Key finance strategy ‘lacking analytical assessment’, economics experts say

The Scottish Government’s latest financial strategy is lacking “analytical assessment” and contains only “limited information” on spending plans, economic experts have said.

The Fraser of Allander think-tank said the Medium Term Financial Strategy (MTFS), published last week, “does little to add clarity with regard to the medium-term financial risks and opportunities facing the Scottish budget”.

The document also failed to outline how the Scottish Government will deal with the £1 billion “hit to revenues” that will result from income tax reconciliations, the think-tank said.

Forecasts by the Scottish Fiscal Commission, published at the same time as the MTFS, revealed ministers could receive more than £1 billion less than previously anticipated as result of adjustments to the block grant Holyrood receives from Westminster.

In a blog post the Fraser of Allander Institute said the MTFS was meant to “inform scrutiny of the Scottish Budget” and “inform debates over the challenges and opportunities that policymakers will face” when making tax and spending decisions.

But it said: “To be fully effective, whatever administration is in office, future MTFSs will need much more detail on future plans as well as appropriate assessments of risks and opportunities.

“The MTFS reports a number of economic statistics which it argues shows that ‘2018 was a positive year for the Scottish economy’. This is true.

“But a forward-looking financial assessment would usually reflect the full suite of economic statistics available, some of which show growth below trend, real earnings lower than a decade ago, productivity lagging key competitors and rising in-work poverty.

“But aside from your own view of the current state of the economy, what is striking was the lack of analytical assessment about the economic outlook – the key risks and opportunities we know that are coming from demographic change, automation and climate change – and how this might impact upon the public finances.”

On the subject of income tax reconciliations, the think-tank said: “You might also think that a medium-term financial strategy document might detail how it will manage such a hit to revenues. But it doesn’t.”

It complained of “limited information” on spending, noting that last year’s document “set out some high-level information about core spending commitments”.

However it said the latest strategy “says nothing whatsoever”.

It was also critical of ministers for including “little discussion of future fiscal risks”, such as Scotland becoming responsible for £3.5 billion of welfare spending.

Conservative finance spokesman Murdo Fraser said the think-tank had delivered a “withering attack on the SNP government’s ability to run Scotland’s economy now and in the future”.

He claimed Finance Secretary Derek Mackay had been “supposed to set out in detail the future prospects for the country’s finances, and how he intended to mitigate risks and rise to the many challenges ahead”.

The Tory demanded: “Voters need to know what the SNP government is going to do to address the £1 billion black hole in future budgets, deal with the challenges and opportunities presented by Brexit, and make Scotland a prosperous place to live and work.”