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Scottish Cities cast envious eye at new English fiscal freedoms

Paul BrewerThere was confirmation in the Chancellor’s statement that Glasgow’s city deal enjoys continued support and that discussions with Aberdeen and Inverness are ongoing, but, surprisingly, no mention yet of a deal for Edinburgh.

With the Chancellor putting the ball in the Scottish Government’s court to agree the new fiscal framework for devolution, it may be that deal making around Scotland’s cities depend on the outcome of this much bigger political deal. As a result, Scotland’s cities will now await Scottish Finance Secretary, John Swinney’s December Budget with interest.

One potential lever for cities in the pipeline is the power to lower business rates to foster growth, as announced by John Swinney last month.

But the Chancellor confirmed that English local authorities will be able to retain 100% of business rates locally and, for those English local authorities with elected mayors, they can increase business rates to pay for infrastructure projects agreed with their local businesses.

This brings many risks as well as opportunities but may leave the Scottish Cities feeling short changed on the necessary revenue powers to support growth.

Similarly on council tax, the Chancellor offered some more control to English local authorities who will be able to levy a 2% supplement on council tax to help pay for delivery of integrated health and social care.

In Scotland, where the integration of health and social care is already been implemented, it has come with no council revenue raising sweeteners. It will be interesting to see if the consultation to replace the council tax in Scotland identifies support for giving Scotland’s cities similar flexibility to deal with their spending challenges.

Scottish cities, the Northern Powerhouse and further UK city deals

Scottish cities will also need to keep one eye on the competition as councils across the UK seek to use their new levers to promote their own regions and to create centres of excellence in industries such as life sciences, digital and fin tech – all areas which cities in Scotland are also seeking to grow.

For Scotland, which has long benefitted from a more coordinated – and perhaps even competitive – offer relative to its northern neighbours, these developments should be used to ensure that international investment doesn’t move south.

The Scottish cities will want to ensure that they, like their northern neighbours, are equipped with the tools and resources to compete for growth and deal with service pressures, Consequently, they will be hoping that devolution and the opportunities presented by new powers to Scotland don’t stop at Holyrood.

The road to fiscal devolution

While the Spending Review may be over for another parliamentary session, here in Scotland, the draft Budget for 2016/2017 looms large on the horizon. On 16 December, we will find out the Scottish rate of income tax that will apply from 2016 and we may also hear more of the borrowing plans of the Scottish Government.

Since April, the Scottish Government has had the power to borrow (up to £2.2 billion) including the power to issue bonds in its own right – but it has not yet exercised those powers.

In reality, the extent to which devolved tax powers can be used is closely linked to the wider fiscal position which can be much more complex – hence the ongoing negotiations between the UK and Scottish governments on the fiscal framework needed to implement Scotland Bill 2015. If skills and infrastructure are the keys to economic growth in Scotland, how will the new powers be used to enhance Scotland’s position?

For City regions and Scotland as a whole, the key question arising from the Autumn Statement and the spending review is how these new powers will be used and how great an impact competition across the UK could have.

Paul Brewer is head of Government and Public Sector, PwC in Scotland

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