Budget blues

The consequences of austerity economics dominate budget setting at UK, Scottish and local authority level.

The Budget Bill was presented to the Scottish Parliament this week. Over five years the Scottish budget has been cut by around 10% in real terms with the capital budget facing a real terms cut of 26% as a result of the UK Government’s austerity programme. For the coming year this means a 1.7% real terms cut in the budget.

There is little new in the Bill from the Scottish Government’s original spending plans that I outlined last October. John Swinney will be privately congratulating himself that he didn’t press devolving oil revenues at the Smith Commission. The Scottish Government’s White Paper assumed that offshore receipts would be between £6.8bn and £7.9bn in 2016-17. At the current oil price those revenues would be around £1bn – that’s a £6bn cut in revenues available for public services. There is a perfectly respectable case for independence, but swapping the Barnett formula for devolved oil revenues, as the SNP proposes, is simply reckless.

Its not been a good time for John Swinney, normally the proverbial ‘safe pair of hands’. He has also been embarrassed by the £444m underspend in the Scottish Budget. This is an astonishingly high figure and he shouldn’t be surprised by the criticism, given that he has claimed credit for low underspends in previous years. He has also done two U-turns on taxation – scrapping his ‘Tesco’ tax and now amending his more progressive replacement for Stamp Duty. I actually thought he got both of these right first time, showing some imagination and adopting progressive tax principles - unlike the regressive Council Tax freeze.

One positive announcement is using the Barnett consequentials from the UK Autumn Statement to allocate £100m to address bed blocking. This is the biggest challenge facing the care sector at present and it is a direct consequence of council cuts. Frankly, a bigger priority that Jim Murphy’s 1000 extra nurses. While we certainly need more nurses and other members of the health team – it’s social care that is in the immediate greatest need. Having said that, £100m over three years is nowhere near enough cash and is being rolled out too slowly.

This year’s council budget setting is a particularly fraught process. Most are struggling to balance their budgets as they bear the brunt of cuts. They will be looking at the Scottish Government’s underspend and wondering why that hasn’t been allocated to the many pressing needs at local level. I highlighted some of these in a UNISON briefing to MSPs last week.

That leaves us with the root cause of Scotland’s financial problems – the UK coalition government. We had political row over the Westminster vote on the Charter for Budget Responsibility. While this is largely political froth, it does highlight a mixed message problem for Labour. They want to appear tough on economic credibility, while at the same time attack the Tories and LibDems on austerity.

In fact there are very important differences between the Labour and Tory spending plans. The Autumn Statement made it clear that they plan to reduce public services to a level not seen since the 1930’s. As the UK government’s own Office for Budget Responsibility (OBR) put it;

"Between 2009-10 and 2019-20, spending on public services, administration and grants by central government is projected to fall from 21.2 per cent to 12.6 per cent of GDP and from £5,650 to £3,880 per head in 2014-15 prices. Around 40 per cent of these cuts would have been delivered during this Parliament, with around 60 per cent to come during the next.”

While Labour’s spending plans are not all I might wish them to be, they are planning a different approach. As the independent Institute of Fiscal Studies (IFS) analysis of the political parties plans puts it, Labour’s looser fiscal policy allows them to “spend more or tax less to the tune of around £43bn in 2019-20 and still remain on course (just) to achieve their targets”. That is before any additional taxation, such as the planned ‘Mansion tax’ or an increase to the top rate of income tax.

While it’s the UK coalition government’s ideological attack on public services that is at the core of the budget problems in Scotland – the Scottish Government has also made some poor choices. Could do better, is the commentary on this year’s budget report card. Labour also needs to recognise that mixed messages confuses the very voters they are trying to attract.