In this Tutorial, we are going to take a closer look at some of the key highlights of Yesterday's Scottish "Draft" Budget for 2018-2019, for both individuals and businesses.
The reason why Yesterday's budget is referred to as a "Draft" budget is because as a minority government, the SNP will need to secure the support of at least one other party in order to eventually pass its budget, with the final vote due to be held on 19 February 2018. This could lead to changes along the way.
The Scottish budget for 2018/2019 was always going to be a tough one, with the government’s block grant from Westminster for day-to-day spending on public services around 0.8% lower than it was in 2017/2018. This is equivalent to a reduction of just over £200m, bringing the 2018/2019 block grant back to its 2016/2017 level in real terms*.
Of the headline grabbing additional extra £2bn for Scotland announced in the November Autumn UK budget (covering period 2017/2018 to 2020/2021), only £0.4bn was for day-to-day spending (e.g. pay & service delivery). Without the £183m increase for 2018/2019 obtained that way, the gap would have been even larger.
Similarly to the UK as a whole, the economic outlook for Scotland is challenging. The Scottish Fiscal Commission's (SFC) growth forecasts indicate that the Scottish economy will grow at less than 1% per year until 2022. I outlines GDP growth of 0.7% in 2017/2018 and 0.8% in 2018/2019, increasing to 1.1% by 2022/2023.
Important to note is that the Scottish economy is predicted to grow at roughly half the rate of the UK as a whole (1.4% in 2018/2019). The Fraser of Allander Institute at the University of Strathclyde identifies the following two main reasons in its blog on this topic**:
Overall Finance Secretary Derek Mackay's Scottish Draft Budget announced major investments in the NHS (+£400m), transport infrastructure (+£1.2bn), education (+£1.8bn for Universities & Colleges) & affordable housing (increased to £756m). In part this has been funded by the increases in capital funding for Scotland announced in the November UK Autumn Budget. In addition the finance secretary has effectively introduced a new tax system for Scotland with the introduction of new bands as well as changes to Tax rates.
So what does all this mean for you?
1. Income Tax changes:
2. The Public sector pay cap will be lifted. Pay will increase by up to 3% for those earning less than £30,000, while those earning more than that will see up to a 2% increase (those earning more than £80,000 will see increases capped at £1,600 if maximum increase of 2% is awarded)
3. Land and Buildings Transaction Tax (LBTT) will not apply for first-time buyers for properties under £175,000 (increased from current threshold of £145,000 for all buyers)
4. A pledge to increase the Carer's allowance by Summer 2018 was made, and will be backdated to April 2018 once implemented. No further details were announced.
5. Local Government councils have been given the ability to increase Council Tax by up to 3% in the 2018-2019 revenue year. Whilst funding for local government was protected in cash terms, in real terms this is a reduction (due to inflation). As in addition local government will be expected to comply with the public sector pay policy announced, our expectation is that most councils will opt for the maximum increase of 3% for the 2018/2019 period
6. Further increases in free childcare have been announced: by 2020 parents in Scotland will be entitled to 1,140 hours of free childcare per year
7. University tuition fees remain free and £1.8bn will be given to colleges and universities via the Scottish Funding Council
8. A commitment to make SuperFast broadband available to all households (& businesses) in Scotland by 2021. Supported by £600m funding over the next 4 years
1. Remaining recommendations of the "Barclay review" of Business Rates were accepted (with one exception), and a business rate relief package was announced:
2. £340m has been allocated for the establishment of the "Scottish National Investment Bank", with £150m over the next two years to go to a "building Scotland" fund while the bank is set up
3. A new national manufacturing institute will be set up with £18m of funding
4. Business research and investment will see a 70% uplift and £10m will be provided for the new south of Scotland enterprise agency
If you would like to discuss how the Scottish Draft budget for 2018/2019 may effect you or your business, please get in touch!
* Source: "An Introductory Guide to this week's Scottish Budget", Fraser of Allandar Institute, University of Strathclyde
** Source: "The Scottish Fiscal Commission's Forecasts: An unprecedented weak outlook?", Fraser of Allandar Institute, University of Strathclyde