Scottish Budget: Shona Robison and the 'tax and axe' budget

It was a tax and axe budget. 

Facing a £1.5 billion gap between her spending plans and her chequebook, Shona Robison hacked at spending on public services while simultaneously raising tax on the better off.

The SNP Finance Secretary painted a grim picture of the public finances in 2024/25, blaming Westminster for a shortage of capital funds for building and infrastructure in particular.

However there was a more positive picture on the revenue side, with Scottish income tax receipts forecast to grow by £1.5 billion between this financial year and next.

But faced with tough spending pressures, that increase wasn’t enough.

By freezing the 42p higher rate threshold at £43,663 she aims to raise another £307m.

More controversially, she created a new “advanced” band of 45p in the pound between £75,000 and the top rate threshold of £125,140, which will raise £74m.

The top rate will also increase from 47 to 48p, raising a token £8m, as £45m of the theoretical £53m it could raise is lost by people taking steps to avoid paying it.

The cuts were less dramatic but will be felt just as keenly in many sectors.

The budget for building more homes falls next year by almost £200m, rail services by £120m, college and university funding by £100m, enterprise by £60m, agriculture by £35m, and projects to help the transition to zero emission energy by £30m.

Overall, capital spending is forecast to fall by £500m overall. It will all hurt.

Throughout most of his time in Bute House, Mr Yousaf could console himself with the thought that his problems were largely down to other people.

Operation Branchform, the police investigation into the SNP’s finances, started under Nicola Sturgeon. The failed deposit return scheme and the abandoned Highly Protected Marine Areas plan were both Green-led and Sturgeon-initiated.

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The recent Court of Session case on gender reforms also tracked back to Ms Sturgeon, although Mr Yousaf decided to launch the legal action to keep the proposals alive. 

But the budget is different. Yes, a large part of the spending gap was down to high inflation caused by the post-pandemic recovery bottleneck and the war in Ukraine.

That in turn led to a raft of high pay demands across the public sector.

But it was the Scottish Government under Mr Yousaf that decided to settle those pay demands on more generous terms than south of the border.

And it was Mr Yousaf, personally, who announced the council tax freeze plan at the SNP’s conference in October, days after losing the Rutherglen & Hamilton West by-election.

That panicky decision not only violated the ‘no surprises’ deal he had just struck with council leaders, it shot their budget projections to pieces.

Councils hadn’t just been planning to raise the annual levy by between 5 and 10% to raise some £150m, they had also been banking on the Scottish Government’s plan to raise the bills for Band E to H homes by 7.5 to 22.5% by changing how they are calculated.

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This second element was expected to raise another £180m. But Mr Yousaf cut it too.

It left councils, many SNP-led, spitting feathers about how they had been sidelined and demanding full recompense for the money they had suddenly lost.

Economists at the Fraser of Allander Institute calculate it would cost the government around £300m to make good all the monies councils expected to raise.

But despite promising the freeze would be “fully funded”, a term she conspicuously failed to define, Ms Robison has set aside only £144m to cover it, equivalent to a 5% rise. 

Council leaders meet on Thursday to discuss their immediate response. 

The likelihood is a bitter public fight about the freeze and council budgets more generally.

Councils say they need an extra £962m just to stand still in 2024/25 because of inflation pushing up running costs, particularly salaries.

“This money for the council tax freeze doesn't cut it,” one source said. 

Having promised the business sector a “reset” in relations, Mr Yousaf also faces anger about the tax hike on high earners and not mirroring English business rates reliefs. 

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All this going into a general election, where the Tories will flaunt their tax cutting instincts (despite a post-war high in UK-wide tax take) and Labour will attack the SNP for waste. 

And if Chancellor Jeremy Hunt cuts income tax in the spring, Scots high earners will see their bills get bigger still, relative to those south of the border.

As Mr Yousaf grows in the job, his headaches grow with him.