Sunak’s switch puts squeeze on Scottish Budgetby
When he suspended the autumn Budget, Chancellor of the Exchequer Rishi Sunak plunged the devolved administrations into chaos.
“Now is not the right time to outline long-term plans - people want to see us focused on the here and now,” Sunak explained as before setting out his Winter Economy Plan in September.
Instead the Budget that would normally be presented in November will be deferred until spring 2021. The postponement means the devolved governments will now have to set their spending plans before the end of the financial year on 5 April without knowing how much the UK government will allocate them.
They will have to rely instead on estimates from previous years, no easy task given the economic damage by the coronavirus.
The Scottish government faces a particularly difficult challenge as it will dissolve in late March to leave five weeks for campaigning ahead of elections in early May.
The UK government is now looking for ways to raise revenue through tax changes, but any measures introduced in the spring would give MSPs in Holyrood very little time to align their devolved taxes with the UK’s.
The SNP’s leader in the House of Commons, Ian Blackford, complained during the winter plan debate that the Chancellor had not even informed the devolved governments of his change of schedule. Afterwards Graeme Roy, director of the Fraser of Allander Institute, wrote that the UK government “needs to have a much greater appreciation of the knock-on impact of its decisions, such as the cancellation of the autumn Budget, on devolved policymaking. Devolution shouldn’t be seen as an afterthought.”
Charlotte Barbour of the Institute of Chartered Accountants of Scotland (ICAS) acknowledged that the Chancellor is dealing with unprecedented circumstances, but stressed: “Coming out of the pandemic, it would be helpful if areas of tax reform were considered… This should include the way in which taxes are devolved across the UK and how to make them work effectively and efficiently.”
She later added: “Scottish taxes do not sit in isolation – they are interwoven with the UK tax regime and there are connections and constraints which policy makers need to be mindful of. There also needs to be an intergovernmental liaison to ensure that both the Scottish taxes, and the UK taxes, work effectively and efficiently for all taxpayers”.
For now, though, the devolved governments’ only hope is that the Chancellor decides to give them an idea of what their spending allocations will be and which taxes could change.
Commons Treasury committee chair Mel Stride is on their side. As a former first secretary to the Treasury, he will be aware of the underlying mechanisms and pleaded with the Chancellor to give the Scottish, Welsh and Northern Ireland governments an idea of “what arrangement you are putting in place to mitigate the effect of the delay to the Budget on devolved administrations”.
Alexander Garden, chair of the CIOT’s Scottish Technical Committee, agreed, saying that “proactively communicating changes in advance of either the budget process or potential tax changes would help the devolved administrations to operate their tax systems with greater certainty and effectiveness”.
To forestall potential avoidance and market impacts, UK governments traditionally maintain total secrecy before unveiling details of their monetary and taxation plans. But could these unprecedented times break that tradition?
If he has any inclination to maintain fiscal stability and lessen administrative burdens in the devolved countries, the Chancellor may have to communicate some of his intentions before pulling any fiscal rabbits out the hat in his spring Budget.