‘top tax rates ‘.

The message to be drawn from those countries that actually follow a Scandinavian model of budget & policy is that it’s not only the top rates of tax that we should consider but the rate the largest groups of taxpayers are categorised in.

There aren’t enough ‘rich people‘ in Scotland to enable government to close the growing gap, as Iain McWhirter has observed.

Scandinavia or Amerinavia?

We simply can’t sustain Scandinavian level public services on American rates of taxation. If we really want Scandinavian public services, we need to think of the need for more of us paying Scandinavian rates of tax; perhaps not that easy a sell, no matter what some people may claim on Twitter.

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