Don’t count on it

Budget calculations

The Scottish Draft Budget proposals laid out by Finance Secretary Derek MacKay has so far received a warmer welcome than the Budget presented recently by his Westminster counter-part The Rt Hon Philip Hammond – but will it get through parliament?

by Antony Begley

Against the backdrop of the political and economic quagmire that is Brexit, Scottish Finance Secretary Derek Mackay has laid out his plans for how tax and spending will be managed for the coming year at Holyrood. At first glance, his proposals seem to offer a fair bit more to Scotland’s local retailing community than the Budget outlined not so long ago by his English counter-part, Chancellor of the Exchequer The Rt Hon Philip Hammond MP. Indeed, Mackay’s Budget has received relatively positive positive feedback from the retailing and wholesaling sectors.

The Scottish Grocers’ Federation (SGF) was quick to applaud Mackay’s commitment to capping business rate rises and his intention to maintain the Small Business Bonus Scheme while the Scottish Wholesale Association’s (SWA) new Chief Executive Colin Smith welcomed “the decision to scrap the proposed new business rates levy and the decision to cap the increase on business rates at the below inflation rate of 2.1%”.

What does it mean for retailers?

But what exactly would Mackay’s Scottish Draft Budget mean for local retailers and, just as important, will he be able to get it through parliament in one piece?

Mackay would argue that the proposals were once again aimed at helping the less privileged in Scotland with the new five-band income tax regime that came into force earlier this year being maintained at the current rates. In the Budget document, however, he proposes increasing the starter and basic rate thresholds by inflation in a move designed to help the lowest paid.

At the other end of the pay spectrum, the higher rate income tax threshold has been frozen at £43,430 which sets Scotland apart from the rest of the UK where the threshold will go up to £50,000 from April. Scots higher earners will continue to pay a rate of 41% on earnings between £43,430 and £150,000 while those earning more than £150,000 will pay 46%.

When it comes to business support, Mackay said the Scottish government’s Small Business Bonus Scheme is to be maintained, while the non-domestic poundage rates paid by businesses will see a” below-inflation increase”.

A new £5bn capital investment commitment was unveiled to help accelerate the modernisation of Scotland’s infrastructure and a new £50m fund would be set up to help regenerate run down high streets. Initial funding of £130m towards the establishment of a Scottish National Investment Bank has also been earmarked.

The Scottish government has also committed more cash to the £2.9bn justice budget and claims that this means the police resource budget will be protected in real terms, something that may be welcomed by retailers who face crime and abuse on a daily basis.

Scottish Budget: key points
  • Out-of-Town levy – This proposed levy will not be introduced but the Scottish Government will keep this under review.
  • Town Centres – In order to support town centres there will be a £50m capital fund to support them to diversify
  • Income tax rates – They will remain the same as last year and so this will see 99% of tax payers seeing no increase however starter and lower rate threshold will be increased by inflation to protect lowest earners. The high rate threshold will be frozen.
  • Business rates – they will not go up as much as inflation but rather by 2.1%
  • Small Business Bonus Scheme – the Scottish Government remain committed to the scheme.

SGF Head of Public Affairs John Lee commented: “We welcome the announcement in the Scottish Budget that the increase in the business rate poundage will be capped at a below inflation level of 2.1%. Finance Secretary Derek Mackay said that the decisions on business rates also mean that more than 90% of properties in Scotland will be charged a lower tax rate than the rest of the UK.

“Business rates are one of the main costs that retailers face and we welcome the Scottish government’s commitment to capping the rate rise. Retailers face significant pressure from a range of costs in a hyper-competitive market and any measure which assists in keep costs down is beneficial. SGF also welcomes the announcement that the Scottish government will maintain the Small Business Bonus Scheme.”

Meanwhile, the SWA also broadly welcomed a number of announcements in Mackay’s Draft Budget. SWA Chief Executive Colin Smith applauded the “decision to rule out an out-of-town levy for businesses at the moment although Finance Secretary Derek Mackay said it would be kept under review”. He commented: “SWA welcomes the decision to scrap the proposed new business rates levy and the decision to cap the increase on business rates at the below inflation rate of 2.1%. This will come as welcome relief to SWA members’ customers. We also welcome the announcement that the Scottish Government will maintain the Small Business Bonus Scheme.”

Smith also praised the new £50m capital fund to support town centres to diversify and develop, a move that would “boost small businesses across the country”.

Will the budget get through parliament?

It is worth bearing in mind that this is a Draft Budget and still requires to be voted through the Scottish Parliament with that final vote likely to take place in February. The SNP is currently a minority administration so it will require support from other parties to get the Budget signed off and in the current economic and political climate, that task could prove to be more than a little tricky.

For the last couple of years the SNP has been able to rely on the support of the Scottish Greens but continued support from them looks increasingly unlikely as the Greens are suggesting that they won’t even enter negotiations until they see movement towards the major reform of local government funding that they are seeking. Indeed, they could see this as a prime opportunity to drive their own agenda forward as they appear to hold the key to getting the Draft Budget through parliament and may choose to leverage that power for their own ends.

The Lib Dems are refusing to play ball until the SNP distances itself from a new independence referendum while the support of Labour and the Conservatives is extremely unlikely at the moment.

This may present the Greens with a golden opportunity to make progress on its vision of replacing the council tax in return for its support.

There is much to be resolved between now and the final vote and retailers can only hope that the positive measures proposed in the Draft Budget make it through the horse-trading intact.