Public Services

Tax hikes gives Holyrood £164m public services windfall

Published 20 December 2017

Funding increase will give the SNP extra funds to support Health Services, including an extra £550m to support social care. The story is 'as you were' for IT suppliers with Scotland's digital strategy still setting the agenda for how the Scottish Government approaches transformation


Scottish Draft Budget Day comes but once a year, and this time we got more than just the usual back-and-forth. The SNP finally unveiled long-expected rises in the Scottish Income Tax Bands, and also introduced two whole new tax bands to boot. A new starter rate of 19% and an intermediate rate of 21% have been brought in alongside the basic rate of 20%. Meanwhile, the two highest rates have been increased to 41% and 46%.

This is expected to gain the Scottish Government £164m to pay for public services, with Finance Minister Derek Mackay suggesting that further rises would not have delivered any more revenue. Nevertheless, the allocation of Scottish Income Tax will continue to be managed by HMRC while Revenue Scotland will manage fully devolved taxes. GlobalData Public Sector has just published a report covering the issue around devolution and tax policy in more detail.

These funds, compared with Scotland's favourable block grant due to the Barnett Formula, means the SNP will now have extra funds to support Health Services, including providing a further £550m which has been allocated to support social care. Given that the block grant allocation to Scotland will be declining over the next few years and long-term pressures on health services continue rising, this may only be a temporary solution, but it does contrast with and highlight the inaction of the current UK government in dealing with the ongoing pressures on the NHS and social care in England & Wales. Funding boosts have also been given to education, business and research deals, and despite all the furore over the rises in income tax, the budget also includes a sneaky tax cut of £100m for businesses in Scotland.

While the political impacts of the budget may be significant, the SNP are politically on the back foot with both the Scottish Conservatives and Scottish Labour sensing a chance to take their place. However, the fundamental position of Scotland's public finances has not changed that much. Independent economic forecasts suggest that despite the weak growth in Scotland there is not too much scope to bounce back, so whoever ends up controlling the Parliament in Holyrood will face the same fiscal crunch for years to come. While this current budget may have mitigated the worst funding problems for now, it may be the first in a series where the Scottish Government looks to find other ways to raise funds to mitigate the crunch on public services.

Elsewhere, there is not too much in the budget that will shock IT suppliers. The digital strategy remains the main document on how the Scottish Government approaches transformation. There is a large emphasis on using the strategy in the Scottish digital justice system, so suppliers with experience supporting the justice system in England & Wales may see further opportunities in the near future.

The Government's most pressing technology priority remains ensuring a complete and successful rollout of superfast broadband to every household in Scotland. To this end the budget included an announcement of a £600m telecommunications opportunity to make sure that the Government's commitment to achieve this goal by 2021 remains intact. Again, those with similar experience in England & Wales should look north of the border to apply their expertise, with the Scottish Government still focused on broadband rollout.


James Wilken-Smith


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