The Scottish Government can ease cost pressures by using devolved tax powers to generate revenue in the face of extreme financial pressures, an economic research institute has said.
Strathclyde University’s Fraser of Allander Institute’s pre-budget report has suggested the upcoming financial year has its challenges – but emphasises ministers can soften the damage.
Deputy First Minister John Swinney, who is acting as Finance Secretary while Kate Forbes is on maternity leave, will deliver the 2023/24 budget on Thursday.
But he said the extreme financial pressures facing the country will prevent the Scottish Government from going as far as it would like in helping people through the cost-of-living crisis.
The budget will instead prioritise tackling child poverty, delivering net zero and developing sustainable public services.
READ MORE: What to expect from the Scottish Budget
The institute’s report has also said the UK Government’s autumn statement, which will see Scotland receive an extra £1.5 billion over 2023/24 and 2024/25, will more or less offset the inflationary impacts to the Scottish economy.
Professor Mairi Spowage, director of the Institute, said: “John Swinney is getting set to present his first budget in seven years, in what he acknowledged is an unprecedently tricky time for the Scottish public finances.
“The challenges he has been dealing with for 2022/23 ease a bit for 2023/24: there was some additional money announced at the autumn statement which generated around £1 billion of consequentials, offsetting the inflationary pressures on the budget.
“But there is also flexibility that the Deputy First Minister has for the next financial year that were not available to him for this year – the Scottish Government does have tax powers that could be used, if he wishes, to raise more revenue.”
Emma Congreve, deputy director, said: “In amongst all the headline-grabbing decisions, it will be important to take a step back to see how this budget helps Scotland achieve its long-term ambitions.
“We are expecting that the Government will set out, clearly and transparently, the choices it has made and what the impact, both good and bad, will be for policy outcomes and the impacts on different groups.”
Responding to the institute’s report, Mr Swinney said the Government had acted “decisively” to provide what support it could.
READ MORE: John Swinney warned justice services will hit 'unacceptable levels'
He said: “However, given the fiscal constraints of devolution, it is not possible to go as far as we would like and so the Budget will prioritise three areas – eradicating child poverty, transforming the economy to deliver net zero and creating sustainable public services.
“Difficult decisions are required and resources will be targeted where they are most needed and can secure maximum value from every pound spent.
“The economic challenges we face also require a fundamental change in the way we manage public spending.
“The Bank of England is predicting the longest recession for a century, so this Budget will set in motion reforms that will place our finances and public services on a more sustainable and resilient footing for the future.
“Proposals on tax policy for 2023-24 will be also be published as part of the Budget.
“This is a time for firm leadership and bold decision-making. Steps we take now will help ensure Scotland emerges from the current crisis a stronger, fairer, greener country.”
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