Weakened economy opens £215m black hole in SNP budget
‘An extremely tough settlement’
THE amount of money the Scottish Government has to spend in its Budget is set to slump by up to £215million – because it is expected to raise less tax than was first forecast.
The Office for Budget Responsibility, which provides UK-wide forecasts, has downgraded its predictions for the cash raised in Scotland next year from £13.314billion to £13.099billion.
Leading economic think-tank the Fraser of Allander Institute yesterday produced a similar downgrade in forecasts.
It comes amid signs that the weak economy will damage the amount raised from income tax, the Land and Buildings Transaction Tax (LBTT) and other sources.
As a result, the SNP will need to find up to £215million of cuts – or increase taxes just to fill the funding gap.
Graeme Roy, director of the Fraser of Allander Institute, said: ‘With the Scottish Budget now much more dependent upon the tax revenues generated in Scotland, boosting Scotland’s fragile economy will be crucial in helping to alleviate Budget constraints over the long-term.
‘The Scottish Government undoubtedly faces delivering a tight Budget settlement on Thursday. Its resource block grant is on track to decrease by over £200million in real terms next year.
‘On top of this, it is likely that the Scottish Fiscal Commission will revise down their estimates of the outlook for devolved taxes. With major manifesto commitments to pay for in health, education, childcare and policing – not to mention a more generous pay settlement for public sector workers than in England – “non-protected” areas will be in line for an extremely tough settlement.’
Any slowdown in growth has a direct impact on the amount of tax raised. Last month, the OBR predicted a major reduction in the amount raised in Scotland.
It expects a total of £13.099billion will be raised from devolved taxes in 2018-19, including £12.153billion from income tax and £581million from LBTT.
This was much lower than its forecasts for 2018-19 published in November 2016, when it predicted that £13.314billion would be raised in Scotland, including £12.220billion from income tax and £596million from LBTT.
The Scottish Fiscal Commission is responsible for making tax forecasts for the Scottish Government. Earlier this year, SNP ministers predicted that income tax would raise £12.29billion in 2018-19, while LBTT would bring in £543million.
The Government will announce its approach to income tax rates in Thursday’s Budget. All four options it has published include increases in the higher rate, currently 40p, and the 45p top rate. In addition, three of the options propose a new 21p rate charged on earnings of £24,001 and above. The proposals include options to introduce a new 42p rate on earnings above £75,000, rising to 50p above £150,000.
The Scottish Conservatives challenged the SNP to reveal the findings of its independent Council of Economic Advisers before hiking taxes. Finance spokesman Murdo Fraser said: ‘Presumably Nicola Sturgeon has consulted her council of advisers on one of the biggest financial decisions of the SNP’s time in government.
‘If so, she should set out exactly what this group has said before the Budget. Almost every business group in Scotland, even pro-SNP ones, have said they oppose income tax rises. They say it would be bad for business and bad for the economy.’
The Scottish Government said the UK Government ‘is cutting our discretionary block grant by £2.6billion in real terms over the ten years to 2019-20’ and this would put ‘increasing pressure on services’. A spokesman added: ‘Following a careful and considered conversation, we will publish a balanced package of tax and spending proposals as part of the draft Budget on December 14.’