LABOUR have been called out for promising to kickstart economic growth after experts said the UK Government’s Budget will mean inflation and interest rates are higher for longer.
Experts at the Fraser of Allander Institute have concluded that while the UK Government was keen to present a Budget supporting growth and avoiding tax increases in October, measures announced will reduce growth in the medium term.
They also found tax increases will mostly be passed through to workers through less employment and fewer wages increases.
SNP MSP Kenneth Gibson criticised Labour for promising there would be no tax rises – only to hike employers’ National Insurance contributions – and not delivering on their pledge to grow the economy.
He said: “Labour promised to kickstart economic growth but the UK economy has flatlined since they came to power.
"Labour also promised there would be no tax rises but its decision to hike National Insurance contributions is a tax on jobs.
"The OBR [Office for Budget Responsibility] has said that the cost of the tax hike, estimated to be around £800 per employee, will be passed on to workers through lower wages. These workers will also be hit with the double-whammy of higher inflation and interest rates due to the Chancellor's budget decisions.
"In contrast, John Swinney has listened to businesses' concerns and made economic growth one of his government’s key priorities. The SNP Scottish Government’s budget sets out transformative investment proposals to grow the economy."
SNP Westminster leader Stephen Flynn issued a warning earlier this month that Keir Starmer's (below) Labour were looking “increasingly clueless and incompetent on the economy” after it emerged the pound had tumbled to its lowest level against the US dollar for over a year as borrowing costs hit their highest level for in 30 years.
In the Deloitte-sponsored economic commentary, the Institute’s economists are forecasting that growth in 2024 will end up at 0.9% and will be followed by 1.3% growth in 2025 and 1.2% growth in 2026.
Experts said analysis of the information published alongside the UK Budget shows that, in the medium term, measures announced by the UK Government in the Budget will mean that inflation and interest rates are higher for longer and real incomes lower than would otherwise be the case.
The Fraser of Allander director, professor Mairi Spowage, said: “The UK Government were keen to present their Budget in October as supporting growth, and that they had avoided tax increases on working people.
“However, the analysis alongside the Budget shows that that impact of measures will reduce growth in the medium term and that tax increases will mostly be passed through to workers through less employment and fewer wage increases.
“The UK Government will be hoping that improvements in public services will start to be felt, given extra public spending, and that growth will surprise on the upside to make future fiscal events easier.
“The reaction of businesses to the Budget, with taxation increasing as a concern, may make that more difficult.”
The main messages from the Scottish Budget were also analysed by experts.
As a result of the UK Government’s Budget, the Scottish Government had more money to allocate for 2025/26 than had previously been expected, with an £3.4 billion uplift on the previous envelope for 2025/26.
Researchers said there was a considerable uplift in capital spending, which has allowed key capital budgets, such as the affordable housing programme, to have funding restored.
However, experts said the key issue in the Budget was the planned scrapping of the two-child benefit cap from April 2026.
Dr Joao Sousa, deputy director of the institute, said: “The Scottish Government had more flexibility than they were likely expecting given the increases in funding for 2025/26.
“Overall, though, this Budget in December had one eye on the Holyrood election in May 2026, with announcements on mitigation of the two-child benefit cap from April 2026.
“This issue has proven key, with Scottish Labour now set to abstain on the Budget which is likely to ensure it will pass.”
“Wider issues about fiscal sustainability remain, though, with higher public sector pay in Scotland, the much larger public sector, and the increasing proportion of the Scottish Budget, which is taken up by social security payments, which will increase further given the decision on the two-child cap.”
