Tax or slash – Scots could face tax hikes or cuts to services to tackle £3.5bn deficit

Scots have been warned to brace for potential announcements of higher taxes or major projects being ditched by financial experts ahead of the publication of the Scottish Government’s Resource Spending Review.

This review will set out the SNP/Green coalition’s day-to-day spending over the next four years and is due to be published on Tuesday.

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Critics have said the warning demonstrates the SNP’s failure to manage the economy competently and have blamed Nicola Sturgeon’s leadership.

Ministers have previously warned of a £3.5bn projected hole in their budget by 2026-27 caused by poor income tax receipts, expensive policy commitments, and rocketing inflation.

The IFS has warned such a hole – worth around £640 per person in Scotland – will see the finance secretary facing “tough decisions” on whether to cut key services or raise taxes.

Due to income tax being partially returned to Holyrood, lower earners in Scotland have paid less tax than in England, with higher earners paying more than if they lived in England.

The Resource Spending Review will set out the Scottish Government’s plans for the next four years of public service spending, however the numbers will have a significant degree of uncertainty.

Finance Secretary Kate Forbes has been told she faces a multi-billion pound shortfall in the coming years.

This is because the Scottish Government’s budget is dependent on UK Government spending plans and any cut to taxes or spending plans by Downing Street would have knock-on negative effects for the Scottish exchequer.

It also leaves larger spending projects such as the doubled Scottish Child Payment and other expensive commitments dependent on increased spending by the UK Government to bridge the £3.5bn gap in Scottish finances.

David Phillips, associate director at the IFS, said current forecasts showed these expensive spending commitments, twinned with rocketing inflation, would result in a “multi-billion budget shortfall”.

He said: “Because it cannot borrow to fund day-to-day spending except in some limited circumstances, next week’s Scottish Spending Review could see the announcement of pretty hefty tax rises or cuts to spending on lower priority services, and even the abandoning of some policy commitments, to bring the budget into balance.”

The finance expert added that the “gamble” of the SNP’s 2021 manifesto was for more UK Government funding which did then materialise, however he warned repeating the gamble may not be successful.

He added: “While further funding top-ups could be on the way it seems unlikely that the UK government will top up its plans by anything like enough to allow the Scottish Government to pay for all of its policy priorities without some hard choices on tax. and/or other areas of spending.”

Opposition parties highlighted the report as an example of what they label as SNP incompetence with the economy.

Liz Smith, the Scottish Conservative finance spokesperson, said it was a “damning indictment” of the SNP’s “economic mismanagement” and “deeply concerning”.

She said: “There is already a huge black hole in the Scottish Government’s budget and now economists are telling us that it has just got a whole lot bigger thanks to the profligacy of Nicola Sturgeon. The financial shortfall is the product of incompetence from an SNP Government which has squandered taxpayers’ money on a whole range of failed public sector projects, of which the ferries fiasco is top of the long list.

“The writing has been on the wall for many months now. The Scottish economy is not performing as well as it should be, mainly because the SNP has failed to address long-term productivity problems and imbalances in the labor market. These are having detrimental effects on both tax revenue and investment, and the blame for this lies firmly at Nicol Sturgeon’s door.”

Daniel Johnson, the Labor finance spokesperson, said the warning “lays bare the price of SNP economic failure”.

He said: “15 years ago, Scottish wages were growing more quickly than the UK average – now they lag behind.

“It is clear that the spending review, due next week, will spell out the heavy cost all Scots will have to pay for nationalists prioritizing the constitution over the economy.

“This will be counted in lost jobs, cuts to public services and few will be able to forgive the SNP them for it.”

Scottish Liberal Democrat finance spokesperson, John Ferry, said Nicola Sturgeon is “only too happy” to “cash the checks” from being part of the union, and said Scots face “paying more and getting less” under the SNP.

He said: “Unfortunately the SNP’s management of the Scottish economy has left a gaping hole at the heart of our public finances. The fact is Scots are faced with paying more and getting less under the SNP.

“Almost every economic intervention the SNP have attempted has blown up in their faces and Scottish ministers are becoming a byword for managerial incompetence.”

The Scottish Government was contacted for comment.

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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