THE gruesome economic impact of the coronavirus lockdown got several mentions in Nicola Sturgeon’s decision-making framework this week.
But while she set out the many factors which will determine the lifting of restrictions, there was little about how to lift the economy off its knees once they had passed.
Indeed, the document contained only a single pound sign, in a reference to the £2.3billion of Scottish Government support for business during the immediate crisis.
First things first, of course.
As we know, the priorities are suppressing the virus, saving lives and protecting the NHS. But the money to support public services and keep the country going through the long aftermath matters too. There was one brief passage about this at the end of the framework.
“The austerity driven response to the 2008 financial crash did not work and worsened the inequality that was part of its cause; we must not repeat those mistakes,” it said.
It was a reminder the big political debate of this crisis is yet to come.
Forget the marginal variations between Scotland and England over lockdown, the real differences will be in the policies Westminster and Holyrood try to recover from it.
Ms Sturgeon’s document was a signal that, once the health emergency is addressed on a broadly four-nation basis, she is far more willing to go her own way on the economic one.
But that will take money. And as a report out this week from the Scottish Fiscal Commission warned, that might be difficult for host of reasons, one of which looks particularly out-of-date.
Since it acquired more tax and welfare powers in 2016, Holyrood’s finances have been governed by a complex Fiscal Framework.
Unlike the UK, which can borrow as much as it can bear and plans to raise £225bn in bonds to help cope with Covid-19, the framework puts a tight cap on Holyrood’s borrowing.
Capital borrowing for roads and buildings is capped at £450m in any year up to a total of £3bn, a facility that is already half used up. While resource borrowing is capped at £600m in a year, up to £1.75bn in total, of which £200m has been used.
Moreover, this resource borrowing comes with strings.
Only £500m a year can be borrowed for ‘in-year cash management’, to help smooth out the £40bn budget if tax income and spending peaks are out of sync.
While only £300m can be borrowed to help fix forecasting errors. These arise because the budget is based on tax and spending estimates which are invariably off-beam, and so there is a “reconciliation” after three years to ensure we didn’t get more or less than our due.
The dodgier the estimates, the bigger the reconciliation later. For instance, the 2017/18 budget saw Holyrood get around £200m more from the Treasury than it should have because of estimates, and this is being clawed back in 2020/21.
Only if there is a “Scotland-specific” economic shock, or a forecast of one, is this resource borrowing doubled from £300m to £600m to cope with an extreme forecasting error, such as Scottish income tax slumping.
Even then, this Scotland-specific shock has a very specific meaning.
Onshore Scottish GDP growth must be less than 1% in absolute terms (a given in the coming recession) and 1 percentage point below UK GDP growth (not a given).
There is also a Scottish Reserve fund of up to £700m Holyrood’s own money from which it can draw up to £250m a year for day-to-say spending.
But our Government, as the Fiscal Commission notes, “cannot borrow to fund any additional Covid-19 related spending”. The Fiscal Framework, which didn’t foresee a pandemic, doesn’t allow it.
The Framework should, however, keep the budget fairly stable this year as extra UK spending will mean extra cash under the Barnett formula.
But three years after Scottish income tax revenues nosedive in 2020/21, there could be one hell of a reconciliation falling due in 2023/24.
As the Commission put it: “The Scottish Government is required to broadly balance its budget and has limited scope for borrowing and using its reserves. Given the uncertainties about the level of funding and the spending required to respond to the crisis this may present challenges.”
The report prompted SNP Finance Secretary Kate Forbes to say the crisis showed the need for Holyrood to have more borrowing powers. She would, of course, have said Holyrood needs more borrowing powers pre-crisis.
But in light of Scotland’s looming economic plight - the Commission calls this moment a “structural break”, a shock so bad that past shocks are no reliable guide - Ms Forbes’s point surely rings true.
The Fiscal Framework is a relic.
It was due to be reviewed next year anyway, but that exercise should now be expedited and expanded.
Holyrood’s finances are too rigid for the times, too stiff for the hills the country now has to climb.
If the Treasury tries to keep Holyrood on a short rein, MSPs of all parties, not just the SNP, will bridle at being denied the means to calibrate Scotland’s recovery.
The electorate will notice too.
After Covid-19, the last thing Holyrood needs is a straitjacket.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel