Economist warns Johnson
‘Do not treat devolution as an after-thought’ – Roy
Graeme Roy: Both governments have a responsibility (pic: Terry Murden)
Boris Johnson’s government is adding to complications over setting Scotland’s taxes by treating devolution as an “after thought” in its decision making, says a Scottish economist.
Graeme Roy, director of the Fraser of Allander Institute, says the cancellation of the UK Budget – which was not communicated to the Scottish Government before the decision was taken – is a case in point.
In his latest economic commentary, Prof Roy says the announcement will have “significant consequences for devolved policy making”.
He says: “Whilst the Scottish Government is due to see ‘indicative’ grant allocations for next year, this is only part of the Scottish Budget story nowadays.
“The cancellation of the UK Budget throws-up all manner of implications for tax devolution and public spending.
Good fiscal systems should seek to minimise risks, not add to them– Graeme Roy, Fraser of Allander Institute
“In short, the Scottish Government will have to set policies not knowing their final budget allocations or how devolved tax policies will interact with equivalent tax policies set by the UK Government.
“Setting a Scottish Budget during such times was always going to be subject to great uncertainty. But the complex nature of Scotland’s fiscal framework – and the interactions between UK and Scottish tax and spending decisions – is only adding to these risks.
“This is not what the system was designed to do. Good fiscal systems should seek to minimise risks, not add to them.
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“An effective budget process is all the more important this year given the proximity to May’s Scottish election.”
Prof Roy adds: “Both governments have a responsibility. Yes, the Scottish Government needs to be much more open about the financial scenarios it faces.
“But the UK Government needs to have a much greater appreciation of the knock-on impact of its decisions, such as the cancellation of the Autumn Budget, on devolved policymaking.
“Devolution shouldn’t be seen as an afterthought.”
Economy ‘in limbo’
The commentary’s latest view on the economy states that in the optimistic scenario, it will take until the middle of 2021, at the earliest, to fully recover lost output. In the pessimistic scenario, it could be 2024 before a “new normal” is reached, says the commentary.
“On balance, the Institute’s weight of expectation is on the more pessimistic outlook at this stage.
“Even if a second lockdown is avoided, challenges around testing and tracing, the onset of the winter months and the infection rate of the virus itself, means that large scale social distancing is here to stay for the foreseeable future.
“Our economy is likely to remain in limbo for at least the next six months.”
Mairi Spowage, deputy director of the Institute, says: “Whilst a tentative recovery is under way, the economy is a long way off where it was before the start of the crisis.
“We have therefore reached a crucial crossroads in our recovery from the crisis.
“What happens next will depend on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors. All of these remain hugely unclear.
“What is striking about the immediate outlook is just how uncertain it is – indeed, it is hard to think of a past occasion when the range of possible outcomes has been so wide. What we can agree on however, is that the task of rebuilding our economy will take years.”
Steve Williams, senior partner for Scotland at Deloitte, says: “COVID-19 has been one of the most disruptive events that modern society and businesses have experienced, and it’s undoubtedly been a major test for leadership teams.
“As the Commentary sets out, what happens next will depend on a variety of factors, including how businesses respond.”
Commenting on the imminent withdrawal of the furlough scheme and the introduction of the Job Support Scheme, Professor Roy says: “History is likely to judge the Chancellor’s decision to pay 80% of workers’ wages during the height of the lockdown as one of the most effective policy responses to any economic crisis in history. Over nine million workers have benefited.
“The new scheme is very different, and given the relatively minor subsidy it provides for wages, it is unlikely to protect jobs, hours and incomes in those sectors who are really suffering.”