Scottish Government faces £1bn funding hit over next three years, experts warn

The Scottish Government is facing a possible funding gap of more than £1 billion in its budget for the next three years, a new report has revealed.

Tories claimed the data on income tax reconciliations – revealed in the latest economic forecast from the Scottish Fiscal Commission (SFC) – was a “devastating blow” to the country’s finances, which could lead to either tax rises or spending cuts

Budgets for the years 2020-21, 2021-21 and 2022-23 could all be affected, the SFC said.

It warned the “negative reconciliations mean less money will be available for future Scottish budgets”.

• 2020-21 -£229 million

• 2021-22 -£608 million

• 2022-23 -£188 million

Experts at the SFC estimated the Government will receive £229 million less in 2020-21, rising to £608 million less the following year, while in 2022-23 ministers could receive £188 million less cash.

While ministers would be able to manage some this by either borrowing or using cash reserves, the SFC report added: “The borrowing powers available to the Scottish Government and the rules about withdrawing funds from the Scotland reserve mean that these will not cover all of the expected reconciliations.

“The Scottish Government would have to adjust its spending plans or increase taxes, and this should be borne in mind when formulating current policy.”

Finance Secretary Derek Mackay conceded that despite Scotland’s “strong economy” the SFC had reduced growth forecasts “as a direct result of continuing Brexit uncertainty”.

He also said Scotland “faces a challenging future as a result of continuing UK austerity, which has meant that over £12 billion less has been invested in Scottish public services over the last nine years”.

Conservative finance spokesman Murdo Fraser said: “This is a devastating blow for Scotland’s finances totalling more than £1 billion.”

He added: “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 hard-working Scots who may be in line for even more of their payslip being seized by the SNP government.”

Scottish Liberal Democrat leader Wilile Rennie said: “Scottish ministers are presiding over forecasts that hold a horror show in store for Scottish public services next year.

“Yet the Finance Secretary tried to brush this off by saying he could use reserves or borrowing to cover his losses.

“But the Scottish Fiscal Commission report says ‘these will not cover all of the expected reconciliations’.

“People in Scotland need confidence that the Finance Secretary has a proper grasp of the seriousness of how much this is going to cost people.”

Speaking about the income tax reconciliations, Mr Mackay said while the forecast for revenues for 2019-20 had risen by £20 million, mainly due to an “improved outlook for earnings”, the forecasts for the block grant adjustment from Westminster had risen by a larger amount.

He said: “This means that the net contribution of income tax to the 2019-20 funding envelope, on the basis of current estimates, is about £188 million smaller than forecast in December.”

The Finance Secretary added at present the “position is indicative”, saying the 2020-21 budget would be determined by the next round of forecasts from the SFC and UK’s Office for Budget responsibility in the autumn.

A spokesman for Mr Mackay hit out at the Conservatives and said: “The Tories have zero credibility on the economy, which is suffering massive uncertainty as a result of their shambolic handling of Brexit and which has led directly to these revised forecasts by the SFC.

“The sooner that Scotland has complete control of its own finances, without having to suffer the consequences of Westminster chaos and confusion, the better.”