AS I SEE IT: TERRY MURDEN
Maybe it’s a case of being careful what you wish for. The Scottish Budget has delivered something of an income tax and spending bombshell for the Holyrood government which is largely a result of being granted more powers under devolution.
Ministers have been told by the Budget watchdog that they need to give “serious thought” to how they will fund a growing gap between the rising costs of Scotland’s new social security programme and a decline in income tax receipts.
The Scottish Fiscal Commission has cut £400m from its forecast of income tax revenues in 2022/23 because employment and earnings have grown less quickly in Scotland than in the rest of the UK since 2016/17.
That means income tax revenues are likely to be less than Scotland’s share of the block grant that is removed following the devolution of some tax powers to Holyrood.
As the Fraser of Allander Institute points out, this was a known risk of tax devolution when the decision was made to pass income tax powers to Holyrood..
Fiscal Commission chief executive John Ireland told a media briefing on Friday that in 2024-25 it is anticipating a very big negative reconciliation for income tax of £469 million.
“In that year the Government will only be able to borrow £300 million to cover forecast error, so they are going to have to find an anticipated £169 million from elsewhere in the Scottish Budget, and obviously that is a pressure,” he said.
Chairman Dame Susan admitted it was “hard for us to say how worrying” the situation is for the Government.
But she said by speaking out the commission was giving a “signal there needs to be plans now” to set out how the rising social security bill will be covered.
Train hopes derailed
Surprising that so little attention was given last week to the impact on Scotland of a big HS2 contract awarded to two plants in England. Great news for Derby and Newton Aycliffe who will share the £2bn order to build 54 of the world’s most advanced trains. Not such a welcome announcement in Fife which had been hoping to build the locomotives at a new factory on the site of the former Longannet power station.
It all looked very positive in 2018 when Spanish company Talgo announced Longannet as its preferred location for the plant. A year later the council granted it planning permission.
Talgo insisted that winning the loco deal was not a deal-breaker, but there is little doubt that losing it doesn’t do much to advance the project.
In a twist of fate the announcement came on the day politicians and ScottishPower CEO Keith Anderson were on site in Kincardine to watch the demolition of the power station chimney. No doubt someone was hoping a HS2 deal could have been made to confirm the site’s resurrection as a centre of rail manufacturing.
According to Scottish Enterprise the company remains committed to bringing operations to Scotland and is working on revised plans.
Don’t expect any big announcements any time soon.
tmurden@dailybusinessgroup.co.uk
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business
Leave a Reply