Autumn Statement 2016: response from Scotland's Finance Secretary

Cabinet Secretary for Finance and the Constitution Derek Mackay MSP responds to the UK Chancellor's Autumn 2016 Statement.

Presiding Officer, I would like to take the opportunity to respond to the Autumn Statement delivered by the Chancellor last week, and to set out the implications it will have for Scotland's public finances and wider economy.

The Autumn Statement, and the accompanying analysis from the Office for Budget Responsibility (OBR), starkly highlighted the detrimental impact that Brexit and the UK Government's approach to the negotiations is having on the economy and the UK's public finances.

The Scottish economy demonstrated its underlying resilience prior to the EU referendum in the face of considerable external headwinds. GDP grew by 0.4% in the second quarter of this year, wages grew in real terms over the past year and the labour market has continued to strengthen.

The most recent labour market data shows that the unemployment rate has now fallen to 4.7%, the lowest rate since 2008 and below that of the UK. The number of people in employment in Scotland has also increased by over 166,000 since 2010.

The Scottish economy is therefore well placed to face the challenges which are likely to emerge over the coming year.

However, it is clear that Brexit has significantly increased economic uncertainty, and has damaged business confidence and investment intentions.

The forecasts set out by the OBR anticipate that Brexit will lead to:

  • investment being postponed or cancelled;

  • higher inflation squeezing households' real incomes; and

  • reduced trade with the EU.

This in turn is expected to lead to lower economic growth, lower wages and lower tax revenues, and in turn higher borrowing and debt.

As a result of lower growth, the OBR now forecast that borrowing over the next five years will be over £110 billion higher than forecast in March, with the OBR attributing £59 billion of this increase solely to Brexit.

And it is clear that the deteriorating outlook for the UK economy, and the UK Government's austerity policies, will hit low income families hardest.

Analysis by the Institute for Fiscal Studies shows that as a result of Brexit reducing growth and increasing inflation, by 2021 average real wages will still be lower than they were in 2008.

That implies 13 years without any growth in real wages – the longest period of stagnant wages since World War II.

Presiding Officer, the true cost of Brexit has been laid bare by this UK Chancellor.

And, as our nation continues to debate our constitutional future, the choice we face is become clearer.

If we are stuck with the hard-right hard Brexit, we face lower growth, more borrowing, higher debt and higher inflation hitting hard-pressed families.

That is one future Scotland now faces.

I believe we must build a different future. We must give Scotland a different choice.

In the face of a deteriorating economic outlook, the Chancellor had a choice to make on fiscal policy. He had the opportunity to take a fresh approach and to abandon his predecessors' rigid adherence to austerity.

However despite the rhetoric of resetting fiscal policy under the Chancellor's plans, Scotland will continue to see a real terms cut to the funding that it receives to pay for public services. By the period 2019 to 2020, the Scottish Government's discretionary budget – the fiscal Departmental Expenditure Limits (DEL) – is expected to be more than 9% lower in real terms than it was in 2010 and 2011, reducing the scope we have to mitigate Westminster austerity and invest in growing our economy.

And this is before we see the impact of £3.5 billion of additional, and so far unallocated, cuts that the Chancellor has confirmed he plans to impose by 2020.

The Chancellor announced some welcome capital investment in the Autumn Statement which will provide consequentials for Scotland and we will use every penny available to us to invest in supporting our economy. However, again this is simply moderating the cuts which have already been imposed on the Scottish budget.

Scotland's capital budget will still be around 8% lower in real terms in 2019 and 2020 than it was prior to the start of the UK Government's austerity programme.

Despite this, in contrast to the silence and inaction of the UK Government we have already taken swift action in the wake of Brexit to support the economy by bringing forward an additional £100 million of capital investment.

We are working hard to secure Scotland's continued relationship with Europe and have already set out plans for a £500 million Scottish Growth Scheme to support businesses.

Where the UK Government last week failed to adjust economic policy for the impact of Brexit, this government is using every lever at our disposal to protect Scotland's economy.

And let us also be clear where the Chancellor failed to act to protect Scotland's economy. Last weeks' Statement failed once again to offer support to our North Sea Oil and Gas industry. Support for exploration would help secure future investment. The Chancellor chose not to make that support available and I will be raising that with him when we meet tomorrow.

Presiding Officer, I will also be raising what is perhaps the most concerning aspect of the Autumn Statement – the lack of measures to help low income households.

Instead of supporting households in the face of a deteriorating economic outlook, the policies being pursued by Westminster are exacerbating the situation.

The reforms to tax and social security being implemented by the UK Government are highly regressive and the limited support provided in the Autumn Statement is dwarfed by the social security cuts which have already been announced.

For example, the Resolution Foundation estimate that, as a result of changes to the economic outlook and policy measures being implemented during this Parliament, a dual earning family with three children on low incomes will be £3,650 a year worse off by 2020.

Likewise, it estimates that a lone parent working part time on the National Living Wage could be £2,640 a year worse off – that is equivalent to an 18% cut in their household income.

Virtually all households would struggle in the face of an 18% cut to their income. However, for households who are already dealing with rising bills, and have little spare income, a cut on this scale is simply unacceptable.

Hard working families should not have to pick up the tab of the UK Government's austerity policies and their decision to leave the EU. Scotland did not vote for Brexit yet this renewed economic squeeze is going to hit families here, many of whom are already struggling to make ends meet.

And despite these cuts, the UK Government is pressing on with its policy of giving the top 10% of the adult population a significant tax cut by raising the Higher Rate threshold.

So, there we have the UK Government in a nutshell: the lowest income families are hammered, while the better off are given tax cuts.

Presiding Officer, this government is taking a different approach to growing our economy and building a more equal society.

We will set out the full details of our income tax policy in the Draft Budget on 15 December but I can confirm today that we will use our tax powers to set Scotland on a fairer, more progressive path than the one charted by the UK Government.

Let me be crystal clear: this is not the time to give large tax cuts for those on the highest incomes.

Presiding Officer, we will maintain our commitment to support people in Scotland affected by the UK Government's cuts to social security, via the Scottish Welfare Fund, mitigating the Bedroom Tax, and through the council tax reduction scheme.

When we gain powers over £2.7 billion of social security spending in 2018 and 2019, we will seize the opportunity to improve the support people receive where possible.

In two weeks I will bring forward my Draft Budget proposals. Unlike the missed opportunities in UK Government's Autumn Statement, we will ensure our proposals support our economy, tackle the inequalities in our society, and protect high-quality public services for all.

We are a government for all our people and I will bring forward a Budget for everyone.

In the Draft Budget we will build on the actions we have taken by delivering the ambitious infrastructure investment programme, set out in the Programme for Government, including significant investments in affordable housing, digital, energy efficiency, transport and health.

We will take the first steps on our commitment to further expand early learning and childcare to 1,140 hours a year and increase funding for the NHS over the life of this Parliament.

We will protect the police resource budget in real terms while providing direct funding to schools to improve attainment.

We will continue to mitigate the worst impacts of UK austerity and build a social security system based upon dignity and respect.

I look forward to setting out our budget proposals on 15 December.



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