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Johnstone's View 1st May 2009

Last week’s budget turned out to be one of the most controversial of recent times, generating an overwhelmingly negative reaction. The growth forecasts on which the budget was based are significantly higher than those which have been calculated by the International Monetary Fund. Even on his own revised figures, the Chancellor is set to borrow £348 billion over the next two years and £703 billion over the next five years - £269 billion more than he thought he would need at the time of his autumn statement. In response to this, we are now told that the money available to the Scottish Government will be reduced by approximately £500 million in 2010/11.

Predictably, Scotland’s SNP Government has been heavily critical of the budget, claiming that it is deeply damaging for Scotland. The Scottish Conservatives however, have called on the Scottish Government to be willing to take difficult decisions on public spending in light of the budget squeeze.

Annabel Goldie said recently: “It is vital that the SNP Scottish Government, rather than whinge and moan, comes up with a concrete plan of action. Yet in Alex Salmond we have First Minister who refuses to make any difficult decisions. He is the only man in Scotland who refuses to tighten his belt and live within his means.”

These figures are stark, raw and an indication of the incredible mess Labour has made of Britain’s finances. Nobody asked for this to happen but happen it has, thanks to Labour's decade of debt. Therefore it is vital that the SNP Scottish Government, rather than whinge and moan, comes up with a concrete plan of action. Yet in we have First Minister who refuses to make any difficult decisions. He is the only man in Scotland who refuses to tighten his belt and live within his means.

What difficult choices is Alex Salmond going to make to deal with Labour’s budget squeeze? He claims that he and the Ministers have been warning us about these budget cuts since last November and yet he has no plan of action. He says it is everyone else’s problem, everyone else’s fault. When will he stand up and take responsibility for the difficult decisions? It would appear that, contrary to the SNP’s recent conference slogan, Alex Salmond doesn’t have what it takes to make tough decisions and in these distressing economic times, that is not good enough.

Any cursory look at the figures shows just how urgent the tough decisions have become. Growth in the Scottish economy has consistently lagged behind the UK as a whole. The most recent figures show a 1.7% fall in the final quarter of 2008 compared with 1.6% UK wide. Scotland’s annual growth was 0.5% compared with 0.7% UK wide. This means the Scottish economy is continuing to under perform compared to the UK as a whole, two years into an SNP Government.

Scotland’s public sector now accounts for more than half Scotland’s Gross Domestic Product, substantially ahead of the UK as a whole, and employs 22.9% of the workforce – a figure which has actually increased over the past year. The total number of people working in the public sector in Scotland has risen by 46,400 (8.7%) since 1999. Meanwhile, business Start-ups in Scotland are running at 35 per 10,000 adults compared with a figure of 42 UK wide.

Even unemployment, where Scotland does outperform the rest of the United Kingdom at 5.4%, has risen by 15,000 over the past year to 143,000.

So what of the budget it’s self and the impact it is likely to have? Firstly, the 50p top rate of tax is a mistake. High marginal tax rates can only do damage to our economy –it’s happened before and, sadly, it will now happen again. Unfortunately however, it will have to take its place in the queue of Labour’s extra taxes we need to get rid of. How do we get rid of them? By getting to grips with spending now.

The Budget should have got a grip on government spending and used the savings to introduce real help now for families and pensioners by abolishing income tax on savings for basic rate taxpayers, worth up to £7,200 a year, by raising the income tax threshold for pensioners, worth up to £400 a year and by providing help for the unemployed to up-skill and re-skill during the recession and tax incentives for companies who create new jobs.

Instead, the chancellor will now limp on for another year, making the job of recovery all the harder for the government which will follow, and for each and every one of us.