By Bill Heaney
The SNP Government’s claim that its 2022-23 budget was worth £1.7 billion less due to inflation was based on three major errors none of which has been corrected in the lead up to stage 1 of the 2023-24 budget process.
The Scottish Conservatives have revealed that in a Scottish Government response to a freedom of information request it is clear that the £1.7 billion claim was wholly inaccurate.
The first mistake was the Scottish Government getting its own budget sums wrong in the freedom of information response, understating it by £100 million.
The second mistake was that the inflation figure used by the Scottish Government, known as the GDP deflator, was out of date and not the updated figure used by official fiscal forecaster, the Office of Budget Responsibility.
And finally, the Scottish Government failed to factor in the £447 million in Barnett consequentials provided by the UK Government for this financial year, which included funding to tackle the cost-of-living crisis.
The erroneous £1.7 billion figure was cited by the First Minister even after the updated inflation figure was published by the Office of Budget Responsibility and it has since been repeated by various SNP ministers and MSPs.
The Fraser of Allander Institute had previously described the £1.7 billion figure as “overblown” and that it “overstates” the impact of inflation on the Scottish Government budget.
The Scottish Conservatives have called for all the SNP ministers and MSPs who used this inaccurate figure to correct the record.
Scottish Conservative Shadow Cabinet Secretary for Finance and Economy Liz Smith MSP, pictured right, said: “The SNP Government’s inability to get its sums right on its own budget is typical of its cavalier attitude towards both factual accuracy and financial responsibility.
“Just as the Nationalists constantly repeated ill-founded claims about A&E comparisons with other parts of the UK and a bogus statistic on Scotland’s capacity for wind power, the £1.7 billion figure has been used time after time, with Nicola Sturgeon wheeling it out again only last month.
“Yet their own explanation shows them getting their initial budget wrong, ignoring the updated OBR figures for calculating inflation and taking no account of nearly half a billion pounds supplied by Westminster under the Barnett rules.
“The SNP MSPs who have been using the erroneous claim of £1.7 billion must correct the official parliamentary record – and stop trying to deceive the public over the funding the Scottish Government receive from the UK Treasury.”
Error 1: The Scottish Government got its own budget figure wrong. The Scottish Government’s figure is based on a fiscal resource budget limit of £34,222 million. However, their own budget confirms this is inaccurate. The actual fiscal resource budget for 2022-23 is £34,322 million – £100 million more than they claimed. (Scottish Government freedom of information response 202200330376, 8 December 2022; Scottish Budget 2022-23, 9 December 2021, Table 1.01, link).
Error 2: The inflation figure they are using is inaccurate and out of date.Originally, the OBR forecast that the GDP deflator figure, used for fiscal forecasts, would be 2.7% for the financial year of 2022-23. The Scottish Government then obtained an updated figure of 7.8% based on a survey of just two external forecasters in August. However, since then the OBR has issued its own updated GDP deflator figure for the November 2022 Autumn Statement. That produced a figure of 4.9%, much lower than the figure used by the Scottish Government – even though the OBR had provided the figure for the initial basis of the Scottish Government’s GDP deflator figure. The percentage point difference between the two OBR forecasts is 2.2%. (OBR Fiscal Outlook November 2022, 17 November 2022, Table A.3, link; OBR Fiscal Outlook October 2021, Table 2.1, link; Treasury comparison of independent forecasts August 2022, 25 August 2022, Table M.1, link).
Error 3: The figure does not include the Barnett consequentials received by the Scottish Government this year. The Scottish Fiscal Commission confirmed that the Scottish Government is set to receive or already has received £447 million worth of Barnett consequentials this year. This has not been accounted for in the Scottish Government’s calculations. (Scottish Fiscal Commission, 15 December 2022, link).
Calculations: 4.9% (updated OBR GDP deflator figure) -2.7% (original OBR GDP deflator figure) = 2.2%; £34,322 million (actual fiscal resource budget) * 0.022% (difference between GDP deflator figures) = £755 million, and £755 million (inflation related erosion using Scottish Government’s calculations) – £447 million in Barnett consequentials = £308 million.
The Fraser of Allander Institute previously said that the £1.7 billion claim was “overblown” and that it “overstates” the effect of inflation.
“After investigation, we understand that the £1.7 billion figure is calculated using the difference in the GDP deflator that was assumed in December (2.7% for 2022-23) and the HMT’s August survey of external forecasters for the estimate of GDP deflator (7.8% for 2022-23). However, the OBR is now expecting that the GDP deflator will be 4.9% in 2022-23, so this figure (on this basis) now looks overblown….The Scottish Government’s preferred figure of £1.7bn arguably somewhat overstates the effect of inflation on the budget.” (FAI, Scotland’s Budget Report 2022, 12 December 2022, p6 link).
Nicola Sturgeon used the £1.7 billion figure as recently as December 2022, after the OBR’s revised inflation estimates. She told Parliament in December ‘the Scottish Government’s budget has been eroded by inflation to the tune of £1.7 billion, and not an additional penny extra has been provided to help to deal with that’. She also used the figure on the day that the revised inflation figures were published. (Official report, 1 December 2022, link; Official report, 17 November 2022, link).
John Swinney used the £1.7 billion figure multiple times. He told Parliament in November: ‘Inflation means that, today, our annual budget is worth £1.7 billion less than it was worth when it was published last December.’ He also used the figure in September: ‘At the same time, our budget is now worth around £1.7 billion less than it was worth in December.’ (Official Report, 2 November 2022, link; Official report, 7 September 2022, link).
Keith Brown cited the £1.7 billion figure in Parliament after the OBR’s revised inflation estimates. During Justice Questions Brown said: ‘I am saying that my intention is to ensure that we do not have to suffer as a result of the cuts that are coming from Westminster, the impact of inflation, which has reduced our budget this year by £1.7 billion, and the hugely increased cost of wage settlements this year.’ (Official report, 7 December 2022, link).
Shona Robison also used the £1.7 billion figure even after the OBR issued revised inflation figures. Robison told Parliament: ‘As for investment, inflation has ripped £1.7 billion-worth of investment out of the Scottish Government’s budget availability.’ (Official Report, 23 November 2022, link).
Numerous SNP figures have cited the £1.7 billion budget figure even after updated inflation figures were published. Ben Macpherson and Jamie Hepburn used the figure in Parliament despite the OBR publishing revised GDP deflator figures before they used the £1.7 billion figure which was based off out of date estimates. (Official Report, 22 December 2022, link; Official Report, 17 November 2022, link).