On a chilly morning in Glasgow last Friday, delegates gathered at the University of Strathclyde’s Technology and Innovation Centre in Glasgow for the Fraser of Allander Institute’s (FAI) post-Budget briefing.

Chaired by Alf Young, visiting professor at the International Public Policy Institute, the presentation focused on the economic and tax measures in the Chancellor’s first Autumn Budget and the implications for Scotland as the Scottish Government prepares to present its own Budget next month.

The economy

The FAI Director, Professor Graeme Roy suggested that arguably the most significant element was the substantial downward revisions in UK growth forecast.

In its forecast for the next five years, the Office for Budget Responsibility (OBR) has wiped off £60 billion from the UK economy. The principal reason for this is the OBR’s shift in its outlook for productivity. As recently as March this year, the OBR were forecasting a gradual acceleration of the economy, returning to growth of 2% by 2021. Now, however, they believe that weak productivity performance in the wake of the financial crisis can no longer be seen as temporary, and that the slowdown is evidence of structural weakness.

Professor Roy described the implications of this for household incomes as “nothing short of dismal”. Scotland will not be immune from these pressure, and the Scottish Fiscal Commission is likely to be just as (if not more) pessimistic as the OBR.

The reasons for the UK’s weak productivity – labour hoarding, flat investment, inefficiencies in the financial system and a lack of labour market slack – add to the pressures on the Chancellor, who also remains committed to fiscal restraint. This, Professor Roy suggested, means budgets will continue to be squeezed for the next 15 years.

Taxation

Charlotte Barbour, director of taxation for the Institute of Chartered Accountants of Scotland went on to review the tax elements of the Autumn Budget.

She explained that it was a “predominantly English Budget”, with a number of measures that would not apply in Scotland, such as those concerning business rates, stamp duty, training investment, capital and resource funding for the NHS, and a number of measures affecting housing.

However, there were also measures which will affect the whole of the UK, including changes to the corporation tax main rate, freezing of the VAT threshold, a rise in income tax personal allowance and the raising of the higher rate threshold for income tax.

While the Autumn Budget contained relatively few taxation measures, Ms Barbour suggested that forthcoming issues are likely to have significant impacts, including moves by HMRC to make tax digital, taxation changes concerning the gig economy, the devolution of tax powers and, of course, Brexit.

Scotland

David Eiser, research fellow at the FAI reminded his audience, that, as far as Scotland was concerned, the Chancellor’s Budget was the first of two important economic announcements this autumn. On 14 December, the Scottish Government’s Finance Cabinet Secretary, Derek Mackay, will deliver his Budget to the Scottish Parliament.

The Chancellor announced that Scotland is to receive an extra £2bn in block grant funding, spread over the next four years. But the Scottish Government has argued that £1.1bn of this money can’t be used to support day-to-day spending on public services, and has to be repaid by the Scottish government to the UK government”.

Mr Eiser noted that, while in principle it would be possible for the Scottish Government to offset grant cuts by raising income tax in Scotland, there is a still a need to consider the performance of the Scottish economy.

Mr Mackay will face pressure to match the Chancellor’s decision to reduce stamp duty land tax for first-time buyers on properties up to £300,000 in England. But Mr Eiser argued that there are more effective ways of addressing housing affordability issues in Scotland than reducing the broadly similar Land and Buildings Transactions Tax.

Overall, Mr Eiser assessed that there are opportunities in the Scottish Budget to increase public investment and to explore the use of fiscal transactions to stimulate the economy. But with the block grant – not to mention welfare and other reserved spending in Scotland – still driven by UK fiscal policy, the outlook for public spending in Scotland looks tough.

A wintry outlook

In Scotland, the focus now switches to Mr Mackay’s Budget speech next month. The FAI will be holding another post-budget review, and the Knowledge Exchange Blog will report on this shortly afterwards.

But, as Professor Roy suggested, the main story of the Autumn Budget was the outlook for the UK economy. It’s been reported that this has been the worst decade for UK productivity since the Napoleonic wars. That stark historic perspective presents a grim backdrop for the UK economy as it prepares to leave the European Union.

---

The Knowledge Exchange provides information services to local authorities, public agencies, research consultancies and commercial organisations across the UK. Follow us on Twitter to see what developments in policy and practice are interesting our research team.