Mackay hit by near £1bn black hole in Scottish tax revenues
Scotland faced a near £1 billion black hole in its tax revenues in the first year after Holyrood took control of sweeping new financial powers, it has emerged.
The country had lower economic growth than the rest of the UK, which resulted in a £940 million shortfall in the expected tax take in 2017/18, meaning an overall £200m cut in Scotland’s budget next year.
Scotland’s finance secretary Derek Mackay insists that tax revenues in Scotland are on the rise.
Much of the shortfall will be offset through a “risk sharing” mechanism in the fiscal framework with the UK Treasury, which means Holyrood will get a £737m increase in its block grant to alleviate the impact.
The “lag” in the tax figures feeding through means it will hit Holyrood’s budget next year (2020/21) when the Scottish Government will have to manage a reduction in funding in 2020/21 of £204m.
Scottish secretary David Mundell said the figures showed there were now “serious consequences” if the economy does not grow.
“I urge the Scottish Government to use the extensive powers at their disposal – over tax, economic development, transport, planning, education, employability and more – to really kick start the economy,” he said.
“Their approach isn’t working and is making Scotland the most highly taxed part of the UK, and threatening a second independence referendum will only make things worse.”
Tory MP John Lamont said: “Thanks to the UK government, much of this shortfall will be plugged with a £740m bailout.”
Ministers have powers to borrow up to £1.75bn and a £700m reserve to smooth funding pressures.
Scotland’s financial watchdog, the Scottish Fiscal Commission, had predicted a near £1bn black hole in the Scottish Government’s budget over the next three years from 2020/21 until 2022/23.
The figures show that income tax revenues did grow by 1.8 per cent to £10.9bn in 2017/18, with growth driven primarily by an increase in contributions from those earning above £43,000 in Scotland in 2017/18. In a statement, the Scottish Government said these statistics showed choices on taxation were helping to create a more progressive tax system at the same time as the economy growing with low unemployment.
Mr Mackay said: “Between 2016/17 and 2017/18, Scottish income tax revenue increased by £197m, a growth of 1.8 per cent, while the number of Scottish Higher and Additional Rate taxpayers combined, and the revenue paid by them, grew more quickly in Scotland than in the rest of the UK.
“These figures demonstrate that concerns taxpayers would relocate as a result of our tax policy choices were unfounded.”