Scotland’s new first minister faces huge fiscal challenges

by Elliot Keck, investigations campaign manager


Earlier this week, Humza Yousaf was announced as Nicola Sturgeon’s successor as leader of the Scottish National Party. Consequently, he replaced her as first minister of Scotland, taking office two days later and forming a new devolved government in Holyrood.


But his time for celebration ought to be brief. Because in his in-tray is a series of enormous problems that Scottish taxpayers are contending with.


  • The Economy


Scotland’s economy, like the rest of the UK’s, remains below pre-pandemic levels. Business leaders north of the border have pointed to problems with the cost of doing business, labour shortages and lagging infrastructure as drags on growth and investment.


  • Public Spending


It’s little wonder that the private sector is expressing concerns about the state of the economy. But while relaxing regulations and bringing people back into the labour market will help, the private sector has little chance of sustained growth as long as the public sector has such a stranglehold over the economy. Public spending in Scotland has reached a shocking 56.1 per cent of GDP; up from an already eye-watering 49.2 per cent before the pandemic. This inevitably suffocates private sector activity. Scotland also runs a deficit of 12.3 per cent, or 15.7 per cent excluding North Sea oil revenues. This is more than double the UK’s deficit of 6.1 per cent, which is already unacceptably high.


  • Tax Burden


This vast level of public spending is propped up - although only in part as the deficit figures reveal - by an unsustainably high tax burden, which stands at 40.5 per cent of GDP excluding the North Sea. This is higher than the UK-wide tax burden, which sits at 38.6 per cent. Scottish households are paying huge sums in tax and still wind up with big deficits. Scottish taxes are not just high, they’re absurdly complex, with five different income tax bands. This includes tax bands of 19 per cent, 20 per cent and 21 per cent. At least they get good public services, right?


  • Public Services


Remarkably, they don’t. Somehow, they perform worse than England on some metrics. English hospitals outperform Scotland on A&E waiting time targets by some measures. Scottish children do worse at school than English students at numeracy, literacy and science, despite starting with higher cognitive scores at age 3. Scottish universities even have a cap on numbers unlike English universities, enforced on them as a result of the absurd policy of free tuition, which acts as a handout to the wealthy. 


  • Constitutional questions

And finally, an issue that is certainly top of the SNP’s agenda: the question of Scotland’s constitutional status. Westminster is adamantly opposed to another independence referendum, but the SNP are very much still pining for a rerun of the 2014 battle. As TPA research revealed in 2021, to balance the books while sustaining current levels of high spending, an independent Scotland would need to increase taxes by at least 10 per cent of GDP. That would be equivalent to raising the basic rate of income tax to 46 pence in the pound.

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