Scotland Finance

Scotland and the 2017 Budget


On Wednesday, Chancellor of the Exchequer Philip Hammond delivered his spring Budget to the House of Commons. LGiU’s Hannah Muirhead takes a quick look at what’s in it for Scotland, at the local level and on a wider scale, and at reactions from opposition parties and elsewhere.

The budget as a whole was promised to be an “upbeat” assessment about the future of the country’s economy post-Brexit, and did include the happy revelations that borrowing would be almost £17 billion lower than previously projected, and that the Office for Budget Responsibility had upped its 2017 growth forecast to two per cent.

The big headline grabber for Scotland was the announcement that there would be £350 million extra funding for Holyrood, coming through the Barnett Formula mechanism as a result of increased spending at the UK level in health, social care, and education. As he announced the package, which is on top of the £800 million of Barnett funding announced in the Autumn Statement last year, Hammond took the opportunity to explain how this illustrates the fact that Scotland is stronger within the United Kingdom.

While a £350 million funding boost is undeniably quite a good thing, it wasn’t really unexpected that reactions of opposition parties were not those of gushing praise – the general sentiment among SNP and Scottish Labour being that the sum was a “drop in the ocean” when taking into consideration previous years of cuts.

The Chancellor also announced that a panel of experts has been set up to investigate the use of tax breaks for the North Sea oil industry, which has been struggling due to falling prices and dwindling reserves. This measure is potentially in response to increasing speculation about a second independence referendum, and indeed, the chancellor again hammered home the notion that it’s only thanks to the stability and resilience of the UK that these tax breaks would be possible.

Responses to this were mixed, with SNP MSP Callum McCaig stating that a discussion about support for the oil industry is not at all useful and that action is what is needed. Derek Mackay, Scottish Government Cabinet Secretary for Finance, said that it was “encouraging that the UK government has finally listened to Scottish Government about the failings of the decommissioning tax regime”.

Hammond confirmed that “good progress” was being made with regard to City Deals for Edinburgh and Stirling, and that the Government will soon be considering proposals for a £1.8 billion Tay Cities deal for Dundee and Perth. These deals would involve both the UK and Scottish Government injecting cash for physical and digital infrastructure projects, attracting billions of pounds of private funding, and giving the regions greater autonomy and decision-making powers.

Significantly less popular was the news that National Insurance contributions for the self-employed will be increasing by 1 per cent from April 2018 and then a further 1 per cent in 2019, a move that will affect around 250,000 people in Scotland. The purpose of the move was to bring NI rates of the self-employed in line with those of salaried workers, but was met with criticism from opposition parties and business leaders, being referred to an “attack on aspiration” by SNP MP Stewart Hosie. The revelation was also unpopular among Conservative MPs. So much so that Prime Minister Theresa May said yesterday that the legislation relating to the increase in contributions would not be put before the Commons until the autumn, whilst also leaving it open to concessions.

The rest of the announcement was focused on measures relevant only to England and Wales, such as an extra £2 billion for social care services, assistance for firms hit by business rate rises, and a memorandum of understanding on further devolution to London.

Back to Scotland, and while the City Deals progress and potential tax breaks for the oil and gas sector are certainly exciting, and funding boost welcome, it will be particularly interesting to see if Scottish Government can take the increased Holyrood grant money and, with their newly devolved powers, turn it into meaningful and lasting economic development for Scotland.