Scotland in line for 'strong recovery' but could lag behind rest of the UK

Scotland is in line for a "strong economic recovery" but there is evidence it is lagging behind the rest of the UK, the Scottish Government's official forecaster has said.

Picture: John Devlin
Picture: John Devlin

The independent Scottish Fiscal Commission (SFC) said the economy is forecast to recover to pre-pandemic levels by April-June next year.

This is almost two years earlier than was forecast in January.

Scottish GDP is forecast to grow by 10.4 per cent in 2021/22.

However, the SFC said the country is line for a £417 million income tax shortfall.

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It said: "Scottish income tax revenues have fallen behind the block grant adjustment – the amount subtracted from the Scottish Budget to account for the devolution of tax revenues – with a shortfall of £190m anticipated in 2022/23.

"This shortfall is expected to reach £417m by 2026‑27, driven by slower growth in employment in Scotland compared to the UK."

Elsewhere, it forecast long-term economic damage to the Scottish economy of around - 2 per cent as a result of Covid.

Finance Secretary Kate Forbes said this meant "the long-term impact of Brexit on the economy will be worse than that caused by Covid-19, with the OBR [Office for Budget Responsibility] attributing a 4% long-term reduction in living standards due to the UK’s exit from the European Union".

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Speaking in Holyrood, she said: “Be under no illusion, the budget I’m presenting today is smaller than it would have been if it wasn’t for the impact of Brexit on our economy, a Brexit that has been imposed on Scotland against the express wish of the people that live here.”

The SFC is expecting a peak unemployment rate of 4.9 per cent at the end of this year, below the 7.6 per cent forecast in January.

Dame Susan Rice, chair of the SFC, said: “After taking account of inflation we expect the Scottish Budget to increase by 1 per cent in total over the remainder of this Parliament, largely because of increases in UK Government funding.

“Behind this headline increase, the Scottish Government faces slightly slower growth in income tax revenue than the rest of the UK but faster growth in social security spending.

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"These will create pressures over the next five years which the Scottish Government must manage carefully.”

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