Tax rises forecast as Scotland faces £1bn spending black hole

Scotland is facing a £1 billion spending black hole in the coming years - with a stark warning that it could lead to fresh austerity or tax hikes.

A shortfall in the expected income tax take has prompted the country's economic watchdog to warn that Finance Secretary Derek Mackay may have to impose cuts in his annual £35 billion budget or "increase taxes."

The Scottish Fiscal Commission unveiled fresh estimates for 2019/20 which paint a gloomy picture for the nation's public finances and economic growth.

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Conservative finance spokesman Murdo Fraser said: “This is a devastating blow for Scotland’s finances totalling more than £1 billion.

Derek Mackay hinted that borrowing could increase

“For years the SNP has been warned about the poor economic performance for which it is responsible, and now we see the consequences of that.

“This is disastrous news for public services as well as hardworking Scots who may be in line for even more of their payslip being seized by the SNP government."

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Scotland has recently taken on fresh powers over income tax and next year, 2020/21, will mark the first time that new "reconciliations" are imposed which mean the Scottish Government must tailor its public spending to keep this in line with devolved taxes being raised.

But Scotland is facing a income tax shortfall of £229 million next year, the estimates show. This stems from the taxes raised in 2017/18, as there is a three year lag in discovering the actual tax data.

The black hole rises to £608 million in 2021/22 and £188 million the year after that, the figures show.

Scottish GDP growth will continue to lag behind the rest of the UK with the economy expanding by 0.8% this year, down 0.4% on original estimates, and 0.9% next year, down 0.1%.

Mr Mackay said that Scottish Government has been putting cash into the Scottish reserve to manage volatility and there are borrowing powers which could be considered.

He added that the reason for subdued growth in Scotland was down to Brexit.
The scale of the reconciliation will be "uncertain" until the actual figures available, the minister said.
"There will always be volatility," he added.

"The SFC have admitted that but their report actually show increases in income tax in terms of forecasts for Scotland over the forecast period relative to their December forecast."