Scotland is facing £2bn black hole
SFC blames slow growth for lower tax revenue forecasts Scotland’s GDP expected to lag behind the rest of the UK
A £2 billion funding black hole threatens to undermine the Scottish Government’s budget.
Forecasts of “subdued” economic growth by the Scottish Fiscal Commission have slashed the level of income tax revenue expected to be collected over the next four years.
Scotland’s public services are set to miss out on more than £2 billion in income tax receipts over the next four years as a result of poor economic growth, the Conservatives have warned.
Disappointing growth forecasts predicted by the Scottish Fiscal Commission (SFC) have led to a downwards revision of the income tax revenue, which will be collected in Scotland.
Those forecasts showed lower than expected growth with GDP reaching just 0.7 per cent next year and only rising to 1.1 per cent by 2022.
The SFC warned that growth would be “subdued” and well below the 2 per cent experienced before the financial crisis.
Scotland’s GDP is also expected to lag behind the rest of the UK.
The SFC report, titled Scotland’s Economic and Fiscal Forecasts December 2017, published alongside Derek Mackay’s Budget, warned: “The outlook for income tax is driven by the outlook for earnings and employment. Slow growth in the economy means slow growth in income tax revenues. As a result, the Commission is forecasting significantly lower revenue from income tax than previously forecast by the Scottish Government.”
Scotland is now expected to raise £2.1bn less when the SFC’S forecasts are compared with official Scottish Government projections made in February this year.
In the 2018-19 financial year alone, the lost revenue due to lower growth is expected to be £205 million compared to projections earlier this year.
That figure arises from the difference between February’s forecast of £12,320m to £12,115m this week.
A similar effect is predicted for 2019-20 when February’s forecast has been revised down from £12,943m to £12,582m – a difference of £361m. The forecasts in 202021 have been revised down from £13,681m to £13,084m – a reduction of £597m.
The difference is even more stark in 2021-22, with the forecast revised down from £14,595m to £13,662m – a reduction in tax take of £933m.
When the overall difference between February’s forecasts and this week’s SFC revised estimates were calculated, the total came to almost a £2.1bn loss of income tax receipts.
Conservative finance spokeman Murdo Fraser said the reduction in tax take for each of the next four years was more than the £164m that ministers expected to raise from their reformed income tax system. Mr Mackay’s Budget announced two new tax bands that would deliver a small tax cut for the lower paid, but would involve all those earning more than £26,000 paying more income tax than their counterparts in the rest of the UK.
Mr Fraser MSP said: “Thanks to the coming Sturgeon slowdown, the Scottish Government is projected to raise £2bn less than expected over the remainder of this Parliament.
“That’s £2bn less going to schools and hospitals because of the failure to match levels of growth we are seeing elsewhere in the UK. The SNP’S answer is to introduce a new Nat Tax, but these figures show if we had higher growth there would be no need to do so. The SNP’S Nat Tax isn’t just a broken promise, it’s bad economics, hanging a sign at the Border saying higher taxes will drive away jobs and leave Scotland further behind other parts of the UK.
“Nicola Sturgeon broke her promise on tax this week. She said she wouldn’t increase taxes on basic rate taxpayers, but that’s exactly what she’s done.
“It is time she apologised and instead focused her government on delivering the growth we need to support our vital public services.”
A Scottish Government spokeswoman said: “There is no black hole. The independent SFC, who provide these figures for the Budget, clearly state that revenues rise yearon-year.
“Under the Fiscal Framework, all forecasts of the income tax revenues are founded on revenues in 201617, the year before devolution of full Scottish income tax powers. The SFC forecast that growth in income tax revenues will outstrip growth in the rest of the UK and provide extra support for public services. Far from their being a black hole, therefore, Scotland is on course to outperform the rest of the UK.”