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Concern over plans to reduce tax credits.

The UK Government’s approach to reducing the deficit has damaged the economy and undermined attempts to improve public finances, according to the Deputy First Minister.

Writing to Chancellor of the Exchequer George Osborne ahead of the UK Government’s budget this week, Deputy First Minister John Swinney expressed concerns about the impact of further planned cuts to welfare funding, particularly around reports that the budget will include measures to significantly reduce tax credits.

Mr Swinney has called for Mr Osborne to use this budget to focus on measures to boost the recovery, improve productivity and support those in low pay, and to reverse £107 million in year budget cuts to the Scottish budget which were announced last month.

The letter asks for this focus to be backed up by genuine investment, alongside a more gradual approach to deficit reduction to allow additional investment in our economy.

It also reiterates the Scottish Government’s objection to the decision taken by the UK Government to end support for the onshore wind sector, and outlines further reforms that are needed to support investment in the oil and gas sector.

Writing to Mr Osborne, Mr Swinney said:

“The Scottish Government remains concerned about the social and economic impact of further planned cuts to welfare budgets, and I am particularly concerned with media reports that the budget will include measures to significantly reduce tax credits.

“It is vital that we support people in work as well as into work - by tackling low pay, by creating jobs and by removing barriers - rather than cutting tax credits or work allowances.

“Since the March budget, the economic outlook has remained broadly positive in both Scotland and the UK as whole. However, challenges around the nature of the economic recovery remain. Therefore I urge you to use this budget to focus on measures to boost the recovery, improve productivity and support those in low pay.

“You had indicated that securing improvements in productivity was the key challenge currently facing the UK economy and that, as such, a renewed focus on investment in skills, planning and transport – along with on-going efforts to repair the banking sector – would be priorities for the UK Government.

"These are priorities that I would broadly endorse, although it remains the view of the Scottish Government that such policies must be backed up by genuine investment, coupled alongside a more measured approach to deficit reduction.

“The UK Government’s approach to austerity has damaged the economy and undermined attempts to improve public finances. The deficit needs to be reduced, but this should be done in a more gradual manner in which more focus and resources are allocated to a program of additional investment in our economy.”