This quarter's Commentary leaves us in no doubt as to the difficult economic conditions we all currently face. While the first quarter of 2022 was characterised by cautious optimism, as Covid-19 restrictions were lifted and Scotland's economic recovery seemed underway, over the last 6 months historic increases in inflation and cost-of-living pressures have compounded to create a deteriorating economic environment. The Fraser of Allander has now significantly revised down its forecasts for growth for Scotland's economy in 2023 and 2024, with contractions in activity expected in the last two quarters of this year, and first quarter of 2023, meaning Scotland is likely to enter a recession. Industry and consumers alike are bracing for a downturn. The UK Government's growth plan or 'mini-budget' on 23 September announced that taxpayers in the rest of the UK will benefit from a cut in the Basic Rate of Income Tax (from 20% to 19%) from April next year. At the time of writing, the UK Government has said it will no longer proceed with the abolition of the Additional Rate for those earning over £150,000 a year, which had also been proposed as part of the growth plan and would have created a material divergence in income tax rates between Scotland and the rest of the UK for the highest earners. However, the change in the basic rate of income tax still presents the Scottish Government with a decision. Should they use the Block Grant Adjustment to pass on the benefit of a 19% basic rate of income tax or maintain the 21% Intermediate Rate for individuals earning over £25,689? Businesses and individuals will be keenly awaiting the response from Holyrood.
Spowage, M., Randolph, H., Cooper, B., Fox, C. & Milne, K. 2022, Fraser of Allander Institute: Economic Commentary [October 2022], Fraser of Allander Economic Commentary, 46(3). Available at: https://strathprints.strath.ac.uk/82634/