Lots to look forward to in next week’s UK Budget


It’s taken for granted that every Budget feels like a big event, even if few are actually terribly memorable in hindsight. And yet, this year’s offering comes amid a remarkable set of circumstances.

Let’s look briefly at the political context that the Chancellor will be considering next week. Not only will he be expecting Theresa May to trigger Article 50 very shortly after; he will also be conscious that the smart money appears to be on Nicola Sturgeon using her SNP conference speech on 17 March to state her intention to hold a second independence referendum.

An interesting question therefore is what – if any – impact the Budget will have on these wider political and constitutional issues?

At first glance the answer appears to be “not much”. After all, this will be a domestic spending announcement from a man once dubbed Spreadsheet Phil for his propensity to be the quintessential safe pair of hands.  The government’s continued (albeit increasingly flexible) goal of deficit reduction will also be front and centre.

Yet as the Institute for Fiscal Studies’ Green Budget outlook suggests, there is a lot uncertainty at large in the economy, much of it an overspill from the Brexit referendum that has seen a rapid depreciation of Sterling and which looks set to precipitate higher inflation and reduced consumer confidence in the medium term.

In other words, there are a lot of quite obvious choppy waters on the economic horizon for the Chancellor to navigate besides the risks that still exist in various forms, from the growth of household debt to stuttering productivity to uncertain behaviour in big global economies like the US and the EU.

All of this presents a big fat question mark over the future health of the public finances and yet more reasons for Mr Hammond to tread cautiously. Of course, that doesn’t mean he won’t try to pull one or two rabbits from the Exchequer’s hat, especially given the IFS’s assessment that he could have up to £25bn to play with up to 2020-21 because of loosened fiscal targets.

Immediate priorities will be to deal with perceived unfairness in the business rates system south of the border, while more than one voice in the Tory party has been urging him to go further in alleviating tax burdens on a wider basis. Undoubtedly, on the eve of the start of EU negotiations one of the messages he will want to send to businesses both at home and abroad is that the UK remains a reliable, competitive base.

And the implications for politics here in Scotland? If the Chancellor does take action on taxes, businesses north of the Border will continue to ask whether there is a widening differential facing Scottish companies and business leaders living here.  While the Scottish Government has avoided calls from opposition parties to go further on taxing the wealthiest, higher rate income tax levels will diverge in the next financial year.

Add in concerns from business on the effects of the Scottish Government’s own business rates revaluation and continued doubts over LBTT, and it’s easy for their critics to argue that the tax landscape here is becoming less competitive compared with that overseen by Theresa May’s government.

So, will the UK Budget be weighing on Nicola Sturgeon’s mind while she considers calling at last for IndyRef2? While she’ll never admit as much, this Budget is important for a number of reasons besides those comparative tax changes I’ve discussed.

For starters there is the prosaic yet vital matter of its effect – whether positive or negative – on the Barnett consequentials that will help pay for services in Scotland. Yet beyond that there is the question of how the UK Budget – and the overall fiscal situation that serves as its backdrop – will make people in Scotland feel about the prospect of a new referendum.

The Scottish Government seems to be preparing to gamble on the assumption that people really are so upset about the uncertainty of a hard Brexit that they’ll back Scotland going it alone. So expect messages from the Chancellor that seek to undermine the wisdom of that proposition by emphasising the continued buoyancy of the UK economy and attempt to provide some certainty.

In the immediate future therefore, both the UK and Scottish Governments are hoping that the economic weather is kind to them as they pursue their separate agendas on Brexit and the constitution.

And with the IFS judging that the degree of uncertainty surrounding predictions for the economy is currently “unprecedented”, neither side will be, in their most objective private deliberations, entirely sure or confident of success.

Peter Smyth

Head of Public Affairs


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