Ministers warned of £555m budget hit

The Scottish Government should start planning for a looming “half-a-billion-pound hit” to its budget, leading economists have warned.

The Scottish Fiscal Commission (SFC) said previous income tax forecasts, which are used to set the annual budget and determine how much money Scotland receives in the block grant, led to the government receiving more funding than it should have.

An estimated £555 million of income tax reconciliation is therefore expected to come out of the budget in 2021-22 – which is more than the government’s anticipated reserves and borrowing can cover.

The government is forecast to have approximately £100m in reserve at the time, and can only borrow up to £300m annually to address “forecasting errors”.

The SFC’S report on its fiscal forecasts states: “It would seem that the government is not building up its reserves to deal with the large income tax reconciliations expected to reduce the budget in 2021-22 and 2022-23.”

SFC chief executive John Ireland said the reconciliations are needed because the UK Office for Budget Responsibility “was under-predicting income tax growth a couple of years back”, meaning the Scottish Government received more block grant funding that the data now shows it should have done.

SFC chairwoman Dame Susan Rice said the impending devolution of further social security powers will usher in “a new era for the Scottish budget”, with £3 billion in extra funding for benefit payments.

She added: “This introduces a complexity to the government’s month-to-month budget management, because anyone who applies for one of these benefits and is eligible will have to be paid and those numbers are unknown until they happen.”

Derek Mackay’s resignation and suspension is the latest in a series of Holyrood scandals.

Henry Mcleish

Scotland’s second first minister was forced to resign following a financial row, dubbed “officegate”.

Mr Mcleish sub-let an office while receiving full expenses from Westminster to cover its cost.

He stepped down as the leader of the then-scottish Executive after investigations showed he had received £4,000 a year since 1998 from legal firm Digby Brown, who rented space in his Glenrothes constituency office.

He described the episode as “a muddle, not a fiddle”.

Mike Watson

Former High School of Dundee pupil Baron Watson of Invergowrie was forced to resign from the Scottish Parliament and Labour Party after admitting wilful

SFC chairwoman Dame Susan Rice.