Spring Statement must deliver clarity on Brexit impact

The UK Government must use their 2018 Spring Statement to provide greater clarity for people and business over the Brexit process, including the future of EU funding, and address the threat facing our economy as a result of Brexit.

In a letter to the Chancellor ahead of his response to the updated economic and fiscal forecasts, Finance Secretary Derek Mackay has called on the UK Government to meaningfully engage with the Scottish Government on the implications of exiting the EU to ensure Scotland’s economic and social interests are protected. The Scottish Government has been clear that any costs related to EU exit should not have a detrimental impact on Scotland’s public finances.

Mr Mackay has also reiterated calls for the UK Government to commit to ending unnecessary austerity which disproportionately impacts the poorest and most vulnerable in our society and to provide greater clarity on their Public Sector Pay position across all workforces, especially in light of the Scottish Government’s progressive approach to public sector pay that invests in public services and addresses income inequality.

Background
The Finance Secretary’s letter to the Chancellor was issued on 09^th March 2018. A copy of the letter is below.

Dear Philip,

I am writing to set out the key issues that the Scottish Government wishes to raise ahead of your Spring Statement response to updated economic and fiscal forecasts for the UK economy on 13^th March.

Brexit

Brexit remains the biggest uncertainty hampering further economic growth. I want once again to call on the UK Government to give people and businesses greater certainty on the Brexit process and to reiterate the need for the UK Government to engage meaningfully with the Scottish Government on the implications of exiting the EU. We have made our own economic analysis, Scotland’s Place in Europe: People, Jobs and Investment, fully public and transparent. This analysis makes clear that the impact on the Scottish economy of a ‘no-deal’ scenario would be devastating. It is clear that staying in the single market and customs union is vital for Scotland’s economic and social interests and that leaving the single market and customs union will significantly weaken our economy compared to continuing EU membership.

Funding Allocations

In the Autumn budget you confirmed your intention to cut the block grant that Scotland receives for day-to-day spending by over £500 million in real terms over the next two financial years. Over the ten years to 2019-20 the Scottish Government’s discretionary budget allocation will have been cut by £2.6 billion in real terms. While the actions that we have taken on taxation have allowed us to increase our budget in real terms, Scotland’s new taxation powers should not exist simply to mitigate against UK Government austerity. I once again urge you to end your programme of austerity and provide the resources that our public services need.

It is imperative that the UK Government urgently provides details of how it plans to mitigate the significant impacts of leaving the EU, and how the £3 billion funding for EU exit preparations which was announced at last year’s Autumn Budget will be allocated. Scotland must have its fair share of this funding.  

The people of Scotland voted overwhelmingly to remain in the EU and the Scottish Government firmly believes that Scotland’s public finances should not bear the costs of EU exit.

We have been absolutely clear that Scotland must not be any worse off in respect of the funding allocations that replace those provided from the EU, and that they must be focused on delivering inclusive growth.

The UK-EU Report of 8 December 2017 sets out that current EU funding would continue until the end of the current Multiannual Financial Framework if the EU agrees to a transition period. Whilst that may help those organisations across both Scotland and the rest of the UK to continue to deliver key support, it does nothing for the future.  European Structural Funding has provided essential support over decades to help those who need it most in our society to achieve their full potential as well as delivering vital regional support. 

I understand that you are planning to consult on your proposed Shared Prosperity Fund in 2018, which if we end up with a hard Brexit is too little, too late since it would have to be in place by March 2019. My colleague, the Cabinet Secretary for Economy, Jobs and Fair Work has been calling for engagement in the design and operation of the Fund to ensure it meets the needs of all parts of the UK as well as respecting the devolution settlements. 

It is also essential to have greater clarity on the situation for the Common Agricultural Policy and other rural funding, which my colleague the Cabinet Secretary for Rural Economy and Connectivity has raised with the Secretary of State for Environment, Food and Rural Affairs on numerous occasions, most recently at their meeting on 26 February.

Public Sector Pay

Despite the continuing cuts the UK Government has imposed on our block grant, this Scottish Government has delivered on its promise on public sector pay setting a 3% pay increase for those earning up to £36,500, which has the potential to benefit three quarters of Scotland’s public sector workforce.  This Policy also provides for a 2% increase in the baseline paybill for those earning between £36,500 and less than £80,000 and limits increases beyond that to £1,600.  Our Public Sector Pay Policy is progressive and sets an important direction of travel, one that invests in public services, addresses income inequality, while balancing cost of living pressures with affordability.  An approach that both public sector workers and wider society would expect from a responsible government.

As we move forward with implementing our pay award for 2018–19 in a fiscally responsible way, I would welcome greater clarity on the UK Government's position on Public Sector Pay across all workforces. In particular, it would be useful to understand the outcome of the discussions on NHS pay structure modernisation that you stated were underway at the Autumn Budget. It is time to commit to ending unnecessary austerity and use what fiscal headroom you may have to provide additional resources to benefit hard-pressed public sector workers across the UK.

Police Scotland and Scottish Fire and Rescue Service VAT

I appreciate you finally seeing sense on the issue of Police and Fire VAT in Scotland. We have ensured that communities in Scotland directly benefit from the additional £35 million spending power this allows our emergency services.  However, the overdue change from April 2018 still leaves the inequitable treatment emergency services in Scotland have suffered for the last 5 years and the £175 million already paid to HMRC.  This resource should be rightfully returned to Scotland to further benefit community safety.

I trust that you will consider the issues I have outlined above, and that you will reflect them in your Spring Statement on 13^th March.

Yours sincerely,

Derek Mackay