News & Insights  |  Posted December 21, 2023

Few Christmas presents for Scottish business in Humza Yousaf’s first Budget

When he became First Minister, Humza Yousaf made it an early priority for his government to reset the relationship with business. Yet the Scottish Government’s first Budget under his leadership offered firms very little as he put economic growth on hold in favour of filling a financial black hole. But with public services also being cut in key areas, how long will the SNP be able to hold the line that it is protecting them?

Yousaf’s campaign to become SNP leader was centred on him as the ‘continuity’ candidate, but on becoming Scotland’s First Minister in March this year he immediately signalled a break from his predecessor’s approach by pledging to reset the relationship with Scottish business.

Businesses had long complained that Nicola Sturgeon’s instincts were to focus on public services with the interests of business very much an afterthought; Yousaf made it an early priority to win back the trust of businesses north of the border. At the centre of his reset was the ‘New Deal for Business’.  The initiative was to enable “business and trade to thrive and maximise the opportunity of the green economy, with fairness at its heart”. Scottish firms were told that things would be different on his watch.

Business and growth not prioritised

Any business would normally expect such a strong early commitment to be followed-up in the next Scottish Budget; but in the run up to the announcement, there were signs that business would be left disappointed. The First Minister had made several costly public spending commitments, including Scotland specific pay-rises for some public sector workers and the surprise announcement at the SNP’s Annual Conference that council tax would be frozen. The weeks leading up to the budget were littered with reports that the SG was wrestling with how to fill a black hole of £1.5bn in the books. When the Deputy First Minister and Finance Secretary, Shona Robison ended her first budget statement in Holyrood on Tuesday, businesses were left severely disappointed.

The focus from the start was clearly on filling the black hole rather than finding ways to grow the economy and promote enterprise. Scottish Enterprise and the flagship Scottish National Investment Bank budgets look to be down by a combined £100m compared to last year. Various sectors were also left angry with some of the decisions that impacted them directly. For example, hospitality businesses in mainland Scotland were not impressed by the SG’s decision not to introduce a 75% rate relief like that implemented in England as part of the Autumn Budget last month. The housing sector criticised the cut of almost £190m to housebuilding.

The lack of focus on business may be a gamble coming at a time when 56° North’s latest quarterly business survey, Understanding Business, shows growing if gradual positivity about the Scottish Government’s approach to business.

Scottish Budget: Flawed narrative

This budget was about drawing a clear dividing line between the approach taken at Holyrood to that at Westminster. Robison’s talk of the SG battling to protect Scots against a Westminster Government that does “not share our values and commitment to public service”, and her comment that the SG is working at “the upper limit of mitigation that can be provided within the devolved settlement” was unambiguous in that respect. However, a quick look at the numbers shows that this narrative is not without its flaws.

There were some clear examples of where the SG had sought to prioritise and protect public services as well as policies to protect the most vulnerable. The police budget and capital funding were increased. The Scottish Fire and Rescue Service saw an uplift in its resource budget. The suspension of peak fares on ScotRail was extended another three months. School meal debt was wiped.

But there were several other key areas where public services and social policy experienced cutbacks. On housing, the budget for building social homes will be slashed by almost £200m for 2024-25 – a reduction of 26%. In transport, a total of £80 million has been cut from the ScotRail service which was nationalised just over a year ago.

Moreover, the money allocated to fund the council tax freeze will probably not be enough to stop service users at a local level feel the consequences of falling budgets. Despite the pledge for above-inflation funding of 5%, this is unlikely to placate many council leaders who were likely to have been planning to increase their council tax by a higher amount next year.

And there were the figures from the SG’s own Fiscal Commission which suggests that behavioural change will offset around 90% of the potential revenue from the increase in the top rate of tax from 47% to 48%. 

Labour watching closely

The Deputy First Minister wants voters to believe the fiscal position is in a bad way because Scotland isn’t independent and that as long as Westminster holds the purse strings, there is little they can do. The reality is that many of the financial decisions made during the SNP’s 16-year tenure as the party of Scottish government have long term consequences, and they are now caught between sticking to them or acknowledging the true cost.

It can be argued that the loser here is Scotland’s opportunity for economic growth. When a fair chunk of the annual budget is wrapped up in the public sector, there is little left to help develop growth opportunities.

While all of this may see some support from business for the SG fall, Scottish Labour, as the likeliest alternative to the SNP at the next Scottish election, still face challenges to gain their trust. Can they follow through on their recent business-friendly rhetoric and come up with policies that drive economic growth?

In the meantime, with the SG having placed so much emphasis on its role as a protector of public services, the reality of the Budget creates a serious problem for the SNP as we move into a general election year. Can they really claim to be supporting business and growing the economy when their policy fails to match their rhetoric? How long can they claim to be the champion of public services and society’s most vulnerable when they too are cutting back on key areas of public sector funding? The SNP could find itself in a position where it is unable to adequately live up any of its priorities; this would beg the question of what the SNP’s purpose is for being in government altogether.

Andy Williams

Director at 56° North

Humza Yousaf's official portrait with a Christmas bow added on top as his governemnt delivers the Scottish Budget.