UK Budget sparks 'worrying' outlook for public spending, says expert

Following Chancellor Jeremy Hunt's fiscal speech last week, the Institute for Fiscal Studies accused both the Tories and Labour of a “conspiracy of silence” over cuts, outlining that currency UK Government policy – which has been backed by Keir Starmer – implies a real-terms cut to net public sector investment of more than 25% between 2024–25 and 2028–29.

This has led to warnings from the SNP of another “decade of austerity” and Mairi Spowage, director of the Fraser of Allander Institute at the University of Strathclyde, has insisted Scots have reason to be concerned by the poor outlook for public spending.

She told the Sunday National: “I think it’s a difficult outlook. The UK has quite a lot of debt now after Covid and all the money we spent to get businesses and people through it.

"I think we’re all in general agreement the debt is too high and needs to come down at some point.

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“So either we need to pay more tax and invest in public services that way or we need to cut spending.

"I guess one of the things that some have expressed frustration over with the Chancellor’s fiscal rules is that they treat different types of spending essentially the same, like day-to-day spending is the same as investment spending.

“From an economic point of view, and thinking about the positive effects it can generate in the economy, investment spending is likely to have a bigger impact.

“The fact the outlook for public sector investment spending is so poor is very worrying because that’s the sort of spending that’s most likely to generate growth in the economy.”

Hunt chose to keep indicative spending plans at 1% real-terms growth in day-to-day spending - which will have come as a disappointment to Finance Minister Shona Robison, who had urged the Tories to prioritise public spending over cutting taxes as this would have created more Barnett consequentials for her Government.

Barnett consequentials of £295 million were announced for 2024/25, but they have been described as "nowhere near enough" by the First Minister who claimed the cut to National Insurance and the Autumn Statement last year will mean £1.6 billion less in “potential consequentials” for Scotland.

Instead, the main headline from the Spring Budget was a 2p cut to the main rate of employee and self-employed National Insurance – something that affects everyone in the UK - which was well-known about in advance of last Wednesday’s big reveal.

Spowage (below) said it was a shock to her and colleagues that Hunt did not have any other major offerings up his sleeve, leading her to wonder if it really will be the last Budget we get before an election.

“It was an anti-climax,” she said. “It does open up the question of whether they’re going to continue to cut National Insurance.

"From what Hunt said after, he sounds like he’s quite keen on reducing it further if he can.”

Spowage added: “The Conservatives want to be signalling they have a direction of travel which is ‘we know taxes are very high and we will start to cut them when it’s responsible' and this is the beginning of that.

“The slightly underwhelming thing about the Budget was there weren't any further surprises. It leads one to [wonder] if there will be another fiscal event before the election.

“The sheer amount of briefing [before budgets] has increased in recent years. The amount of detail and knowledge there was of the different rounds of the [Office for Budget Responsibility] forecast and how much fiscal headroom [Hunt] had, I’ve never seen anything like it.

READ MORE: Scottish Government reacts to Spring Budget as spending cuts expected

“I suppose it may be to do with expectation management. Everyone was waiting for ‘the thing’ he hadn’t briefed on and there was nothing.”

Scotland has not only been hit with a poor outlook for public spending, but it was also revealed the block grant Scotland receives that makes up the bulk of its funding each year has hit its lowest level since devolution.

New analysis from the House of Commons Library suggests that the block grant will consist of just 3.5% of UK Government spending in 2023/24 and 2024/25.

The UK Budget also provided no more funding for capital in Scotland for 2024/25.

Ex-finance secretary Kate Forbes (above) said the Tories' “doom and gloom” economic approach has left Scotland “between a rock and a hard place”.

She said: “We can’t grow our way out of the crisis because of economic mismanagement by the Tories and they’re not spending money and so we can’t get consequential funding for public services, or infrastructure or capital spending.

“It is doom and gloom - and the fact they think they can win an election off the back of this is laughable.”

But she added the really disconcerting point is Labour being supportive of current UK Government policy, with national campaign coordinator Pat McFadden admitting on BBC Newsnight the party supports all of the Tory Budget and has identical fiscal rules.

Forbes said: “We are so completely beholden to what the UK Government does and the real pessimism comes from the fact Labour have said they are not going to turn on the spending taps either.

"So we can assume that no matter who is in government, the Barnett impact would be very similar.

“It’s a really uninspiring Budget that’s come after an uninspiring economic performance under the Tories.”