Last Wednesday’s UK Budget and Financial Statement mattered to businesses and households in Scotland for the usual two reasons. First, a number of the pronouncements are of direct relevance to Scotland, as they apply across the UK. Second, the public finance statements in particular are crucial in setting the scene for the Scottish Budget scheduled for December 9 – not least in determining the level of the “block grant” from the UK in the financial years to come.

One cloud hanging over the Chancellor as he spoke was the continuing rise in inflation, with the forecast from the Office for Budget Responsibility (OBR) that this will accelerate through 2022. This worrying trend makes this week’s meeting of the Bank of England’s Monetary Policy Committee (MPC) and the publication of the quarterly inflation report on November 3 nigh on as important as the Budget itself. Opinions within the MPC appear divided but there is a significant risk, given actual and projected inflation well above the 2% target, that interest rates will be increased earlier rather than later. The Chancellor laid the blame for rising inflation on external factors – supply-chain problems and the soaring cost of energy – but the OBR made clear its view that the impact of Brexit on that supply chain was a significant contributing factor. This was not the only element of the Budget where the Chancellor studiously ignored the adverse impact of Brexit!

Turning to direct effects on Scotland, consider first business. Mr Sunak made all the right noises about seeking to enhance productivity and encourage business investment via major funding for economic infrastructure, innovation and skills development. All very welcome, but his measures are likely to be limited in impact, and come nowhere near to offsetting the (in context huge) 4% reduction in long-term productivity that the OBR estimates as the eventual result of the UK’s departure from the EU.

Turning to households, the message is certainly mixed. The 6.6% increase next year in the National Living Wage will be very welcome for lower-income working families; likewise the change in the Universal Credit (UC) taper, which will mean UC will decline less rapidly as the incomes of the lower-paid rise.

Three points however must be noted. First, the cost of the UC taper change is less than one half of the money the Chancellor is gaining by removing the extra £20 per week on UC introduced during the pandemic. His generosity is not overwhelming! Second, movement of the Consumer Price Index up towards 5% next year, as anticipated by the OBR, will take away most of the gains in net incomes resulting from the increase in the National Living Wage and the reduced UC taper. Incidentally it also implies reductions in net take-home pay for middle-income earners.

Most importantly, the changes Mr Sunak announced have no positive impact whatever on those not working, for whatever reason. These folk will face the full impact of the cut in UC, and the rapid rise in inflation, with no offsetting upsides. We have yet to learn much about his “levelling-up” proposals, but there can be no doubt that this Budget works to significantly increase inequalities in the UK, and places at risk households with no working members. That must be one point to ponder for the Scottish Government, given its commitment to working to reduce inequalities across the board.

Before turning to the implications for Scotland’s Budget, let me mention one other notable omission at the UK level – namely working towards achieving a reduction in carbon emissions. Given the proximity of COP26 a focus on lower carbon might have been expected. But the reverse applies. There was the now standard – if short-sighted – decision not to raise tax on petrol. This was to be an annual increase, which has now been dodged for a decade. Second, there is to be major investment in roads, again working to increase use of vehicles and hence carbon emissions. Finally there is the perverse decision to reduce Air Passenger Duty for internal flights. The increase in APD on ultra-long-haul flights makes sense to help reduce emissions, but why reduce APD on all internal flights which in many instances compete with lower-emission rail transport? Such a reduction might well make sense in Scotland, for social and redistributive reasons, for flights to the Western and Northern Isles; but not for flights from Manchester or Newcastle (or indeed Glasgow) to London!

Probably the key factor so far as Scottish Budget deliberations are concerned is the substantial increase in the Barnett formula-calculated block grant – an average of £4.6 billion per annum over the forecast period. In aggregate this is welcome, but difficult allocation decisions remain. In England the bulk of the increase in public expenditure will, understandably, be for the health service. Scotland will have to determine its own allocations and may wish to look carefully at the financial position of already financially stretched local authorities, which look to be facing further belt-tightening in England.

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Also decisions will be required on business rates. The Chancellor’s business rates review looks less than comprehensive, but he has announced a 50% discount for the retail, hospitality and leisure sectors. This does not apply in Scotland, but under the Barnett rules results in a further net addition to the Scottish Budget. Many businesses have argued fiercely that this cut should be at least matched in Scotland when the present 100% relief ends next April. That argument looks irrefutable.

But perhaps the two top priorities for that Scottish Budget will be to consider if there are any moves that could be made to offset the seriously damaging effects of Universal Credit changes on households with no wage earners; and whether moves can be made under devolved powers to work towards carbon reductions – when this has been studiously ignored at Westminster. If reducing inequalities and moving to carbon neutrality are at the top of the Holyrood Government’s agenda, then action as well as words looks to be required.