Scotland facing Â£3.7bn black hole from Brexit shocks

Scotland's public finances will be 'significantly vulnerable' to the effects of Brexit. Picture: SWNS

Scottish ministers must ensure Scotland’s voice is heard in the Brexit negotiations as the impact is likely to be acute north of the Border, the Chartered Institute of Public Finance and Accountancy (Cipfa) warned.

Scotland has a higher share of EU funding compared with other parts of the UK and the loss of EU workers will hit hard north of the Border, the organisation said.

Nicola Sturgeon will tomorrow welcome her Welsh counterpart Carwyn Jones to Edinburgh for talks as the two leaders step up their opposition to the prospect of a devolution “power grab” when controls are repatriated from Brussels.

The warning by Cipfa Scotland over the impact comes in a submission to Holyrood’s finance committee, which is examining the effect of Brexit on the Scottish Budget.

The experts cite research suggesting that Scottish GDP could be reduced by up to £11.2 billion by 2030, with a reduction in tax revenues of between £1.7bn and £3.7bn annually.

“As an indicator of scale, this is equivalent to a reduction to the Scottish Government budget of between 6 per cent and 11 per cent,” the submission states. It also highlights the need for a new funding mechanism for farmers and clarity over the devolved administrations’ share of the Brexit “divorce bill”.

Cipfa Scotland has urged Scottish ministers to consider the impact during its budgeting process to ensure the financial resilience of public finances is not undermined, and to look at policy and tax measures that could help overcome any loss in income.

Don Peebles, head of Cipfa Scotland, said: “Scottish public spending power is significantly vulnerable to the impacts of Brexit.

“As it is likely that many of the fiscal risks predicted will be realised in future years, the Scottish Government must begin to budget for Brexit so that it will be in the best position to sustain any financial shocks.

“Considering the impact of Brexit may be keenly felt in Scotland, it is important that the Scottish Government has an influence on the negotiations to ensure any Brexit deal works for its public services.”

Before the EU referendum in June 2016, Scotland expected to receive €5.6 bn over the seven-year period from 2014 to 2020.

“Scotland was set to receive 14 per cent of the UK funding between 2014 and 2020 compared to its population share of 8.3 per cent. This meant that EU funds were proportionately more important to Scotland than to any other part of the UK,” the submission states.

Finance Secretary Derek Mackay said: “This report further highlights the danger posed by the UK government’s extreme Brexit plans, which threaten jobs, investment and living standards.

“Leaving the European single market and customs union threatens 80,000 Scottish jobs over a decade and could cost our economy more than £11bn a year by 2030.

“We welcome this report’s view – supported by many others, including leading business voices – that the Scottish Government should have a direct role in Brexit negotiations, and we will continue to press the UK government on that issue.”

Ms Sturgeon said ahead of today’s meeting with the Welsh First Minister the UK government is planning to “impose new restrictions on the Scottish Parliament” as the practicalities of Brexit unfold in the next two years.

The European Union (Withdrawal) Bill is designed to transpose EU law into British law so the same rules apply on the day of Brexit as the day before and involves EU responsibilities in devolved areas being initially transferred to Westminster.

The UK government said this will allow common frameworks to be put in place where necessary before further devolution, but the Scottish and Welsh governments believe it is a “power grab”.

“Both during and after the EU referendum, new powers were promised to Holyrood, but instead the UK government is planning to impose new restrictions on the  Scottish Parliament,” Ms Sturgeon said.