On the 19th of December 2023, not even a year ago, the Deputy First Minister presented the Scottish Government’s Budget, for what is now this year and the next. At this point, its contents are being debated in the Scottish Parliament. The Budget has set out the Government’s plans for the tax and spending policy for Scotland. This article won’t play any ‘party politics’ with a budget designed to affect the lives of people but instead, will recognise what this Budget means for the standard family and individual. It will also be detailed in a hopefully thorough enough way so that the readers can know the full extent of what the Budget covers in a mostly understandable fashion.
Let’s start by taking a look at the Deputy First Minister’s statement to the Scottish Parliament on the 1st of February 2024 for the Finance and Public Administration Committee. She notes that due to the UK Government’s own Budget last November the 2024-25 Budget is restrained by a cut in the total of the Block Grant for Scotland resulting in a social housing cut. It’s arguable how beneficial this is because the truth of the matter is that spending doesn’t grow the economy so reducing it or at least containing it is a worthwhile solution to growth. She states that NHS investment is said to have been taken up to a total of £13.2bn. £3.8bn will be set out in spending for the justice system as well, representing an 11% increase in resource funding compared to 2023. Local government funding is to receive over £14 billion, including £144m for a local Council Tax Freeze, which is definitely bound to be a great help if spread out effectively by local authorities. However it must be noted that total local government funding has only increased in real terms by a pitiful 2.6% in ten years since 2013-14.
Business owners with premises valued at less than £51,000 will see their business rates poundage frozen across Scotland. Businesses in Scotland would save a combined £37m owing to the freeze, compared to rates which had risen by the current level of inflation, according to the Deputy First Minister. The Small Business Bonus Scheme would continue into 2024-25 allowing for over 123,000 properties out of business rates.
More on the NHS, the expenditure for health and social care is going up 3.3% in cash terms, or 1.6% in real terms. There will be an increase in adult social worker pay to £12 an hour, costing £200m and plans for a National Care Service are likely to be delivered under the £1bn set out for the NHS and social care. Total NHS spending makes up a whopping 38% of the discretionary spending power in the Budget.
It is also said by the Deputy First Minister that £5bn of investment will be spent on expanding Scotland’s economy, though the government is usually inefficient in economic investment and can pose a threat to the security of the private sector, especially if it is pursued through the economically dubious ‘green transformation’ when led by the government and not the private sector.
The Budget has also outlined by the Deputy First Minister is the £6.3bn in social security benefits and payments – an increase of over £1 billion compared to 2023-24. The current benefits system is viciously expensive to the taxpayer only, causes the growth of government monopoly bureaucracies and creates a dependency for much of the workforce (with exception to those who need it like the sick, disabled, pensioners and children), and to increase a broken system, instead of reserving the investment or for returning back to the taxpayer. But the Adult Disability Payment has been raised by an impressive £500m to assist the disabled as previously mentioned. Benefits are to be increased in line with September’s CPI inflation rate of 6.7%. Benefit applications are rising more and more due to the rising cost of living, NHS waiting lists and increases in mental health cases. Spending on devolved benefits is budgeted a real-terms increase of 16.6% between 2023-24 and 2024-25, reaching £6.3 billion. By 2028-29, this is projected to reach £8.0 billion. The Adult Disability Payment remains the highest recipient part of the Budget in terms of social security, followed by Pension Age Disability Payment, Scottish Adult Disability Living Allowance, Scottish Child Payment, Child Disability Payment and Carer Support Payment.
The 2024-25 Budget is also said to support nearly £2bn of funding for Scottish universities and colleges (instead of the broken secondary and primary schools). The Net Zero programme is to receive £4.7bn for ‘climate positive’ activity along with £4.3 million of capital investment to support the delivery of the National Islands Plan and the Carbon Neutral Islands project which is said to tackle the climate crisis. However, the Scottish Government has taken a consistent opposition to nuclear energy, which remains the most efficient renewable energy even more than solar and wind due to the fact they use up less land for operation and distribute cleaner energy, and focuses too much on the largely overrated forms of renewables. Its also noted that according to the Scottish Fiscal Commission, the decline of North Sea oil and gas will not receive a full solution anytime soon regarding employment and a green transition.
Funding next year for culture is to be raised by £16m to £196.6m. Importantly over £1.5bn will be raised for the police service with focus on body-worn cameras and almost £400m for the fire service. £200m will be used to tackle the poverty-related attainment gap along with £390m for the teacher workforce and fund the teacher pay deal, and up to £1.5m to cancel school meal debt, which isn’t actually a bad part of the Budget. Almost £2.5bn for public transport to promote a decrease in the focus on motor transportation, and an increased by investment of £220m will be provided to support non-vehicle means of transport like walking, wheeling and cycling, which is a good idea though the LEZs may not be a popular policy in terms of their relationship with drivers and may affect their day-to-day lives for their work. The interesting thing is, however, she doesn’t mention anything about the exact cuts to social housing so that will have to be explored later. The next section will go into what the official plans relating to taxation and other duties for the Budget reveal.
The Budget has revealed significant (and detrimental) issues regarding income tax reform. There has been introduced a new “advanced” tax bracket to earnings between £75,001 and £125,140 at a rate of 45%, the top rate of tax increased from 47% to 48% and the basic rate and intermediate rate thresholds increased by 1.0% and 3.4% for each respectively. To put it in a table:
Starter Band – Over £12,570 – £14,876 (19% tax rate) Basic Band – Over £14,877 – £26,561 (20% tax rate) Intermediate Band – Over £26,562 – £43,662 (21% tax rate) Higher Band – Over £43,663 – £75,000 (42% tax rate) Advanced Band – Over £75,001 – £125,140 (45% tax rate) Top Band – Above £125,140 (48% tax rate)
It must be known, though, that it isn’t simply the tax rates changed here but also personal allowance for those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.
According to the Scottish Fiscal Commission, the Budget will take in revenue of £18,844m (£18.8bn) in 2024-25, more than £2bn higher than in the 2022 forecasts. When compared with UK income tax policy, 51% of Scottish taxpayers will pay up to £23 less income tax per year than they would in the rest of the UK, though those earning £50,000 or more would have to pay £1,500 more in tax (including NHS workers, train drivers etc mind you). The advanced rate tax bracket means that those earning more than £75,000 will be paying more than they would have under last year’s income tax policy, though in fairness most taxpayers would be paying £10 less in tax annually. Household incomes are reduced by £61 per year, though this is made up mostly of higher earners.
However, the key thing is the damages done to productivity and support from the taxpayers. David Alexander from DJ Alexander Ltd has pointed out that due to the standstill regarding Land and Buildings Transaction Tax (LBTT) has resulted in a severe form of targeting towards first time home buyers in Scotland more than in the rest of the UK with the tax threshold starting at £175,000 compared to £425,000 in England and Wales and a 10% property tax on homes valued at £325,001 or more. Couple this with the higher personal tax rates and no wonder Scotland has become an increasingly unattractive place to live and work in. The SFC has forecasted that due falling productivity growth, slowing population growth, and a declining participation rate due to an ageing population, there is little chance of seeing great growth anytime soon, which has been seen at a near-flat rate.
SBUK has made it clear in their belief that the Budget has the risks of creating the UK’s most uncompetitive tax regime for businesses. The waste of investment projects were fully criticised by Audit Scotland for poor responsibility over the value of support provided, the risks involved and the benefit of outcomes expected. According to Struan Stevenson: “…the government must remember that it needs companies to operate in a prosperous environment if it wants to sustain employment and grow the economy. Having an ever-widening income tax gap with the rest of the UK is a huge gamble that risks deterring investment and consumer spending, particularly at a time of rising costs. Moreover, the Scottish Government’s track record of wasting millions of pounds in taxpayers’ money on failed industrial schemes (Ferguson Marine, Prestwick Airport, BiFab and the Lochaber Aluminium Smelter) gives business leaders very little confidence that demanding a bigger slice of peoples’ incomes – and giving Scotland the UK’s least competitive income tax framework – will have any lasting benefit.”
Because of ever-increasing tax burden and mortgage interest rates increases for Scottish taxpayers, living standards are expected to fall by 2.7% between between 2023-24 and will not recover to sufficient levels until 2026-27 with lower income families being forced to spend greater percentages of income on energy, food and other necessities. Above-target inflation to be 6.1% in 2023-24 and 3% in 2024-25 as a result of rising labour costs and driving currency supply problems. Unemployment is expected to rise to 3.7% and then 4% in 2023-24 and 2024-25 respectively, however real earnings are now forecast to grow by 6.6% in 2023-24 and 3.6% in 2024-25, but this will continue to be an issue since Scotland’s labour market is still tightening with higher labour shortages and job vacancies. These are just a few issues raised within the Budget.
The Scottish Government has made commitments in the Budget to proposals of introducing a devolved Building Safety Levy on residential property developers to fund the Cladding Remediation Programme. This is joined by proposals of a Carbon Emissions Land Tax, Visitor Levy and Cruise Ship Levy. The Scottish aggregates tax (SAT) will be placed on the commercial exploitation of aggregates such as crushed rock, sand and gravel in Scotland with effect in the year of 2026.
Investments of £358m will be put into heating systems for housing along with spending into district heating networks as well as District Heating relief for all new and existing renewable-generated networks until the 31st of March 2027, and £90m for housing payments. A total of £66.9m, which will apparently lead into £500m, will be invested in order to further the Scottish Government’s plans for a green economy. Cladding investment of £41.3m as part of the Scottish Government’s Cladding Remediation Bill to improve the quality of building regulation. Another investment delivery of £556m to the Affordable Housing Supply Programme which is designed to ‘enable affordable housing providers to deliver homes for social rent, mid-market rent, and low cost home ownership in communities across Scotland to support local authorities’ Local Housing Strategies’.
However, in actuality housing has been the most devastatingly affected by the Scottish Government’s Budget, receiving a massive cut of £205.1m from social housing spending – a quarter reduction. All previous investments may seem high at first, but that only consists of the total spending rather than what has been added to the expenditure levels. The Scottish Federation of Housing Associations has warned against this course of action to protect the Scottish Government’s social housing targets of 110,000 houses by 2032. Funding for combating fuel poverty insecurity will be cut from £21.8m to just a tiny £1.7m, abolishing the Fuel Insecurity Fund. These measures have all been heavily criticised by the SFHA, GWSF, Homes for Scotland, Existing Homes Alliance and CIH Scotland for the supply of social housing in the country especially in times of economic troubles. Shelter Scotland, the Salvation Army and Homeless Network Scotland have also condemned the Budget cuts to social housing will lead to a surge in homelessness that would occur after failing to supply the high demand for housing, particularly in Glasgow and Edinburgh, which have declared a housing emergency along with a dozen other local authorities facing similar pressures. According to Timothy Douglas, head policymaker at Propertymark, argues that the Scottish Government’s Budget fails to properly address the issue of rising costs in housing and the demand to keep it as cheap as possible through a developed housing programme in Scotland by supporting the private housing sector. Alexander from DJ Alexander Ltd again has also highlighted that all investments in supplying housing has very much fallen short of the demand regarding waiting lists for social housing, spiralling rents and secure ownership of homes. The Budget also announced major cuts in NHS workers and teachers pension schemes ranging from over £1,100m to £2,500m in cuts.
All in all, the Scottish Government’s latest Budget was born in a tumultuous period of time. Some of it’s failings lays at the feet of the Westminster Government, others lay at the Holyrood Government. In either case, the full effects of it have still yet come to pass. Let’s wait and see.
Sources:
https://mises.org/mises-wire/get-government-out-welfare-business
https://changeoracle.com/2022/07/20/nuclear-power-versus-renewable-energy/
https://blog.ecoflow.com/us/nuclear-vs-solar-energy/#Conclusion
https://scottish-business.uk/news/budget-risks-creating-uks-most-uncompetitiveU-tax-environment/
https://www.taxassist.co.uk/resources/articles/scottish-budget-2024-25
https://www.scottishhousingnews.com/articles/budget-sector-hits-out-at-hammer-blow-affordable-housing-cuts
https://www.womblebonddickinson.com/uk/insights/articles-and-briefings/scottish-government-plans-construction-2024-and-2025
https://ifs.org.uk/publications/scottish-budget-tax-and-spending-2024-25#:~:text=All%20told%2C%20the%20funding%20available,Resource%20Spending%20Review%20was%20published
https://www.gov.scot/news/2024-25-scottish-budget-unveiled/
https://www.gov.scot/publications/finance-public-administration-committee-debate-scottish-budget-2024-25-ministerial-statement/
https://digitalpublications.parliament.scot/ResearchBriefings/Report/2024/1/4/d19ce079-c10b-4a0f-b526-448852face3e
https://www.gov.scot/publications/scottish-budget-2024-25/
By Lewis Atkinson
