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Key Budget report

Weaker tax take sees Mackay miss out on spending spree

Derek Mackay

Derek Mackay: facing shortfall (pic: Terry Murden)

Scottish Finance Secretary Derek Mackay faces pressure to make up a shortfall on his tax revenues despite promises of a spending spree promised by the Westminster party leaders.

Strathclyde University’s Fraser of Allander Institute said funding increases would lead to two years of real term rises of 2% in Scotland’s block grant from Westminster, the first such increases since the start of the ‘austerity’ period.

But the institute’s head of fiscal analysis David Eiser said these increases will be partly cancelled out by slower than expected growth of Scotland’s tax base.

The FAI published its annual Scotland’s Budget Report at a gathering at the National Museum of Scotland in Edinburgh.

It said Scottish income tax revenues in 2017/18 and 2018/19 turned out to be lower than forecast and the Scottish Government will be required to repay £200m in 2020/21 and potentially as much as £600m in 2021/22.

On the basis of the latest official forecasts, Scottish income tax revenues are “on track to disappoint relative to the rest of the UK”.

Ahead of the presentation, Mr Eiser, head of fiscal analysis at the Institute, said: “In recent weeks, UK politicians have been falling over themselves to announce new spending increases which – via the Barnett Formula – will boost the Scottish Budget this year and next.

“The outlook that Mr MacKay faces in 2020/21 is therefore much more positive than first thought. However, the risks from tax devolution are beginning to feed through to the Scottish Budget.

“As a result, some of this boost to spending will be offset by weaker devolved tax revenues – both relative to forecast and the UK as a whole.”

Paul Johnson: questioning (pic: Terry Murden)

Also speaking at the event were Paul Johnson, director of the Institute for Fiscal Studies, who questioned the realistic prospects of the latest spending projections by the two main political parties.

Andy King from the Office for Budget Responsibility; and Caroline Gardner, Scotland’s auditor general, also addressed the event.

The FAI report also outlines how Scottish government spending has evolved in this parliament, with the health budget increasing over 5% in real terms since 2016/17.

Local Government has seen the biggest negative impact with real terms spending cuts of 2% since 2016/17.

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