A massive day in politics north and south of the border

18th October 2022

The Fraser of Allender looks at yesterdays announcements by Jeremy hunt and the publication of the Scottish governments plans for independence also published yesterday.

We discuss the statements by the Chancellor and First Minister today - quite a day for political announcements

Well, what a weekend - the normal superlatives are no longer adequate. In his announcements this morning, the new chancellor has undone pretty much every tax measure in the "mini"-budget. Only those already legislated for will proceed (the scrapping of the health and social care levy and the stamp duty cuts in England will still happen).

Interestingly, the chancellor has chosen not only to reverse the bringing forward of the cut of the basic rate to 19p - but he has scrapped the cut altogether. So there are no plans now to cut income tax in England.

For Scotland – where income tax is devolved – the extra funding that was going to be generated by these tax measures for the Scottish Budget has now largely disappeared, with only the stamp duty reductions generating additional funding for Scotland. This presents significant challenges for John Swinney in managing an already very stretched budget. He is due to come to the Scottish Parliament next week with a response to the UK Government's announcements.

The review of the energy price guarantee after April will obviously cause concern for households given the projected rise in prices which had been expected in April. It will be crucial to see how the Government choose to support households after April – and also the impact this could have on measured inflation depending on the way the Government chooses to intervene.

There are clearly significant announcements to come in the Medium-Term Fiscal Plan at the end of the month. We still haven't heard anything from the chancellor about benefits uprating, for example- a decision which will have wide ranging consequences for many of the most vulnerable households.

Building a Better Scotland – economic case published today

Also today, somewhat overshadowed by events at Westminster, the Scottish Government have published the third in their series of papers to set out a new case for independence. This paper, "A stronger economy with independence" was expected to set out the economic case, covering issues such as currency, trade, and public sector finances.

The team here have been pouring over the document since it was published just before midday. Here, we give our initial thoughts on the paper, but we'll continue to digest it over the course of this week.

Currency

The paper proposes two phases for currency policy after independence. From day 1, Scotland would continue to use sterling. During this phase an independent Scottish Central Bank (SCB) would be established and during the transition period it would build credibility. The aim of this phase is to ensure continuity for business and citizens.

In Phase 2, a new Scottish pound would be established. This would occur as soon as practicable and when economic conditions "are right". In this phase the role of the SCB would expand.

There is an assumption here that the SCB would receive a share of the foreign currency reserves held by the Bank of England – this is likely to be part of the negotiations in the event of Scotland voting for independence about the division of assets – and of course liabilities.

Read the full article HERE