Scottish ministers find themselves in a challenging situation with a £1.5bn budget shortfall due to inflation and salary negotiations.

Situation facing finance minister described as ‘one of the most challenging fiscal backdrops’ since devolution.
Scottish ministers are dealing with a £1.5bn deficit before the release of the draft budget next week. The combination of rising inflation and costly public sector pay agreements is putting immense pressure on government spending.
The annual budget report by the independent Fraser of Allander Institute characterizes the situation faced by finance minister Shona Robison as one of the most difficult fiscal backgrounds in the history of Scottish devolution. However, the institute warns that the plans to introduce a new higher income tax bracket are insufficient to balance the budget.
In order to protect essential areas such as healthcare and social security, severe cuts are expected across the public sector. Robison has already stated that there is no doubt that staffing for public services will have to be reduced.
To tackle its budget shortfall, Police Scotland has initiated a voluntary redundancy scheme and has announced the potential closure of 29 stations, including the former police headquarters at Fettes in Edinburgh.
The autumn statement by the UK chancellor has added further pressure on Robison, who describes it as the worst-case scenario for the Scottish budget.
While there is speculation that the Scottish government will introduce an additional 44p rate on incomes between £75,000 and £125,000, the Fraser of Allander report estimates that it would only raise around £41m, much lower than the £92m suggested by the Scottish Trades Union Congress.
According to the Times Scotland, this proposal has caused disagreements within the cabinet, with some ministers cautioning that it may alienate middle-income and aspirational voters. However, the proposal has been accepted, with the Scottish Fiscal Commission informed of the decision last week.
Individuals earning over £28,000 already pay higher taxes in Scotland.
Amidst concerns faced by the cabinet, a coalition of business networks warns that the new tax band could hinder recruitment from other parts of the UK. Kate Forbes, the former finance secretary and a Scottish National Party leadership candidate, highlights that it is challenging to safeguard against behavioral change.
The introduction of this tax band may satisfy Scotland’s third sector after Humza Yousaf’s promise to freeze council tax faced backlash from struggling local councils and anti-poverty campaigners.
As negotiations continue and ministers discuss these tough choices in an emergency cabinet meeting, Green party ministers may face the challenge of implementing environmental cuts, despite their enthusiastic plans to address the climate and nature crises.
Conservation groups have been informed that NatureScot, the official conservation agency, will experience a 15% budget cut next year, which is compounded by the increased wages agreed in recent public sector pay deals.
Scotland’s largest environment groups expressed concern last month about NatureScot’s core funding already falling by 40% in real terms over the past decade, casting doubt on its ability to meet ambitious climate and nature restoration targets.
Bruce Cartwright, the chief executive of the Institute of Chartered Accountants of Scotland, argues that adding an extra tax band would result in Scotland having six income tax bands, further complicating an already complex tax system. He emphasizes the need for tax simplification to make it easier for taxpayers to understand and considers continually burdening taxpayers to cover shortfalls as unsustainable.

Leave a Reply

Your email address will not be published. Required fields are marked *