Holyrood’s Finance and Constitution Committee has set out potential structural issues and the risk of ‘unintended consequences’ within the Fiscal Framework – the mechanism method by which partly determines Scotland’s budget.
In its pre-budget report published today, the committee strikes a cautionary note on the operation of the framework following scrutiny of the first year’s available economic data.
Finance and Constitution Committee Convener Bruce Crawford MSP said:
“A key element of the Fiscal Framework is that it is intended to incentivise the Scottish Government to increase economic growth relative to the UK economy.
“After one year’s outturn data for Scottish income tax, our committee is warning that it is too simplistic to assume that faster relative economic growth will indeed result in an increase to the size of the Scottish Government’s budget.
“Our pre-budget report notes that there may be potential structural issues affecting how the Fiscal framework operates arising from the extent to which the make up of the tax base is more unequal in the rest of the UK compared with Scotland.
“As such, we recommend that the review of Scotland’s Fiscal Framework – due to happen in 2020/21 – should consider the impact of differences in the Scottish income tax base relative to the rest of the UK.”
Elsewhere in the pre-budget report, on the Medium-Term Financial Strategy, the committee says it is “disappointed” by the lack of information from the Scottish Government on how it intends to manage the risk of a £1 billion shortfall in Scotland’s public finances.
The committee calls upon the Finance Secretary to identify whether the Government will fund the shortfall through resource borrowing, the Scotland Fund or through increases to the Scottish block grant.
Find the committee’s full report here.