Budget stall set out, modestly

Friday 21 September 2012

HAVING promised that his draft budget for 2013-14 would amount to a "relentless pursuit of economic growth", John Swinney's challenge was to find ways of increasing capital investment without reneging on other funding promises.

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Growth is not only an economic necessity but a political one for the SNP. Its emphasis on the potential of infrastructure projects to create jobs while blaming the Westminster Coalition's refusal to release more capital funding for "shovel-ready" projects demanded a focus on infrastructure. Yesterday, that produced an announcement of £180 million over two years for skills, construction and the green economy, paid for by piecing together whatever can be squeezed from elsewhere such as a £45 million reduction in the allocation to Scottish Water. The £40 million for affordable housing is not only a welcome boost for the construction industry which has been haemorraghing jobs but a practical step towards providing much-needed new homes.

Bringing forward £80 million to accelerate the school-building programme provides a similar double benefit, with the recent rise in the birth rate meaning a need for extra classrooms and rationalisation of school provision being a key part of councils' efforts to match revenues with spending. The £30 million for energy efficiency also provides both additional jobs and the tangible benefit of improving home insulation at a time when more households are being drawn into fuel poverty. The argument that investment in capital projects will provide the springboard for growth is a convincing one. Nevertheless, with the Scottish unemployment rate at 8.2% now just above the UK rate, it will be asking a lot of the money available for these construction projects to make a significant dent in the numbers out of work. There is the added danger that, having raised expectations, disappointment will turn to disillusionment if there is continuing negative growth. The 30,000 public sector workers in Scotland whose wages are controlled by the Scottish Government expressed immediate disappointment at the 1% cap on pay increases after a two-year freeze. Since many local government employees are likely to see their wages remain static for a further year, Mr Swinney could not be more generous without upsetting his already fragile agreement with the councils to freeze council tax in return for smaller budget cuts. The local authorities themselves have gained no extra leeway from Mr Swinney's juggling and, with North Lanarkshire releasing earlier this week a list of severe potential cuts to services described as unpalatable by their chief executive, it is clear that there are bruising negotiations in the offing.This illustrates the economic pressure on costly social justice policies. Maintaining the commitments on the council tax freeze, police numbers, free prescriptions, concessionary travel, university tuition and personal care for the elderly as well as protecting the NHS budget are all a political necessity if the SNP is to be regarded as trustworthy in the run-up to the referendum in 2014. These are hugely popular and politically significant policies in marking a distinctive, socially inclusive agenda in Scotland, when those such as education maintenance allowance are being jettisoned south of the Border. But they come at a rising price. In advance of the budget, the SNP made a commitment to mitigate the effects of the UK Government's welfare cuts. Yesterday Mr Swinney complied with a specific commitment to council tax benefit. The sense that the Finance Secretary is giving with one hand and taking away with the other will be most keenly felt in Scotland's colleges. The additional £17 million they will receive will still leave a shortfall of £34 million as a result of previous cuts which transferred college funding to the universities. The new money indicates the sustained criticism of taking money from vocational courses has hit home to ministers, who claimed youth employment was a priority and made much of their pledge of education, training or employment for every 16-19-year-old. It seems that Education Secretary Michael Russell has listened attentively.Traditional budget sweeteners were austerity-sized. £6 million for cycling infrastructure is a feel-good formula catching the renewed interest in cycling following the Tour de France and Olympics but transport policy remains under question with the budget cuts to the flagship Edinburgh-Glasgow rail improvement. However, an extra £1 million for elite athletes in advance of the 2014 Commonwealth Games also captures the current enthusiasm. By making the inevitable Nationalist political point that only with the full levers of independence can Scotland fully implement economic policies to effectively tackle inequality and poverty, Mr Swinney opened himself to the charge of buck-passing. But the opposition parties, with the exception of the Liberal Democrats, who would controversially sell off debt from Scottish Water to release £1.5billion have been unforthcoming about how they would increase the budget. What this budget demonstrated above all was the lack of room for manoeuvre, but boldness would have required a full-scale revision of the most cherished policies. That is not a job a Finance Secretarywants to have, but eventually the SNP will have to grasp the prickly policy problem of balancing a shrinking public purse with relatively generous social policies. For the next year, Mr Swinney must trust that the economy will pick up sufficiently to allow his tweaking to realise its full potential. But he will be under pressure to take a more radical approach next year, and display more imagination in loosening Westminster's constraints if, with all eyes on the economy, he is to demonstrate convincingly that full control of the economic levers in Edinburgh will deliver the benefits he claims. Mr Swinney has set out his stall for the last full financial year before the referndum. Much hinges on how it is viewed. The economy will, after all, be a vital factor in the debate in 2014.

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Budget stall set out, modestly

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