Jane Bradley hosts a panel of specialist reporters from The Scotsman including Rachel Amery from politics, Scott Reid from the business desk and education correspondent Calum Ross
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00:00Hello and welcome to the Scotsman's Budget Roundup. It is Halloween today, but we are
00:11perhaps still reacting to the more scary implications of what was announced yesterday. I'm Jane
00:19Bradley from the Scotsman's News Desk, and I'm here today with Rachel Amory, our political
00:23correspondent, Scott Reid, our business reporter, and Callum Ross, our education correspondent,
00:29who are all going to be discussing the implications of the budget on various aspects of Scottish
00:35life. Hi, everybody. If we could just start with you, Rachel, if you could just give us
00:41a brief overview of the main things that were announced in the budget that are going to
00:47affect people in Scotland. Well, I think there's two main points to concentrate on. £40 billion
00:53in tax rises. Now, that will not be on payslips, as Labour was quite keen to point out yesterday,
00:59but nonetheless, £40 billion in tax rises across the whole of the UK. The other big
01:03figure for Scotland to keep an eye out for is £3.4 billion extra in Barnett consequential
01:08funding for next year. That means the Scottish Government next year will have £3.4 billion
01:14more to play with when it comes to funding public services. Shona Robison, the Scottish
01:18Finance Secretary, will set out her budget in December, and I'm sure we'll hear more
01:22then about how she's planning to spend that money that's coming to Scotland.
01:26So what has been the feeling in Holyrood with this extra Barnett consequential funding coming?
01:31Has it been a positive, upbeat reaction, or what's the feeling been?
01:36It's quite a difficult one for the SNP here politically, because it is quite good news
01:40for them. It is more cash coming their way. So when we spoke to the Finance Secretary
01:45last night after the budget, she was very keen to say that, yes, it is a step in the
01:50right direction, but not trying to be overly positive. Of course, she still can't be seen
01:54to be completely agreeing with everything that was in the budget, of course, because
01:57there are still some SNP policies, such as the two child benefit cap and the bedroom
02:03tax, for example, that haven't been addressed in this budget. But very keen to say that
02:06it's a step in the right direction. Keen to say it's going to work with all the parties,
02:10including Labour, when it comes to setting the Scottish budget as well. So a very mixed
02:14response there from the Scottish Government, but definitely a different shift in tone compared
02:19to how the SNP Government have reacted to previous budgets from the Conservatives. A lot more upbeat,
02:24a lot more positive, a lot more thinking about how things could be working well in the future
02:29for them. Absolutely, and I think there has been some slight fears around the national
02:36insurance contribution situation. I don't know if you can just kind of quickly run us through that.
02:40Yes, national insurance is something that was covered yesterday in the Chancellor's
02:44Budget speech. National insurance for employees is not going to go up at all. It's going to stay
02:49as it is. However, it is the employer's national insurance contribution is going to go up to 15%.
02:55They're also lowering the threshold at which that gets paid down to £5,000 as well. A lot of small
03:01businesses are quite concerned about how that will impact on them. But one thing that's quite
03:05interesting is how that will impact on public sector employers. They, of course, still have to
03:09pay this national insurance, and it's probably going to be around an extra £500 million that
03:14Scottish public sector is going to have to pay because of this. Now, Shona Robertson was on the
03:18radio this morning, voicing concern about where this cash is going to come from. She is worried
03:24that this extra cash that's coming to Scotland through the Barnett consequentials, some of that
03:28will have to be paid on spending national insurance taxes by the public sector. Now,
03:34we're not sure if that's the case yet. She's asking for clarity from the Chancellor as to
03:38whether that's going to happen or not. It's probably good to point out at this point,
03:41the Fraser of Allander Institute, they're economists that are all focused on Scotland.
03:47It's really good to hear their analysis on this. Their understanding is that this cash is not part
03:51of Barnett consequentials, and so therefore this extra £500 million will be on top of this money
03:57that's coming to Scotland to pay for public sector national insurance contributions. But as to whether
04:03that's going to happen or not yet, we're not entirely sure as of yet. And obviously, this
04:08is particularly important for Scotland because we have a bigger public sector per head of population
04:13than the rest of the UK. Yes, that's another concern of the finance secretary as well,
04:17is will it be fairly funded? That's because, as you were saying, the public sector in Scotland
04:22is bigger proportionally than it is for the whole of the UK. So if a figure for the whole of the UK
04:27is taken by the UK government as to how much money is to come to Scotland, the Scottish government
04:31will argue that that is not enough because there's proportionally more public sector workers in
04:36Scotland. So that's another thing that we need to keep an eye out for as we're going forward here.
04:39And Scott, could you talk maybe here a little bit about how Scottish businesses reacted to the
04:44announcement about national insurance contributions? Yeah, well, I'm going to touch on briefly the
04:49market reaction, which is kind of live this morning, and sort of continue the Halloween
04:53theme and say that it hasn't spooked the markets. I'm looking at the FTSE just now, it's down almost
04:571%, and that's probably due to other factors. But guilt rates have been nudging up, so it could
05:02become more expensive for the government tomorrow, which is a large part of their strategy. And
05:08saying that, it took a week or two for the mini-budget that Liz Truss announced a couple
05:14years ago to unravel, so it might take a couple more days to see how the market reacts. In terms
05:20of businesses, overwhelmingly negative, really, from business and from the farming community in
05:25particular. I'm looking here at some of the reaction that we got from Institute directors
05:29saying it was a painful budget, CVI Scotland describes a tough budget, and the Scottish
05:34Chamber saying that many businesses are going to be unable to absorb the costs, and they'll have
05:38no alternative to pass them on to consumers. So that's the biggest fear, I guess, is that we're
05:43going to see more costs being passed on, more business failures, especially in hospitality,
05:49which is really struggling at the moment. And we'll see other businesses just simply not investing
05:54and not taking on extra employees, or not increasing salaries, because of the cost of
05:59the national insurance contributions going up, the minimum wage going up, so there's a huge burden
06:06on business. They're bearing the brunt of it, 25 billion of the 40 billion that's been raised in
06:10additional taxes is from the national insurance contribution changes to employers. And obviously,
06:17this was expected, it was something that businesses were, to a certain extent, preparing for, but
06:22has that really sort of softened the blow any, that they were expecting it? It wasn't a shock,
06:27but, you know, it's still obviously going to be a huge, a huge blow for them.
06:32I think there was some indication, we knew that employers' national insurance contribution was
06:37going to go up, as Rachel mentioned, it's got up to 15%, and the threshold's been lowered as well.
06:42Now, there is some sort of respite in there, and there was some announcement from the Federation
06:47of Small Businesses, and the Scottish Chambers of Commerce as well, because the employment
06:51allowance is increasing from 5,000 to 10,000, that provides some additional support for very
06:56small businesses, for microbusinesses, but it's really, really hitting any firm with more than
07:00about nine or 10 employees up to mid-sized businesses. They're really bearing the brunt,
07:06and that's a large part of the economy, huge part of the economy in Scotland and UK-wide.
07:11And was there anything else in the budget which was particularly interesting for Scottish
07:16businesses? Well, I think we've got a large rural farming community, and the changes in the
07:20inheritance tax rates, they're going to see a lot of farmers reviewing succession plans
07:27going forward, so there's a potential large fallout in that particular sector as well.
07:33And there's some negativity around entrepreneurship as well, the changes in capital gains tax could
07:39make entrepreneurs consider a base in Scotland and the wider UK, so there's a negative impact
07:44there as well. They didn't go up quite as much as expected, there was a fear it could go up to 40%,
07:50but the rate's been put up to 24% from 20%, the higher rate, and the lower rate from 10% to 18%,
07:56but it's still going to have a negative effect. That's a tax that's charged on profits made from
08:01selling assets, such as a second home or investments, including stocks and shares,
08:06so potentially a big negative impact there as well. So can you explain how that's going to
08:11affect people personally as well? I mean, we're sort of talking there about the inheritance tax
08:15situation, looking at farmers, I mean, they're kind of one particular demographic that are going
08:19to be adversely affected by this, but obviously this affects ordinary people as well, I mean,
08:25perhaps ordinary people who are, you know, going to inherit an estate from a family member,
08:30what's the implications for people in that situation? I think the problem overall is that
08:35the budget, we were told it wasn't going to affect the working person, and there weren't
08:39any changes to these direct taxes, but it's the knock-on effect, because these businesses are
08:45simply not going to be able to take on any extra employees, not being able to invest. It is, as
08:50some critics have said, a tax on jobs and a tax on investment, a tax, you know, going forward that
08:58they just can't possibly absorb and they're going to have to pass on to us as consumers.
09:03And what's that going to mean in terms of unemployment in the future? I mean,
09:07is that a worry in the business community? Well, there is a worry there that it could feed through
09:11to employment. There's also a worry that it could feed through to inflation, and I mean,
09:15the OBR projections yesterday were pretty grim on inflation, really. It's not ducking below 2%,
09:19which is the Bank of England target. It's going to steer in at 2.5%, possibly 3%,
09:24and the concern is that that could feed through, especially the cost of borrowing as well if that
09:28increases. So there is going to be quite a shock there in a number of regards for some time, I
09:34think. And can you talk us through how the capital gains tax changes work for ordinary people,
09:41rather than, you know, specifically on more entrepreneurs? I mean, if you're looking at
09:47a person who, say, perhaps has a rental flat, a flat they've been renting out on Airbnb,
09:54quite a lot of people are looking to sell up the flats they had for that kind of thing now because
09:58of the changes to Airbnb rules. So someone who's looking perhaps to sell a flat that they've been
10:03using for Airbnb, but it is appreciated in value over the years that they've had it, what will the
10:09changes in capital gains tax mean for people in that situation? Yeah, I think it's a bit too early
10:13to say what the kind of negative fallout could be from that. There has been, there was some reaction,
10:19negative reaction from the property sector around that, but there's a very kind of specific measure
10:23I don't think is going to impact an awful lot of people at the moment, but the devil's in the
10:29detail with a lot of these things, really. People are just sort of wading through what's coming out
10:33now from the full budget statement. Yeah, no, there's going to be a lot of detail looked at
10:39in the next few days. Absolutely, that's always the case. So, yeah, absolutely. If we can just
10:45go over to you, Callum. Obviously, you've been following the story very closely for the last few
10:50weeks on the impacts of VAT tax on private schools. That was announced, as expected,
10:57in the budget yesterday. Can you just tell me what the reaction's been from the school community
11:02in Scotland and how, what the impact's going to be? Yeah, Jane, like you said, Rachel Reeves,
11:09the Chancellor, kind of confirmed that was going to come into effect from January. Not a big
11:14surprise, you know, the policy was quite far advanced and already been announced, you know,
11:21it's only a couple of months until it comes into effect. And to be honest, Labour wasn't really
11:25under a huge amount of pressure politically to abandon it or anything, you know. It seems to be
11:30fairly popular with the public, according to polls, and certainly with a lot of its own
11:37supporters. The sector, and especially the sector in Scotland, had been hoping for a delay.
11:44They think, you know, January is just too soon to make such a big change, it's in the middle of the year.
11:49Schools don't have time to properly prepare, so they're disappointed about that. They say
11:55that their pleas have been ignored, basically, the various points they've made to the
12:01the UK government have been ignored. And the other bad news, of course, for private schools is
12:07the National Insurance Employers' contributions, which they're kind of going to have to
12:14work out how that impacts them as well. I mean, that wasn't expected so much, and
12:20you know, we've already got a situation where some of these schools, especially the kind of smaller
12:23ones, might be, you know, in real trouble as a result of the VAT change, and then if the National
12:30Insurance Employers' contributions, you know, might make that even worse. So yeah, they're not very
12:37happy, I would say. Yeah, and Edinburgh specifically has quite a unique situation in terms of the
12:43proportion of children who do attend private school rather than the state sector.
12:48That's right, yeah. I mean, there's a bit of confusion about the numbers, I think, because a
12:52lot of people come in from outside Edinburgh to the Edinburgh private schools. I think
12:58there's estimated to be about 9,000-odd pupils in private schools who live in Edinburgh.
13:07That's about, kind of, 15% of the total, which is way above anywhere else.
13:14I think the only other areas with, kind of, high-ish numbers are the likes of Glasgow,
13:19Aberdeen, and Perth and Kinross also has a number, too. So yeah, I mean,
13:29there's going to be regional differences in terms of the impact. If large numbers of
13:35pupils leave private schools and try to get into the state sector, you know, it's going to be
13:41probably going to be concentrated in specific areas like those areas, and also in, kind of,
13:46specific communities. There'll be, kind of, pinch points, I think, Sophia, you know, with
13:53large numbers of pupils potentially trying to get places in well-performing state schools and
14:00places like Edinburgh. And do we have any feel for the numbers? I know you've written this
14:05morning about estimates as to how many pupils could actually be forced to leave the private
14:10sector and leave the state sector. Yeah, that's an interesting one. It's been one of the great
14:15unknowns, really, and to be fair, the Office for Budget Responsibility, which has, kind of, produced
14:20its assessment of what the impact would be. I mean, it also says it's the main uncertainty,
14:27really, is what the impact on state schools is going to be. It's gone with a figure of 6%,
14:32a 6% fall in enrolments, which is of the lower level of the assessments. The sector has been
14:41talking about more like 20% fall in enrolments at private schools. 6% in Scotland would equate to
14:48about 1,800 pupils. Now, I would say that the sector, the private schools, say this is optimistic.
14:58That's the word used by, I think, Lisa Currie, the principal of Watson School in the Scotsman.
15:03She's written a piece in the Scotsman today reacting. So, we need to see
15:10if 6% is a figure, and to be fair, the OBR does say it's not clear. It's still to emerge.
15:20There's also going to be a cost associated with that. So, the OBR does confirm that the policy
15:27is likely to bring in about £1.6 billion a year, this new VAT, but it also mentions a, kind of,
15:35added cost for the state in terms of having to educate these pupils, more pupils in the state
15:42sector. It poops the cost at £300 million. Again, I think that's a figure they've, kind of,
15:49plucked out of the air, but it does give an indication that it's not all going to be,
15:54kind of, profit. They're going to have to offset that too.
15:59Yeah, and has there been an indication as to whether the schools are likely to pass on the
16:03fees to parents? I know that's been talked about, sort of, before this was announced only.
16:08Yeah, so, I mean, that's going to depend, you know, school by school in terms of their finances
16:15and what their, kind of, contingency planning is. The OBR estimates that about two-thirds of the
16:23cost, the VAT, is going to be passed on to parents, which is a fair whack, with the rest,
16:30kind of, absorbed by, you know, lower provision and efficiencies and cuts and things like that,
16:37but it will depend on the circumstances. We've obviously seen different approaches already in
16:44Edinburgh with the proposed merger of the Stuart Melville College and Mary Erskine School. They've
16:52said that they're planning to do that to, kind of, try to avoid substantial fee rises, but there
16:58might be other schools where they're going to have to pass on the whole whack.
17:05Yeah, so, overall, I mean, Callum, obviously, you've just talked at length for the private
17:09school sector at least, not a good budget? Yeah, I think they would agree with that. Yeah, I mean,
17:17not hugely surprising. They knew this was coming. Labour's been talking about this policy for a
17:22long time and, you know, it's been pretty obvious they were going to get into government for a long
17:27time, so they should have known that it was coming, but I think the speed at which it's
17:33been brought in and the feeling that they're, kind of, their points have not been taken on
17:39board at all. The word they used yesterday was ignored. They've been ignored. That's what they
17:44feel and now they're going to have to work out what it means for them. And Rachel, in the world
17:50of Scottish politics, the good or bad budget? I think it depends on who you ask there. I think
17:55for a lot of workers, particularly the lowest paid workers, it probably is a reasonably good
17:59budget. There's no drastic increases to VAT or employee national insurance contributions,
18:05for example, and also the minimum wage is rising as well. So, for a lot of workers,
18:09it probably is a reasonably okay budget. But, yes, for smaller businesses, as Scott was saying,
18:14there's a lot of concern there. For other areas as well, there are concerns of what these tax rise
18:18implications will have. When it comes to the Scottish government, we're going to probably
18:22find out a bit more today about how they feel about things. John Swinney will have First
18:26Minister's questions here in Holyrood very, very shortly. I would imagine that question session
18:31will focus almost entirely on the budget and on the budget reaction. So, probably feel a bit more
18:36about how the government and how government ministers are feeling about that later on today.
18:40But I think it really does depend on who you ask as to whether it's a good budget or a bad budget.
18:44I know the Conservatives, for example, they were on the radio this morning and very much
18:48saying that they thought it was an awful budget. Of course, that is what they're going to say
18:51because they're now no longer in power at Westminster. So, yeah, it's a mixed bag, I think.
18:56Yeah, absolutely. And Scott, for the business sector?
19:00I think it's overwhelmingly negative. Look, it's not governments that create wealth,
19:04they can create the conditions to create wealth. But you look at Liz Truss and her mini budget,
19:09she was obviously ridiculed, but there was a kind of whiff of logic there. Slash taxes,
19:13let the wealth creators create more wealth, create jobs, create more businesses.
19:18She unfortunately didn't have the institutions on site, particularly the Bank of England and
19:21Office of Budget Responsibility, and the markets also rejected it. But there is an argument that
19:27we should potentially borrow even more when borrowing is still cheap. The US have done
19:32that extensively to invest in infrastructure projects, so have the EU. So, there's an argument
19:38saying that potentially she didn't go far enough with the borrowing. But as I say,
19:41there's been some negative reaction. There's certainly a big negative reaction from business
19:45in general, some negative reactions from markets, and there could be a lot of devil in the detail
19:51over the next few days. Fantastic. Well, thank you so much to Scott,
19:57Rachel and Callum for coming on and speaking to us about the budget today. You can read all of
20:01their stories and more about the budget and everything else at Scotsman.com. And please
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20:12buy a paper. Thank you very much.