All about the money

On 22 November, Chancellor Philip Hammond released his Autumn Budget. ‘Box Office Phil’, named, ironically, because he tends to garner no headlines whatsoever, lived up to his moniker and managed to have his budget almost completely overshadowed by serious lingering questions and arguments about Brexit and Scotland.

Some of the announcements which should have stood out include the abolition of stamp duty for first-time buyers purchasing properties over £300,000 (this won’t apply in Scotland); changes to

Universal Credit, including a £1.5bn package to “address concerns” about its delivery; more money for the NHS in England; and £44bn UK Government support for housing.

However, in Scotland, Hammond’s promise of an extra £2bn for the Scottish Government was branded a “con” by First Minister Nicola Sturgeon, who said the money would see day-to-day budgets cut.

Indeed, the Scottish Parliament Information Centre found that Holyrood’s block grant will increase in cash terms over the next two years; however, when translated into real terms – taking inflation into account – this amounts to a 0.1 per cent increase in 2018/19 followed by a decline of 0.1 per cent the following year.

Within that, the revenue budget for day-to-day spending for 2018/19 is set to fall by £199m in real terms in 2018/19, and £320m in 2019/20 – although this is largely offset by increases in the capital budget.

The report also states that £1.1bn of the cash highlighted by the Chancellor comes in the form of ‘financial transactions’ funding – money for loan and equity-based projects.

Speaking at First Minister’s Questions, Sturgeon said: “The Chancellor tried to give the impression that this was somehow a big boost to our health service, our education system and public services the length and breadth of the country but, as Ruth Davidson knows, that is far from the truth. 

“In fact, the reality following [the] budget is, as the Fraser of Allander Institute confirmed, that Scotland is facing a real-terms cut in our day-to-day budget next year of more than £200 million, and more than £500 million over the next two years.”

Scottish Conservative leader Ruth Davidson responded by saying that only Sturgeon could be handed an extra £2bn in spending power and “still sound like somebody has stolen her scone”.

She added: “We usually hear from the Scottish National Party that it is not getting enough money. [Now] we have a brand new one: it is the wrong kind of money that it is being given. Money that can be spent on housing? No, thank you. Money to tackle fuel poverty? How dare the UK Government!”

The chancellor also announced that Police Scotland and the Scottish Fire and Rescue Service will no longer be liable to pay VAT from April 2018, bringing them into line with other emergency services in the UK.

However, VAT paid from the creation of the national single services in 2013 until now – around £140m – will not be refunded. The UK Government has always had the discretion to grant an exemption to the Scottish forces, and yesterday the SNP said it had made 139 calls for an exemption to the “unfair VAT levy” on the Scottish bodies.

But the UK Government has maintained the SNP is responsible as it knew the consequences of creating the national bodies.

Announcing the change, Hammond said: “The SNP knew the rules, they knew the consequences of introducing these bodies, and they ploughed ahead anyway.

“But my Scottish Conservative colleagues have persuaded me that the Scottish people should not lose out just because of the obstinacy of the SNP government.

“So we will legislate to allow VAT refunds from April 2018.”

Hammond confirmed that city deals for the Tay cities region and Stirling were progressing, and that the UK Government would begin negotiations for a new deal in the ‘Borderlands’.

Also of benefit to Scotland, the Chancellor announced the creation of a transferable tax history for the oil and gas industry, which will enable companies to pass on their tax history to new buyers when they sell their oil and gas fields.

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Sturgeon said the announcements on oil and gas and VAT were “very welcome if overdue”, although the refusal to backdate the VAT was “disappointing”, but she said early indications of the money offered to Scotland were of “smoke and mirrors”.

However, despite Hammond’s best efforts, Brexit loomed large over the budget.

The pro-EU chancellor responded to pressure from pro-Brexit colleagues by putting aside £3bn in the case of a “no deal” scenario.

He said: “While we work to achieve this deep and special partnership, we are determined to make sure the country is prepared for every possible outcome.

“We have already invested almost £700 million in Brexit preparations and today I am setting aside over the next two years another £3 billion and I stand ready to allocate further sums if and when needed.

“No one should doubt our resolve.”

He added that Brexit negotiations are approaching a “critical phase” and the best way to provide security for business and families was to make progress on trade talks.
Treasury aides said the £3bn figure had emerged after requests from Whitehall departments for extra cash to cope with Brexit, including HM Revenue & Customs, the Home Office, DEFRA and the Department for Transport.

Meanwhile, the UK Government launched its industrial strategy white paper outlining plans to support more research and development, encourage firms to embrace new technology and boost the economy.

It includes sector deals – partnerships between government, academia and business – and an Industrial Strategy Challenge Fund of £725m on top of the £1bn announced in April. There will also be a research and development tax credit.

The industrial strategy comes just days after official forecasting body, the Office for Budget Responsibility (OBR) announced an aggressive downgrade of its UK growth forecast.

The OBR concluded that a slowdown in the growth of productivity – or the value that each worker produces – since the financial crisis will persist for several more years.

UK Business Secretary Greg Clark said Brexit meant the strategy was “even more important” and political commitments to limit immigration would not hamper the development of research-related industries. 

Another Brexit-related issue which overshadowed the budget is Ireland. 

The Irish government has threatened to veto Brexit trade talks due to take place later this month, with Taoiseach Leo Varadkar stating there must be written assurances from the UK that there will be no hard border between the north and south before it can move on. 

UK International Trade Secretary Liam Fox has said there can be no final decision on the future of the Irish border until the UK and EU have reached a trade agreement.

Speaking to Sky News, Fox said: “We don’t want there to be a hard border but the UK is going to be leaving the customs union and the single market.

“We can’t come to a final answer to the Irish question until we get an idea of the end state. And until we get into discussions with the EU on the end state that will be very difficult – so the quicker we can do that the better, and we are still in a position where the EU doesn’t want to do that.”

Arlene Foster, the leader of the DUP, which is propping up the minority Conservative government, said she would not support “any suggestion that Northern Ireland, unlike the rest of the UK, will have to mirror European regulations”.

Suggestions for alternate arrangements have included a new partnership that would ‘align’ customs approaches between the UK and the EU, resulting in “no customs border at all between the UK and Ireland”.

Whichever way you look at it, the political landscape looks set to be dominated by Brexit for the foreseeable future. 

North of the border, Scotland faces pressing fiscal issues of its own. As witnessed by the tussle about Hammond’s budget cash, as well as a recent damning report from local government spending watchdog the Accounts Commission, there’s an increasing worry about how day-to-day services are going to be paid for. 

It will be interesting to see how Finance Secretary Derek Mackay responds to these challenges when he announces his draft budget in Scotland later this month