Lowdown on the Scottish Budget 2022/23

Keeping tabs on public sector spending in Scotland

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Anyone who has spent any time in and around public spending over the last 18 months won’t have missed the eye-watering sums attributed to business support funding through the Covid-19 pandemic.

One feature of the discussion about business support – at least in Scotland – has been the challenge of keeping pace with where, and how, money has been spent. Funding announcements were often made in response to fast-moving changes in restrictions and well in advance of details being worked out.

Keeping tabs on funding in Scotland is further complicated by the challenge of identifying when UK spending commitments result in consequential funding for devolved governments, as well as understanding strict rules about how much money the Scottish government can carry forward from one year to the next.

Uncertain outlook

Consequently, the final Budget debate in the Scottish Parliament saw Finance Secretary Kate Forbes advising that with the end of the financial year only weeks away, she still could not be certain about the year-end financial outlook.

While significant uncertainty about the actual quantum of spending available has dominated scrutiny, this year’s Budget process has seen far fewer surprises than the last-minute negotiations that had been customary in recent years. This time, having agreed a cooperation deal with the Scottish Green Party following 2021’s Holyrood election, passing the £41bn Budget never seemed in doubt.

Tackling inequality is at the core of spending priorities, while investment for economic recovery leans towards training and supporting Scotland’s net-zero commitments, including a helpful extension to rates relief for energy efficient improvements to premises.

However, many businesses will be disappointed that, while the existing small business rates relief scheme continues, the current rates relief offered to hospitality and retail firms will be limited to 50% relief for the first three months of 2022/23.

Few fiscal surprises

In keeping with this year’s more predictable Budget process there were few fiscal surprises, with a Scottish government commitment to retain current income tax rates, with threshold increases limited to no more than inflation, for the duration of the parliament.

Thus, there were minor inflationary changes to the starter and basic bands, while the higher and top rates remain frozen, meaning those earning below £27,850 paying less, and those earning above paying more, income tax than elsewhere in the UK.

Lower earnings growth

While the volatile debate about Scottish Budgets often focuses on short-term policy choices, this year has been overshadowed by longer-term financial considerations. In its latest forecast ahead of the Budget, the Scottish Fiscal Commission revised down projected income tax revenue due to lower-than-expected earnings growth in Scotland, with obvious knock-on implications for Scottish spending.

The planned resource spending review due to report later in the spring – the first for a decade – will have to grapple with how to balance Covid recovery spending needs against these tightening forecasts. And, though the past year may have been extraordinary, most observers with an interest in transparent and effective public spending will be hoping for improvements from both governments in the financial year ahead.