Scotland’s Budget: Focus on What Spending Delivers, Not Just How Much It Costs

The David Hume Institute has called for a more strategic approach to Scotland’s economic spending, arguing that public investment must be judged by the economic capacity it creates, not simply the amount of money spent.

In its submission to the Scottish Parliament’s Economy, Tourism and Energy Committee’s pre-Budget scrutiny for 2027–28, the Institute argues that constrained public finances make it more important than ever to prioritise investment that strengthens productivity, encourages business investment and innovation, supports employment and improves living standards.

With public spending under pressure and funding for the economy, tourism and energy portfolios expected to fall in real terms, the Institute argues that across-the-board reductions risk overlooking investments that could deliver significant long-term benefits.

Instead, the Government should assess major programmes against clear criteria: what problem are they intended to solve, why is public intervention necessary, what would happen without it, and what lasting economic benefits will they generate?

The submission identifies five priorities:

• Improving productivity and business investment

• Developing infrastructure that enables economic activity

• Making better use of people’s skills

• Strengthening innovation and economic resilience

• Ensuring Scotland’s energy transition creates lasting benefits for domestic businesses and workers.

It also calls for a more rigorous approach to evaluating public spending. Counting businesses supported, projects delivered or visitors attracted tells only part of the story. Policymakers must also establish what changed as a result of spending, whether benefits would have occurred anyway, and how much economic value was retained in Scotland.

Crucially, the Institute argues that economic performance cannot be considered in isolation from other policy areas. Housing, transport, skills, financial wellbeing, energy and planning all influence productivity and investment.

The submission’s central message is that Scotland needs a longer-term perspective on public finances, recognising the trade-offs between immediate spending pressures and investments whose benefits may take years to emerge.

As the Institute concludes, the question for Scotland’s 2027–28 Budget should not simply be how much the country can afford to spend, but what can Scotland afford not to invest in?

Blog: A View from the Lab

by Shelagh Young, Engagement Lead, David Hume Institute

25th September 2022

Friday’s “fiscal event” has proved to be a powerful curtain raiser for new research we are launching later this week exploring how ordinary people are coping with growing risks to their financial wellbeing.

Image credit: Photo by Louis Reed free from Unsplash 25.09.2022

If you feel like a rat trapped in the Trussonomics laboratory unsure whether the trickle down drug will cure your financial ills, you are not alone. The markets have already announced their damning verdict on the risks being taken with the UK economy as the pound tumbled and money was sucked out of pension funds at a rate which will have a substantial number of people rapidly recalculating their retirement plans.

Even impartial commentators such as the Institute of Fiscal Studies, have referred to the UK Government’s decisions as a gamble. Chancellor Kwasi Kwarteng maintains that the tax cuts will benefit everyone while others have named it a “budget for the rich”. 

However it is described, the facts are clear. At the sharpest ends the tax cuts announced will give the average FTSE100 CEO a return of £162,500 a year while the Resolution Foundation has calculated the annual benefit to the poorest fifth of households at just £90. That staggering difference means the difference between paying your energy standing charges for just four months while the richest receive a tax cut worth more than 99% of the UK population are paid in a year.

The risks to the Government are obvious - electoral success in 2024 surely lies in ensuring that their hoped for economic growth meets the needs of our struggling NHS and social care systems as well as enabling people outside the top 1% to feel their living standards are protected. The risks to the rest of the population vary. Most obvious are reduced returns from pensions and other investments if markets slump further and the spectre of further austerity measures if the large scale public borrowing is not mitigated by growth.  

One tiny part of this unprecedented low tax, high spending, banker’s bonus bonanza of a budget provided a clue as to who is most at risk if the gamble doesn’t pay off. The decision to require low paid part-time workers who receive income top-ups through Universal Credit to seek more paid working hours. 

In August we surveyed how people in Scotland are responding to the cost of living challenge. 9% had already tried and failed to find more hours of work. The devil will be in the under-researched detail, but it is interesting to know why people cannot find more paid work when businesses are crying out for staff. Is it well-known barriers such as the fact that hospitality requires evening work which doesn’t fit with caring responsibilities or that wages are too low to cover the costs of additional child or elder care? This is the type of evidence that should be driving the Government’s policy. Instead, our poorest households are being forced into the vanguard of an unprecedented experiment.

The “fiscal loosening”  prescribed by Kwasi Kwarteng is based on the belief that low taxes and a small state are the treatment for fuelling growth.  Unlike the markets, business organisations have welcomed the approach but if the rest of the lab rats had been given a vote would they have chosen to test this risky drug?