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I am a semi-retired former Scottish trade union policy wonk, now working on a range of projects. All views are my own, not any of the organisations I work with. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Thursday, 17 December 2015

Scottish budget ducks tax and shunts austerity to councils

If yesterday’s budget is “a Scottish response to austerity” then we are in very deep trouble. A response to austerity has to be more than simply administering George Osborne’s efforts to wreck our public services.

Let's start by acknowledging that the root cause of the problem is Tory austerity. The Chancellor’s Autumn Statement confirmed that public expenditure in Scotland faces year-on-year real term reductions. By 2020 
it will be 12.5% lower in real terms than when the Conservatives came
 to power in 2010. This is the equivalent of one pound in every eight being cut by 2020.

There are also further commitments on Scotland’s public services including around £250m in payroll costs due to the UK government increase in National Insurance contributions. At the time he announced these increases he vaguely suggested that the savings to the Treasury would be recycled into public services. I said then that ‘pigs might fly’, and true to form they haven’t.

This leaves John Swinney with some difficult choices on tax and spending. A real response to austerity would have looked at growing the spending envelope by increasing tax revenues. I am not unsympathetic to his argument against using the Calman powers on income tax, because there will be no power to introduce variable rates until the new Scotland Act powers are implemented in 2017. As many of us argued, this was the big flaw in the Calman compromise. There is a welcome new 3% LBTT supplement on second homes, although it is less clear why properties below £40,000 are exempt, or why the supplement isn’t larger. Other Scottish taxes only increase with inflation.

Far from increasing taxes when new powers arrive, they announced a 50% cut in Air Passenger Duty. This is not only bad for the environment, just days after the FM’s Paris climate change rhetoric, but it also amounts to even more middle class welfare. A 50% cut in APD would put an additional 60,000 tons of CO2 into the atmosphere. It's also a social justice issue because half the public doesn’t fly. No prizes for guessing which half.

The big cop out was the Council Tax freeze. Even George Osborne recognised the pressures on social care by promoting an increase in the Council Tax in England that is likely to raise £2bn. An equivalent in Scotland would expand the spending envelope, and together with the money he is routing through health, would start to make an impact on Scotland’s very real social care crisis. The problem with routing £250m of funding through the NHS is that health boards, with some justification, will argue that they need an equivalent to the English NHS increase and therefore will find every way possible to avoid passing all the funds on. The recent Audit Scotland report on integration includes all the warning signs.

While any tax freeze is popular, most people understand that it can’t go on forever. If the Scottish Government want’s to support income, there are more progressive ways of doing this than a tax freeze that helps wealthy households the most. It is the most disadvantaged who pay for this tax freeze through cuts in services and increased charges.

The big loser in yesterday’s budget is local government. The budget is cut by 3.5% or £500m in cash terms. On top of that there are additional commitments like the NI increases that could double that cut. CoSLA calculates this will cost 15,000 jobs or ‘the equivalent of 50 Tata Steelworks’ – but don’t expect a taskforce!

A cynic might take the view that the Scottish Government is simply outsourcing the most difficult cuts to councils – the ‘not me guv’ strategy. References in the budget document to reform, including shared services, are not going to plug the gap. When will politicians learn that more centralisation simply doesn’t work.

I spotted a related announcement in England yesterday that is worth watching. There is a plan to devolve Attendance Allowance (AA) to English councils. When free care for the elderly was introduced the Scottish Government argued that they should get the savings this policy created for AA. Unsurprisingly, the Treasury said no. However, if they devolve this funding there should be Barnett consequentials of some £500m. Not all of this would be ‘new’ to Scotland, but it could provide a source of some additional funds for social care.

There is little good news for the rest of the public sector in the budget. Food Standards Scotland faces a significant cut, so check your xmas dinner because regulatory and funding cuts means inspection and enforcement are being cut. The Fair work, skills and training budget is cut by £13m in real terms. The Tories and Liberals who like to portray Scottish Water as a burden on the budget, might like to note that it will make a positive contribution to the budget of nearly £100m.

Education and police budgets largely flatline. For education, the Scottish Funding Council faces a small real terms funding cut of £23m. The Scottish Police Authority budget is also cut by £12m in real terms although mostly on capital spending. There is a welcome £4m uplift for community justice services. Fire and Rescue has a somewhat larger cut of nearly £20m in real terms.

Iain Macwhirter makes some valid points on why silence on tax is a ‘counsel of despair’ in today’s Herald. He said: “The Scottish political classes like to boast their progressive credentials and they vie with each other in their hatred of the evil Tories. But they are all for social justice just as long as it doesn't mean increasing taxes.”

A proper Scottish response to austerity would be to have a serious national conversation about tax. Yesterday’s budget ducked the big issues and simply shunted austerity down to councils.   

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