Scotland faces £650m tax shortfall

• Scotland faces tax income shortfall of £650m, according to the Office for Budget Responsibility

• Initial £5.63 billion figure, estimated for first year of projected Scottish independence in 2016/17, was revised down to £4.98 billion by OBR

• OBR cites “relatively weak” recent PAYE receipts, stalling pay levels and fall in higher income tax rate from 50p to 45p

The 11.6 per cent reduction in 2016-17 is down to the gloomy economic outlook and would bite into the transition to independence if Scots vote “Yes”. The SNP insists having control over the tax regime would allow it to address any shortfall.

The forecast comes as Holyrood prepares to take sweeping new controls over tax-raising powers as part of the Scotland Act.

The independent UK Office for Budget Responsibility (OBR) last year forecast that Scotland would collect £5.63 billion in income tax in 2016-17 under the new Scottish rate of income tax being introduced in 2016. But the OBR’s latest prediction puts the figure at £4.98bn.

OBR chairman Robert Chote told Holyrood’s finance committee the fall was down to low pay and tax cuts.

Committee convener Kenneth Gibson said: “I’m quite astonished at the huge changes there have actually been just over the past year.”

Scotland’s expected tax revenue for the current year has already been cut by £300m to £4.24bn in the OBR’s most recent bulletin, a fall of

7 per cent. For 2015-16, there has been an 11.7 per cent drop in the predicted figure, to £4.65bn.

The OBR chief said average pay levels have stalled in recent years. Top earners such as company directors are also forcing changes to predictions as they may be shifting their income between financial years to take advantage of a reduction in the top rate of tax.

A Scottish Government spokeswoman said the OBR figures did not take into account the “full range of taxes” which would be devolved after independence.

Under the plan, income tax will effectively be cut by 10 per cent. The Scottish Parliament would then be responsible for bringing it back up to the required level – the new Scottish rate of income tax. The power is expected to come into force in April 2016, just before the next Holyrood election.