The Deputy First Minister has said the government faces “difficult decisions” as he prepares to announce next year’s tax and spending plans.
The draft budget will be unveiled on Thursday, with John Swinney standing in for Finance Secretary Kate Forbes, who is still on maternity leave.
The budget comes against a backdrop of extreme fiscal pressure across the country, with the Scottish Government struggling with rising inflation and costs. Swinney said his plans will focus on tackling child poverty, delivering net zero and emphasising sustainability in public services.
Ahead of the announcement, he said it would not be possible to go as far as he would like to in order to protect people from the cost of living crisis.
“Given the fiscal constraints of devolution, it is not possible to go as far as we would like and so the budget will prioritise three areas: eradicating child poverty; transforming the economy to deliver net zero; and creating sustainable public services.
“Difficult decisions are required and resources will be targeted where they are most needed and can secure maximum value from every pound spent.”
Swinney also said, with the longest recession in a century looming, the budget would “set in motion reforms that will place our finances and public services on a more sustainable and resilient footing for the future”, adding: “This is a time for firm leadership and bold decision making.”
His comments come as the Fraser of Allander Institute's pre-Budget analysis suggests that the government can ease cost pressures by using devolved tax powers to generate revenue in the face of extreme financial pressures.
Its report also said the UK Government’s Autumn Statement, which will see Scotland receive an extra £1.5bn over 2023/24 and 2024/25, will more or less offset the inflationary impacts to the Scottish economy.
Professor Mairi Spowage, director of the institute, said: “John Swinney is getting set to present his first budget in seven years, in what he acknowledged is an unprecedently tricky time for the Scottish public finances.
“The challenges he has been dealing with for 2022/23 ease a bit for 2023/24: there was some additional money announced at the autumn statement which generated around £1bn of consequentials, offsetting the inflationary pressures on the budget.
“But there is also flexibility that the Deputy First Minister has for the next financial year that were not available to him for this year – the Scottish Government does have tax powers that could be used, if he wishes, to raise more revenue.”
Emma Congreve, deputy director, said: “In amongst all the headline-grabbing decisions, it will be important to take a step back to see how this budget helps Scotland achieve its long-term ambitions.
“We are expecting that the government will set out, clearly and transparently, the choices it has made and what the impact, both good and bad, will be for policy outcomes and the impacts on different groups.”
Responding to the institute’s report, Swinney said the government had acted “decisively” to provide what support it could.
“However, given the fiscal constraints of devolution, it is not possible to go as far as we would like and so the Budget will prioritise three areas – eradicating child poverty, transforming the economy to deliver net zero and creating sustainable public services.
“The economic challenges we face also require a fundamental change in the way we manage public spending.
“The Bank of England is predicting the longest recession for a century, so this Budget will set in motion reforms that will place our finances and public services on a more sustainable and resilient footing for the future.“
Proposals on tax policy for 2023-24 will be also be published as part of the statement on Thursday.
Social Justice Secretary Shona Robison commented that government’s tax decisions will continue to follow its “progressive” model that those with the broadest shoulders should pay more.
Trade unions have said tax reforms like reducing the threshold for the highest rate of income tax should be used to raise more money for public services.
Speaking to the BBC’s Sunday Show, Robison said the Scottish Government had put £3bn in place to help people with the cost of living over the last year.
“We have changed our tax system to be much more progressive than that throughout the rest of the United Kingdom, but we are doing that within a very limited fixed budget with limited tax powers and limited borrowing powers.”
She said she would not set out the government’s tax position ahead of Thursday, but proposals like a land value tax would take time to introduce and would not generate revenue next year.
The Scottish Government does not have the powers to mitigate “every single pressure for every single family”, Robison stated.
The Scottish Trades Union Congress (STUC) has put forward a series of tax proposals which it says will raise at least an additional £1.3bn a year for Scotland.
STUC general secretary Roz Foyer earlier told the Sunday Show that ministers should be using their powers to start to “redistribute wealth through our economy to where it’s needed most”.
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