NO REAL SHOCKS ...AND STILL MORE NEEDS TO BE DONE

THE first Budget of this parliament was billed by Kate Forbes as a Budget that was about transition from the pandemic into a period of recovery. She set out that this Budget was about dealing with inequalities, helping the economy recover, and supporting Scotland’s transition to net zero.

On spending, key choices were already known. Health and social care consequentials from UK Government spending in England meant the health budget will top £17billion in 2022/23, about 15 per cent up on pre-pandemic health spending.

The doubling of the Scottish Child Payment to £20 per week was a key focus. The commitments to substantially increase teacher numbers, backed by a £1billion over the five years was reiterated.

So what about the surprises? Miss Forbes was expected to signal a rolling back of the non-domestic rates reliefs for businesses in retail, hospitality and leisure (RHL) sectors but the speed came as a surprise.

RHL businesses will be eligible for a 50 per cent relief, but only for the first three months of the financial year and there is a cap on the amount of relief by taxpayer.

The Scottish Fiscal Commission delivered Miss Forbes bad news on income tax. Since their last forecasts in August they have wiped off £400million from their forecast of income tax revenues in 2022/23.

This means that the forecast of the ‘net tax’ position for 2022/23 is negative – forecast to be lower as a result of income tax devolution than it would have been without income tax devolution despite Scottish taxpayers paying £500million more than they would if the UK policy applied.

This is the result of employment and earnings growing less quickly in Scotland than in rUK since 2016/17.

YET without the Scottish Government’s income tax policy, the ‘net tax’ position would have been more negative. The Government chose to increase the starter and basic rate bands by inflation (3.1 per cent), whilst freezing the higher and additional rate bands.

Why does this matter? Well it means that the gross income thresholds at which the 20 per cent and 21 per cent rates apply will increase by significantly less than inflation. In fact the income threshold at which the 20 per cent rate applies will increase by less than 0.5 per cent. If this policy is meant to support low income households during a time of inflation, it feels underwhelming.

The story on local government funding is familiar. The core local government budget is down slightly in real terms in 2022/23.

But, an extra £800million from other portfolios is transferred to local government for priorities, meaning overall local government funding settlement is up by more than 4 per cent in real terms.

Councils will have complete flexibility to set the council tax rates in 2022/23. A welcome boost to their responsibility, or passing the buck for difficult decisions?

Overall, this Budget largely conformed to expectations – but much more needs to be done to meet the targets.