Budget risks spiral of decline, says Scots government.

George Osborne in the House of Commons George Osborne set out his plans to cut the spending deficit

The UK Budget has jeopardised Scotland's economic recovery by going "too far, too fast", the Scottish government has warned.

Chancellor George Osborne announced a hike in VAT from 17.5% to 20%, as part of the biggest package of tax increases and spending cuts in a generation.

Scots Finance Secretary John Swinney welcomed some of the measures, but warned of a "spiral of decline" ahead.

Michael Moore, the Scottish secretary, said the Budget was tough, but fair.

Precise detail on any reductions to Scotland's Treasury block grant will become clear in the autumn, following the comprehensive spending review.

But the Scottish government has already warned the 20% VAT rate would cost health boards an extra £23m a year.

The Comprehensive Spending Review, with the Scottish government playing a part, will determine the allocation of cash across Whitehall.

Then, when that is concluded in the autumn, we will know the impact upon Scotland.

But, even if we do not know the final destination in cash terms, we already know the direction of travel.

Downwards.

The UK government spending plans, which aim to cut the country's £155bn deficit, contained a commitment to review of the use of the £185m renewable energy fund, the fossil fuel levy.

SNP ministers have repeatedly called for the release of cash from the levy, which comes from energy firms in Scotland and is held by industry regulator Ofgem.

The chancellor said there would be no new increases in duties on alcohol or fuel, which stands to benefit Scotland's vital whisky industry and rural businesses.

Mr Osborne also announced a White Paper on tackling Britain's regional economic differences and committed to looking at fuel duties.

But he also said the last government's planned tax relief for the video games industry - which has a key base in Dundee - would be scrapped.

Mr Swinney supported tax allowance changes to help people on low incomes, but said the measure would be undermined by the VAT hike, and said the UK government had "let down" the gaming industry.

He said: "The previous UK government left the public finances in a mess, but there is a real risk that, by accelerating deep spending cuts - going too far, too fast - the new UK government will make things worse.

"Nurturing Scotland's recovery is the Scottish government's priority, and today's UK Budget jeopardises that recovery."

BUDGET EFFECT ON SCOTLAND

  • Scrap video games industry tax breaks
  • Review use of fossil fuel levy
  • No new drink or fuel duty rises
  • More than two million under 65 to benefit from raising income personal tax allowance by £1,000
  • A million pensioners to benefit from uprating of basic state pension
  • Scrap holiday letting tax rules to benefit 5,200 Scots relying on them for income.
  • Regional business support scheme exempting businesses from up to £5,000 of employer NICs payments could benefit up to 59,000 Scottish firms
  • SOURCE - SCOTLAND OFFICE

He said the Budget was taking money out of the economy which could support jobs and recovery, adding: "This irresponsible action runs the real danger of creating a spiral of decline whereby the recent fragile return to growth is choked off before it gets the chance to really take hold."

The SNP's Treasury spokesman at Westminister, Stewart Hosie, told BBC Radio Scotland's Good Morning Scotland programme that the consequences for jobs "could be quite horrendous".

He added that he could not see how the private sector could "quickly, or quickly enough, pick up the slack when jobs are lost in the private sector".

Shadow Scottish secretary Jim Murphy said the Budget "picked on the poor", adding: "This was not a budget for growth or jobs - it is a vicious assault on Scottish families and an attack on Scottish jobs.

"These are not just the wrong cuts at the wrong time - they are cruel cuts at a tough time for Scottish families.

"Cuts to tax credits, pregnancy grants taken from new mums, child benefit frozen for years, support for disabled people being cut, housing support slashed, attacks on the public sector - they are the same old Tories."

Mr Moore said the Budget would help thousands of Scots on lower incomes and businesses trying to survive the effects of the recession.

'Balanced growth'

But he said doing nothing to tackle the deficit was "simply not an option".

"The first duty of the coalition government is to be responsible and take urgent action needed to tackle the record budget deficit this government has inherited," he said.

"That is the way we will get back to balanced growth - we have taken the first steps on that long journey today.

"Fairness is at the heart of these tough decisions. We all need to play our part and the burden will fall in a fair manner."

Mr Moore added: "We have to stop spending money that we don't have. It is not easy or popular to take the decisions we have today but it is unavoidable."

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The Budget, June 2010

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