Scottish jobless rise prompts calls for tax restraint

The Scottish government is facing renewed pressure from business leaders to temper its plans for income tax rises after the jobless total increased and inflation rates rose.

Derek Mackay, the Scottish finance secretary, is expected to unveil modest tax increases for higher earners in Holyrood’s budget on Thursday to fund a public sector pay increase, higher NHS spending and more childcare spending.

Mackay, who manages a budget of roughly £30bn, has complained bitterly about cuts to next year’s UK government grant. It will cut day-to-day spending by £200m in real terms next year, although the latest figures showed overall public spending per head in Scotland was £1,437 higher than the UK average.

He has signalled he will reject Labour’s calls for a 50p top tax rate for the biggest earners. On Tuesday the Scottish government’s chief economist, Gary Gillespie, said the wealthiest were more mobile and better able to change their financial arrangements to avoid higher rates.

Instead, Mackay may seek Scottish Green party support for the budget by altering Scotland’s rates and bands to increase taxes on middle and higher earners in order to cut taxes for the least well-off and fund more generous wage rises for the lowest-paid public sector workers.

The minority Scottish National party government needs the Scottish Greens’ six votes at Holyrood to ensure its budget passes. The Greens are demanding an end to cuts for local services in return for their support.

Mackay also faces heavy pressure from business leaders to reduce tax increases across the board after the latest quarterly data showed 32,000 fewer Scots were in employment and Scotland’s unemployment rate had risen by 0.3 percentage points, to 4.1%.

Echoing similar calls from the Conservatives, the Federation of Small Businesses (FSB) said a majority of firms opposed higher taxes and instead wanted more spending to promote economic growth and improve infrastructure.

Andy Willox, the FSB’s Scottish policy convenor, said: “Even though unemployment is still low, Scotland’s headline jobs indicators are now moving in the wrong direction. That’s unsettling for policymakers and devastating for those without work.”

Mackay’s calculations have been made trickier by an unexpected rise in inflation, to 3.1% this week, which will fuel demands from public sector unions for a significant pay increase of 4% to 5% to outstrip increases in the cost of living.

If inflation defies the Office for Budget Responsibility’s forecasts that it will fall steadily next year, eventually reaching 2%, it will increase the costs of funding Nicola Sturgeon’s election pledge to increase NHS spending by £500m above inflation.

Unions will stage a demonstration outside Holyrood before Mackay’s budget speech demanding significant pay increases and higher public sector funding.

Stuart McIntyre, an economist with the Fraser of Allander Institute, a thinktank at Strathclyde University, said the jobless figures were not overly significant but the outlook would remain fragile into next year. Scotland’s economic growth had been consistently low in recent years.

“An unemployment rate of just 4.1%, even after today’s rise, is remarkably low by historical standards,” McIntyre said. “However, with weak forecasts for economic growth through 2018, I wouldn’t be surprised to see labour market outcomes continue to weaken through the start of 2018. All eyes will be on what concrete actions [the Scottish budget] contains to support improvements in economic growth in Scotland.”

The author: Michel THEYS

Michel Theys, a Belgian native, began his career as a civil servant, serving the public for several decades. After retirement, he shifted gears to follow his passion for journalism. With a background in public administration, Theys brought a unique perspective to his reporting. His insightful articles, covering a wide array of topics, swiftly gained recognition. Today, Michel Theys is a respected journalist known for his balanced and thoughtful reporting in the Belgian media landscape.

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