Everyone wants more government spending and everyone wants less tax.
It’s the annual dilemma for which the Chancellor’s magic red box has to provide an answer. Rachel Reeves’ budget made it more difficult to resolve this year by ruling out more borrowing and doubling the contingency reserve. Scotland comes out with a fairly raw deal and it presents the SNP with a tough challenge before the Scottish parliamentary elections in May.
The block grant to The Scottish Government goes up by £820 million over the next five years, because, Ms Reeves pointed out, the Scottish Labour leader, Anas Sarwar, had asked for it. But Shona Robison, the Finance Secretary, says he should have asked for more, because it pales into insignificance compared to the £2 billion increase in government expenditure caused by the Chancellor’s national insurance increase last year, or indeed the total block grant of £50 billion a year.
Another thing Mr Sarwar had asked for was the ending of the two-child limit on child benefit. Ms Reeves granted his wish, to much cheering from Labour MPs. The Scottish Government has already been spending £120 million a year mitigating the limit and it will now be able to spend that money on further measures to reduce child poverty from a disgraceful 24 per cent. In a rather heartless remark, the Conservative leader Russell Findlay told parliament he wants the money to be spent reducing taxes.
On income tax, Ms Reeves has set Ms Robson a real challenge. Will she match the freeze on thresholds and bring more people into higher tax bands or will she leave them as they are and forgo the increase in tax revenue? And this, just before the Scottish elections on 7 May.
Then there’s the “mansion tax”. Will Shona Robson introduce a similar tax here? Anyone in England owning a house worth more than £2 million will have to pay an extra council tax of £2,500 a year. This would be an ideal moment to reform the council tax in Scotland – a reform which the SNP has promised for the last 18 years.
One of the big omissions in the Reeves’ budget was a mention of the windfall tax on oil and gas companies. It seemed the whole of Aberdeen was campaigning to have the tax reduced, arguing that a thousand jobs a month were being lost because the oil companies were cutting back on their investments. The figure was plucked from a report by Robert Gordon University and used by the oil companies, the Aberdeen Chamber of Commerce and even The Scottish Government, to press the Chancellor to end the windfall tax immediately, or at least by 2030.
But the figures need to be set in context. The oil industry is already winding down, 70,000 jobs have been shed in the last ten years. Other sectors of the economy are losing jobs, 11,000 in the last year. And we are supposed to be in the middle of a transition to renewable energy. It’s worth quoting another conclusion of the Robert Gordon’s study:
“The UK oil and gas workforce declined by around 5,000 jobs, from approximately 120,000 in 2023 to around 115,000 in 2024 (± 3% range), while the renewables workforce increased from approximately 34,000 to close to 39,000.”
So, although it doesn’t feel like it, the transition is slowly taking place.
The windfall tax only accounts for 38 per cent of the much-quoted headline tax rate of 78 per cent. And it’s much the same as the headline rate in Norway which is pressing ahead with its drilling programme. The UK Government is also allowing oil companies to open new wells in their existing fields, almost breaking its manifesto promise not to licence any new oil or gas fields.
It seems to me, if we want to continue funding the NHS and other public services and end the two-child welfare cap, and re-pay government debt, the £26 billion required must come from somewhere and £2 billion from the profits of the oil companies is a fair contribution.
In short, Rachel Reeves has solved the tax/spend dilemma without causing too much damage to Labour’s electoral chances in Scotland – at least outside the North East. The party is starting from a low ebb (only 20 per cent support in the opinion polls) but the budget has put the SNP in a tight spot just before an election. And it’s now up to Shona Robison to perform the red box trick herself when she announces her budget on 13 January.
Budgets are always passionate affairs. There are big issues at stake – the cost of living, the state of the economy and the public services, taxes and spending. On Wednesday the House of Commons was understandably noisy and Rachel Reeves came alive for the first time that I’d noticed. The Conservative leader Kemi Badenoch was also passionate. So too was Shona Robison when she appeared later on the radio and television. I was glad to see that politics is more than platitudinous speeches by automatons. It is alive and well and lives in our hearts and minds.
