Shock Fiscal Commission alert
Tax hike warning as £1bn budget black hole emerges
Murdo Fraser: ‘disastrous news’ (pic: Terry Murden)
Further tax rises and spending cuts have been forecast after a £1 billion black hole emerged in Scotland’s budget as a result of sluggish economic growth.
The Scottish Fiscal Commission has revealed that budgets were being adjusted to account for Scotland now collecting its own income tax. It means the Scottish Government budget is more dependent on the country’s own economic performance.
As a result, £229 million has been wiped off next year’s budget, a further £608 million from the 2021-22 accounts, and £188 million from the following year. The report also revealed wage growth for Scots would be worse over coming years.
The Commission says the Scottish Government will need to manage volatility in its Budget as the devolution of tax and spending powers becomes fully operational.
Shadow finance secretary Murdo Fraser said the poor economic performance under the SNP would mean more tax rises, increased borrowing or the slashing of public services.
He said: “This is a devastating blow for Scotland’s finances totalling more than £1 billion. For years the SNP has been warned about the poor economic performance for which it is responsible, and now we see the consequences of that.
“This is disastrous news for public services as well as hardworking Scots who may be in line for even more of their payslip being seized by the SNP government.
“We already knew Scotland’s growth and productivity was worse than the rest of the UK, and that people north of the border receive comparatively lower pay. Now we learn that’s all set to continue for the years ahead.
“The SNP has the control to turn this around, but has instead obsessed about constitutional matters, bringing uncertainty and division to our economy.
“The hardworking people of Scotland are now reaping what the nationalists sowed.”
The Scottish economy is expected to grow by 0.8% in 2019, a fall from the 1.3% it experienced in 2018.
Delivering his medium-term financial strategy, Finance Secretary Derek Mackay said the downgrade was due to the uncertainty surrounding Brexit.
The value of goods exported by firms in Scotland rose by 5.6% last year to £30.3bn, according to new HMRC figures.
The percentage increase was higher than any other part of the UK.
Commission chairman Dame Susan Rice said: “Managing the Scottish Budget becomes far more difficult from next year. The income tax reconciliations and major social security powers that begin in April 2020 introduce substantial risks. The Scottish Government will need to set its spending plans to accommodate these challenges.”
Also in the report, the Commission forecasts economic growth of 0.8% in 2019 and 0.9% in 2020. Although GDP growth picked up in 2018 to 1.3% and unemployment remains at a historic low, the Commission expects slow growth in productivity and real earnings to persist. Combined with ongoing uncertainty created by Brexit it is expected these factors will continue to limit growth in the Scottish economy.