DEPUTY first minister John Swinney has warned there has “never been a time of greater pressure” on public finances resulting from the fallout from Brexit, cost of living crisis and Covid recovery.
He has already set out cuts of at least £1.2 billion to the Scottish Government’s budget for the current year, and now faces the tricky task of balancing the books for the months ahead.
Here we look at what to expect when Swinney – who will present his first budget in seven years on Thursday as acting finance secretary while Kate Forbes continues maternity leave – unveils draft spending and tax plans for 2023-2024.
How much does the Scottish Government have to spend?
Swinney will set out a plan for the year ahead on how the Scottish Government will spend its funds, much of which comes from the block grant from the UK Treasury, as well as taxes raised north of the Border.
In 2022-23 the budget was set at £56.5bn, but a recent report from the Fraser of Allander Institute found high inflation means it is now worth about £1bn less in real terms.
It said recent announcements made by the UK Chancellor “more or less” offset the impacts of inflation on the Scottish Budget for the next two years.
However Swinney has said the UK Government’s plans to reduce expenditure in future years are projected to reduce Scottish Government funding under the Barnett formula from 2025.
What will the Scottish Government focus on?
Ahead of the budget, Swinney has emphasised on the economic pressures facing the country and said the Scottish Government is providing as much support as it could “within its limited resources”.
In a pre-budget statement, he pledged to prioritise three areas – eradicating child poverty, transforming to a net zero economy, and creating “sustainable” public services.
There was also a warning that “difficult decisions” are required and resources will be target where they are “most needed and can secure maximum value”.
This will also be the second budget statement since the Scottish Greens entered government in August 2021.
Ross Greer, the party’s finance spokesperson, said he believes it will be the “greenest budget” in the history of the Scottish Parliament.
What’s likely to be controversial?
One of the most contentious areas for Swinney will be whether to increase income tax, with the Scottish Parliament holding the powers to set rates.
UK Chancellor Jeremy Hunt recently announced a swathe of tax rises, including decreasing the threshold for the top rate of income tax from £150,000 to £125,000.
There’s an expectation Swinney will follow suit, but with fewer than 15,000 people in Scotland who are top-rate taxpayers, it won’t bring a massive boost to the government coffers.
It has been reported ministers are looking at whether to increase tax rates for Scots earning over £43,663 – but whether this will happen remains to be seen.
With widespread strikes taking place across the country, the policy on public sector pay will also be an area of intense scrutiny.
Local government spending is also likely to be high on the agenda, with councils warning they could struggle to deliver essential services having reached “crisis point”. However Swinney has warned giving extra cash to councils would take away vital cash from the NHS.
What happens next?
The budget will be scrutinised by MSPs, but agreement between the SNP and Greens in government means it will pass.
The timetable has yet to be fully set out, but it is likely that a debate on pre-budget reports published by the committees at Holyrood will take place in late January, after which the Budget Bill will be debated and go through parliament.
