Scotland's Budget Report 2019

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Fraser of Allander Institute; (2019) Scotland's Budget Report 2019. University of Strathclyde, Glasgow.

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Abstract

The outlook for the Scottish resource block grant has improved throughout this parliamentary term. It had been on course to fall by 3% in real terms by 2019/20, but subsequent UK Government spending increases means that the block grant increased slightly over this time period. In each of the last three years, the Scottish Government has used its new income tax powers to raise additional revenues. However, the anticipated positive revenue impact of such decisions has been offset by weaker growth in the Scottish tax base. As this weaker growth had not been forecast when the first budgets were set, a series of reconciliations (i.e. downwards adjustment) will apply to the next couple of budgets. The Scottish Government’s general approach has been to set ‘progressive’ tax schedules that raise income. For example, Scotland’s income tax schedule aims to increase liabilities on individuals in the top half of the income distribution; Scottish tax schedules for council tax and LBTT are also more ‘progressive’ than their equivalent in the UK. In contrast, policy on non-domestic rates has been characterised by an expansion of reliefs and tax cuts in order to supposedly secure a ‘competitive’ tax regime. The Scottish Government has protected health budgets, with spending up almost £800m or 5.2% in real terms between 2016/17 and 2019/20. Spending on most aspects of education and skills, enterprise, and the police has been protected. But inevitably, some areas have seen real terms declines. These include spending on universities, local government and many areas of the justice portfolio outside of police.

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