With the UK Budget now out of the way, all eyes will turn to the Scottish Budget, which is scheduled to be delivered on 4^th December. So, what can we expect from the Scottish Budget, how do changes to the political backdrop impact the parliamentary process for approval of the budget and what impact will the Chancellor’s announcement have?

Financial gains

First, the good news. Thanks to the uplift in the UK Budget, Scotland stands to gain (according to HM Treasury) an additional £3.4bn through the Barnett Formula – £610 million of which is earmarked for capital investment. However, although the Budget was broadly welcomed by the Scottish Government as ‘a step in the right direction,’ there are question marks over the impact of National Insurance contributions on the Scottish Budget to the tune of £500 million.

On the face of it, the UK Budget announcement will certainly give some relief to the Scottish Government and build in some short-term budgetary stability. However, the champagne corks will hardly have been flying as the impact of inflation, NI contributions and previous cutbacks will eat into the additional funding.

Additional capital spending will be particularly welcomed. The Scottish Government had all but put a halt on any new capital projects. This should at least enable some of those plans that were on the drawing board to move forward. But the backlog of need has steadily grown and it is likely that the funds available could easily be used many times over and delivery will remain slow.

Straitjacket

The Scottish Government is caught in an increasingly tight financial straitjacket due to rising labour costs and a relatively stagnant economy. From train drivers to refuse collection and college lecturers, there has been a steady stream of demands for higher wages. Some of these are ongoing and others are likely to arise in due course, though probably not to the same level as seen in recent years. The Scottish economic output in recent months has remained low, which will affect the appetite for taxes.

A cautious approach

The Scottish Government is therefore unlikely to be in a position to offer much more than a standstill budget in many areas.  That has serious political implications because as a minority administration, the SNP needs the support of at least one other political party to get its budget approved. There has been much debate about which party may be able or willing to do a deal and talk of red lines. What is likely is that one or more party will support the budget in return for significant investment in key policy areas, such as social care or climate action. A deal with the Scottish Lib Dems is often talked about as the most likely outcome, but it’s not a given and the Party will be keen to come away with a significant win.

The outcome of the Scottish Budget is therefore expected to be largely a cautious one. Modest spending plans in capital spending and in some priority revenue spending areas – such as education and healthcare. But there may be scope for some small surprises depending on what, if any, budget deal is done with a smaller party. Regardless, the SNP will be keen to rebuild the public’s trust as a competent manager of the Scottish Exchequer.