Scotland's Economy

The Chancellor’s statement largely bypasses devolution.

July 13, 2020 by No Comments | Category Uncategorized

The temporary localised restrictions in Leicester and Dumfries, and further afield in Melbourne and Catalonia, remind us of the continuing threat posed by coronavirus (COVID-19). They also highlight the importance of rapid, targeted action in dealing with the pandemic.

Robust national and international structures are of course essential, but to eradicate the virus we also need the ability to quickly identify outbreaks and implement control measures that respond to local conditions.

The same is true when it comes to addressing the unprecedented economic crisis caused by COVID-19. National initiatives, such as the UK Government’s furlough scheme, are playing a crucial role in mitigating the impact, but action by the devolved nations has been vital in ensuring the economic response is tailored to the specific needs of each country. The obvious example is the way the Pivotal Enterprise Resilience Fund, unique to Scotland, has provided support to vital businesses.

That flexibility, so crucial to the initial COVID-19 response, was missing from the Chancellor’s summer statement last week.

The Treasury’s own calculations confirm that despite the economic recovery package totalling up to £30 billion, it will generate just £21 million in consequential payments to the Scottish Government. This position has been independently verified by both the Fraser of Allander Institute and the Scottish Parliament Information Centre.

Further funding related to health spending and other public services, most of it previously announced, was confirmed the same day, but this was unconnected to the jobs package.

One reason for the low consequentials figure is that some measures, such as the temporary 5 per cent VAT rate for the tourism and hospitality sectors, apply UK-wide. Let me be clear and unequivocal that these initiatives are welcome – indeed the VAT reduction is something I had urged the chancellor to introduce. They will make a difference to the many Scottish businesses set to benefit.

Another reason is that, under the Barnett formula, consequentials only apply on new, non UK-wide spending. Consequential funding is not generated when money already in the UK Government budget is just moved about, as was the case with several of the Chancellor’s England-only initiatives.

The result is that there is very little additional funding to tailor an economic response that meets Scotland’s needs.

Since the outset of the pandemic I have used all the resources and fiscal levers at my disposal to support the Scottish economy. We established an initial business support package worth over £2.3 billion, comprising a mix of general and targeted rates reliefs and grants that meet needs not covered by UK-wide programmes.

We are also implementing a £230 million investment package to create jobs in construction, low carbon schemes, digitisation and business support. Oil and gas is a crucial component of Scotland’s economy and we have established a £62 million Energy Transition Fund to support the sector and move towards a net zero society.

On Friday we unveiled a £38 million for high growth companies and in two days’ time changes to the Land and Buildings Transaction Tax come into force that will exempt 80 per cent of home purchases from the charge.

Just like the health emergency, the economic crisis requires the devolved governments to play an active role. Yet, the Chancellor’s latest economic measures largely bypass devolution.

We have acted, and will continue to do everything within our powers to support the Scottish economy. But much more is possible if the Chancellor responds to our urgent calls for more financial powers or additional funding.


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