Whatever happens to Rachel Reeves, this was a bad Budget for Scotland

George Osborne’s ‘omnishambles’ Budget in 2012, with the ill-fated pasty tax, damaged the standing of his friend David Cameron. And Kwasi Kwarteng’s mini-budget in September 2022 effectively destroyed the premiership of Liz Truss after just a few weeks.

For the past few days, the political world has been obsessing over the future of the current Chancellor, Rachel Reeves, after she was found to have deliberately misled the public, and the markets, about the state of the public finances.

With accusations and denials flying around, there is one central point which remains undisputed: when the Chancellor spoke at her pre-Budget news conference on November 4, she knew that tax receipts were much better than expected, but did not disclose that information.

READ MORE: Now Keir Starmer is telling porkies in vain attempt to defend Rachel Reeves

Starmer’s human shield

For now, the Prime Minister is standing by his Chancellor, and indeed he can do little else. She is his human shield. Keir Starmer is already vulnerable within Labour as the most unpopular Prime Minister in history, and he knows that if the Chancellor goes, he might have to follow quickly thereafter.

Reeves’ position is not helped by the swift departure of the Office for Budget Responsibility’s chair, Richard Hughes, after the premature leak of Budget documents prior to the Chancellor’s speech in the Commons. Although there will be a view in some quarters that Hughes’ exit takes the pressure off Reeves, in fact the opposite may well be the case: his resignation appears honourable in contrast to Reeves clinging onto office.

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All this drama fills the airwaves, but fundamentally distracts attention from what is important here, and that is whether the measures in the Budget will help or hinder economic growth and household budgets. When Reeves became Chancellor in the summer of last year, she made clear her priority would be faster growth, and that measures would be introduced to deliver just that.

No one can look at the detail of the Budget delivered last week and conclude that that ambition is being delivered. Even before it was presented, the UK economy was barely growing at all, with inflation and unemployment both on the increase.

READ MORE: John Swinney: Rachel Reeves 'untenable' as Chancellor after having 'very clearly' misled public

A literal ‘tax on jobs’

Last year’s Budget measure to increase employers’ National Insurance is already having a disastrous impact on the financial viability of businesses, and their ability to recruit staff. Nowhere is this more evident than in sectors such as hospitality and care, which are heavily dependent on high workforce numbers.

Any hopes that the Chancellor might reverse this literal “tax on jobs” were dashed last week, and similarly, despite energetic lobbying by the National Farmers Union, there was no U-turn on the family farm tax – the changes to inheritance tax which threaten the future of thousands of successful family farms.

The major ask from industry, particularly in Scotland, was reform of the Energy Profits Levy. Nearly every day now brings news of closures and redundancies in the oil and gas sector, particularly affeecting the North-east of Scotland. Harbour Energy recently announced the loss of 100 jobs, attributing this directly to the levy.

Research from Offshore Energies UK showed that reforming the levy could raise up to £15 billion additional revenue by 2030, while supporting the industry. Instead, the Chancellor signalled that she will replace it with a permanent windfall tax mechanism, thus guaranteeing the continued decline of a sector still so important to the Scottish economy.

As for the other totemic industry sector, Scotch whisky, the demand to reduce or freeze alcohol duty was ignored, with an increase instead equating to approximately £1.50 per litre.

Taxing EVs will hit Scotland hard

When it comes to supporting the green economy, the government’s proposals were even more confused, with the announcement that electric vehicles will be taxed at 3p per mile. There is absolutely no clarity as to how this will operate in practice, and it seems curious that, at a time when a move towards electric vehicles has been encouraged by governments, this disincentive is now being introduced.

Moreover, such a scheme can only disadvantage those who live in rural communities who already have to travel longer distances than those in urban areas. Without a dynamic road pricing system, such a crude measure is inherently unfair and it will hurt drivers in Scotland more than those elsewhere in the UK.

It is little wonder that representatives of the Scottish business community were quick to criticise the Budget. Dr Liz Cameron, the outgoing chief executive of Scottish Chambers of Commerce, described Reeves’ measures as “disappointing and damaging” and warned “the net effect of this Budget will be to dial up the pressure on businesses even further, in turn risking the UK’s reputation as a magnet for global investment”.

Squeezing the economy dry

Had the Chancellor been true to the direction she set out when she first took office in July 2024, then this Budget would have been very different. It would have been truly focussed on economic growth, on supporting business and reducing the cost burden.

Instead the focus has been on squeezing every last penny out of the economy, hiking taxes by some £26bn by 2029-30 to historic high levels. And this is being done to fund a burgeoning benefits bill, and one which will grow even faster after the decision to lift the two-child benefits cap. The disincentives to work hard to earn money to look after one’s family have never been greater.

Whether Rachel Reeves – or indeed Keir Starmer – survive much longer in office, their legacy will be leaving the country with the highest tax burden in history, and an economy struggling to deliver any level of growth at all.

Murdo Fraser is a Scottish Conservative MSP for Mid-Scotland and Fife