Scotland's Economy

Joint call for UK Government action on finances

October 6, 2020 by roberttaylor No Comments | Category Uncategorized

Today, my counterparts in Wales, in Northern Ireland and I are making statements to our respective legislatures to set out our collective expectations of the UK Government for enhanced Covid support, fiscal flexibilities, proper involvement of the devolved administrations in the UK Spending Reviews and a fair deal on EU funding. We are doing this jointly to demonstrate the level of concern we all share across the different nations of the United Kingdom, across different parties and across different legislatures. The importance of these issues cannot be overstated, because clarity, or lack thereof, directly links to our abilities to respond to Covid, to manage the nation’s finances and to serve our communities and businesses.

Our budget next year will be set in extremely challenging circumstances. Scotland’s economic output fell by around a fifth in the second quarter of this year. Trading conditions remain extremely challenging for businesses as they adapt to operate in a Covid-safe manner, face restrained demand and ongoing cash flow problems. Wider indicators of the labour market signal that firms headcounts have been falling and demand for staff has been subdued.

We are taking every possible step to protect jobs as we work to rebuild our economy from the Covid crisis, but our economy remains fragile and recovery will be slow. Economic activity is not expected to return to pre-crisis levels before the end of 2023. A failure to agree a trade deal with the EU would only further delay an already weak recovery.

Currently, we have over 217,000 people still on furlough in Scotland and our analysis suggested 61,000 jobs would be saved if the furlough scheme was extended by eight months. The job support scheme is a poor and narrow substitute for the job retention scheme. Treasury’s contribution has plummeted, with hard-pressed employers having to provide the majority of the support. In many sectors this simply will not be possible.

We are keen to work with the UK Government to ensure that any extended or replacement scheme meets the needs of Scottish businesses and workers, but are also flexible enough to respond to the public health measures that are required to control the virus. This is particularly critical to support businesses and workers where local lockdown restrictions are necessary.

There is no flexibility to support local or national restrictions, or those sectors, like the events sector, that have not yet been able to reopen. Businesses in sectors like tourism, arts and recreation have limited opportunity to benefit from the Jobs Support Scheme, and are likely to cut jobs.

Today we are collectively asking the UK Government to do more to support for businesses hardest hit, more on skills and job creation for young people and also continue with additional Universal Credits (due to run out in March) which have helped some of the poorest families weather the storm.

We have welcomed the £6.5 billion in consequentials for Covid-related spending from the UK Government we have received and we have made good use of that money.

Our package of economic interventions is worth £3.3 billion. Key measures are:

• £972 million for a package of rates relief and other NDR income measures;
• £1.2 billion in business support grants,
• £144 million in hardship and resilience funds;
• £372 million of support for the Transport sector.
• £230 million economic recovery stimulus package to invest in capital projects.
• £160 million Rural Recovery package.

We have also spent an additional £2.4 billion directly on health to fund the crucial Covid response. While we have yet to formally allocate approximately £500 million of consequentials, that will be done at the Spring Budget Revision, the funding needs of the far outstrip the resources available. Every penny has been allocated against health, transport and economic support measures required by the Covid response.

If the Scottish Government had the powers to borrow, or at least the very limited fiscal flexibilities which this government and parliament asked for, this would be a very different statement. Without further clarity on funding or flexibilities from the UK Government, substantial savings will be required to bring the budget into balance by year end.

Today we are collectively asking the UK Government to provide the full suite of flexibilities we need to manage the unprecedented ongoing uncertainty we are facing.  The powers we and the other devolved governments seek are reasonable, straightforward and would not cost the UK Government a penny.

The delay of the UK budget means that the Scottish budget for next year will be based on provisional and partial figures and therefore subject to unnecessary uncertainty and risk. We will not know what parameters we have to work with on crucial issues such as health funding or business support. The degree of uncertainty runs to billions of pounds.

We faced a similar situation last year which was deeply problematic for our budget setting and scrutiny processes. The situation we now face is further compounded by the financial challenges of COVID-19 and uncertainty surrounding Brexit and the threat of a potential No-deal or poor deal outcome. We expect that the scale of the potential changes in the UK Budget, including taxes, will be far larger due to COVID. If we go first, there may be a need to respond to tax changes in the UK Budget. For income tax and the NDR poundage this is especially challenging because we cannot change these during the financial year.

Our budget process is at the mercy of decisions – or rather indecision – in Westminster. Full financial powers are required to ensure that we can plan independently from the UK’s fiscal policy dysfunction. Today we are collectively asking the UK Government for urgent clarity around the timing and scope of the Comprehensive Spending Review.

The internal markets bill represents an assault on devolution the likes of which we have never experienced since the Scottish Parliament was established. The UK Government has written provisions into this Bill that presume Whitehall control over the delivery of replacements for the EU Funding Programme in Scotland; a programme that Scottish Ministers have delivered successfully for decades.

The end of the transition period on 31 December 2020 signals the end of funding allocations for certain EU programmes, with no agreed replacements in place from the UK Government. Communities across Scotland have benefitted significantly from European Structural Funds, with the current  programme worth over £780 million. Despite being less than 3 months away from the end of EU Structural Fund programmes in the UK, shamefully little detail about their replacement has been released by the UK Government.

We require full engagement in the development of the replacement funding vehicle and Scotland’s share of the funding must be fully devolved so that we can target it in a manner that suits the needs of Scotland’s people, communities and businesses. In light of the UK Government’s continuing intransigence, today we are collectively asking for assurances the UK Government will provide full replacement funding of EU programmes without detriment to the devolution settlements.

The next Scottish Budget will be one of the most important in the history of devolution. It will determine how our economy and public services respond to and recover from COVID-19.

Of course, in the ongoing grip of a global pandemic, it will be a budget of unprecedented uncertainty.

The UK Government, as the holder of the key financial and economic powers that will shape the size of that budget, have a responsibility to help reduce uncertainty, not compound it.

Regrettably their actions to date have increased the uncertainty, but they have time to make amends.

Today, the finance ministers of the devolved administrations, representing their three nations, are speaking with one voice in calling for the UK Government to provide the clarity, certainty and flexibility we require.

These calls must not go unanswered.

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