Rishi_Sunak, Tory chancellor

UK Government Urged to Extend COVID-19 Support

The Finance Secretary has called on the Chancellor (pictured) to guarantee further support for businesses impacted by the coronavirus (COVID-19) pandemic ahead of the UK Government’s budget.

In her letter, Ms Forbes has urged the Chancellor to:

extend the furlough scheme beyond April

extend the income support schemes and emergency welfare measures well into the next financial year – as well as non-domestic rates (NDR) relief for the retail, hospitality and leisure (RHL) sectors

confirm the uplift to Universal Credit and Working Tax Credit will be retained

provide clarity on capital spending, particularly long-term housing investment, following the cut to Scotland’s capital budget in November

Read the full letter below:

Dear Rishi,

I am writing to set out key measures that the Scottish Government believes the UK Government should commit to in the forthcoming UK Budget, if not before, to support the UK economy and public finances. All of these measures will have a profound impact on the Scottish budget and economy.

The COVID pandemic has had, and is still having, a profound impact on our health, economy and society, with damaging effects on the way of life and the wellbeing of people in Scotland. Considerable uncertainty remains over the long-term impacts, as the pandemic and our response evolves.

I recognise this is hugely challenging territory for both our administrations. However, while I very much welcome the support that the UK Government has so far provided to workers and businesses, such as the furlough and business loan schemes, and the £8.6 billion of consequentials provided to the Scottish Government budget, it is evident that further support must be guaranteed in the upcoming UK Budget, together with additional fiscal flexibilities, to meet the on-going challenges of COVID, as well as to support the economic recovery.

The UK Government should set out the further support it intends to provide ahead of the budget. As the British Chamber of Commerce has made clear, business need certainty in order for them to survive, and a guarantee that support will be available throughout the year, so they can plan for more than a few weeks ahead. This should include extending the furlough scheme beyond the end of April, until the restrictions on the economy have been lifted, following the example of countries such as Germany. It should also include a further recalibration of CBILs and other loan repayment terms, funding for measures to stimulate or improve consumer confidence in towns and cities, and a commitment to ongoing support for businesses and sectors likely to remain closed or restricted for some time to come.

The Conservative Party in Scotland has asked me to offer certainty to businesses into next year through assurances that business grant schemes will continue for as long as restrictions remain in force. I have clearly and consistently demonstrated my commitment to supporting businesses and the economy. That will continue, of course, but there is clearly a compelling case for longer term guarantees that UK Government support will be available for resilience and recovery.

In order to help the poorest in our society, the £20-per-week uplift to Universal Credit and Working Tax Credits must be retained, and extended to legacy benefits. Analysis undertaken by the Scottish Government indicates that the poverty rate and child poverty rate would both be two percentage points higher in Scotland if the measures were withdrawn than if they were retained, moving 60,000 people, including 20,000 children, into relative poverty. I urge you again to extend and expand this uplift, and to announce this without delay in order to avoid causing further anxiety for those reliant on this lifeline.

The Scottish Government also needs greater certainty over our funding. As stated in my letter of 12 January, it is imperative that the Scottish Budget is urgently allocated its share of the £21 billion COVID funding being held in reserve, which could equate to around £1.7 billion, so that plans can be made to mitigate the impact of the virus as far as possible on our health service, business and the wider economy. The lack of clarity currently available to the Scottish Government and Scottish Parliament about what level of funding may be deployed poses challenges for this year’s budget scrutiny process, which I will be addressing in the Scottish Budget 2021-22 this week and in subsequent engagement with Parliament about the passage of the Budget Bill.

A return to austerity as a way out of the COVID crisis must be avoided. The UK Budget must provide a definitive end to a decade of austerity under which Scotland has suffered and which has disproportionately hurt the poorest and most vulnerable in society. When we emerge from the greatest economic shock of our lifetime, it will remain essential that fiscal rules do not constrain the fiscal policy response, thereby weakening the economic recovery and doing more harm to the UK’s long-term fiscal position.

Now is the time to invest for recovery and, as called for in our UK Fiscal Path – a new approach paper published in June 2020 and its update in November 2020, a bold radical new approach from the UK Government is needed to do this. The UK Budget must demonstrate extended fiscal support, delaying any fiscal consolidation efforts or tax rises until the economic recovery is well underway. In the short-term, suppressing the virus and supporting the economy and jobs through public spending will create the confidence which will allow the economy to recover.

As the scale of the challenges facing businesses and households has increased, so has the need for additional fiscal support to be guaranteed until COVID restrictions can be lifted. In particular, I urge you to commit to extending the income support schemes and emergency welfare measures well into the next financial year; as well as non-domestic rates (NDR) relief for the retail, hospitality and leisure (RHL) sectors.

The Spending Review provided £11.5m as a result of NDR policy decisions. Contrasted with the over £900 million it would cost to extend the relief, those consequentials are entirely insufficient for me to satisfactorily allay businesses’ fears of a reverse cliff edge in rates next year and suggestions that other consequentials provided at the Spending Review should be diverted from priorities such as Health and Education to fund an extended relief are both misleading and unhelpful. Whilst we will go as far as we can within the limitations of the devolved settlement in our forthcoming budget, the lack of clarity from the UK Government on whether RHL relief in England will even be extended at all only serves to confuse stakeholders who are deeply concerned over what the future holds for their businesses. I would therefore encourage you to respond to those concerns sooner than 3 March.

Last autumn the UK Government announced a £27bn increase in UK capital expenditure, at the same time as Scotland’s capital grant and Financial Transactions funding was reduced. Within the total capital settlement for Scotland, HMT figures have signalled that the reduction in Scottish funding has been due to the consequences of decisions in relation to investment in England by the Department for Housing, Communities and Local Government, especially relating to housing. This includes a £321m cut in Financial Transactions block grant funding for Scotland.

Such a shortfall in funding available to Scotland is obviously significant and risks having a devastating impact on our plans to deliver an affordable housing programme going forward. Scottish housing stakeholders understandably look to the forthcoming Scottish Budget 2021-22 and the Scottish Capital Spending Review to offer assurance and certainty around future funding levels. We have needed to determine forward budget allocations whilst facing a significant shortfall against expected funding.

Whilst we will mitigate the impacts as best we can, we now need to understand the UK context and future plans. The UK Government’s November Spending Review included a commitment to multi-year funding, including for housing, and specifically: “nearly £20 billion of investment underpinning the [UK] government’s long-term housing strategy, including £7.1 billion for a National Home Building Fund and confirming over £12 billion for the Affordable Homes Programme”. These are clearly significant sums, and would usually generate positive consequentials. We cannot reconcile this statement to the settlement the Scottish Government received. I would welcome clarity on your forthcoming plans and action to restore this funding to the levels required to deliver housing commitments in all parts of the UK.

The Trade and Competition Agreement between the UK and EU has moved us into a period of significant prolonged legal uncertainty with regard to the rules surrounding subsidy control. It is essential, therefore, that to avoid such uncertainty in making or receiving subsidies a clear regulatory environment must be introduced as soon as possible.

Delaying the UK Budget has been deeply problematic for our budget-setting and scrutiny processes. Given the extraordinary level of uncertainty and risks facing the economy and the public finances, I have repeatedly requested greater flexibilities so that the Scottish Government can mobilise funding when it is most urgently needed. Beyond greater borrowing and Reserve limits, this includes end-year flexibilities for the devolved administrations that are under discussion now.

I would also urge you to reconsider my request for further flexibility for capital to revenue transfers for local government in Scotland which is something that the Convention of Scottish Local Authorities have again asked me to pursue, and I am happy to support, as they seek to manage their budgets in these challenging times.

I trust that you will consider the measures I have outlined above, and that you will reflect them in your Budget on 3 March in order to provide the certainty needed.

Kate Forbes