BREXIT, an ageing population, and a series of promises by the Scottish Government will leave it facing a “careful balancing act over the coming years,” according to a new report from the Fraser of Allander Institute (FAI).
In its look ahead to Derek MacKay’s draft budget – due to be delivered on December 14 – the respected economic think-tank said the Finance Secretary will need to make difficult choices to address “considerable spending pressures in the years to come”.
FAI director Professor Graeme Roy said: “In particular, rising health costs and an ageing population mean that commitments to health spending are continuing to squeeze funds for other public services.
“This is a challenge not just for the Scottish Government but for the parliament and all political parties in Scotland. An open and transparent debate is needed about the sustainability – and options for reform – of Scotland’s devolved budget.
“Changes in the balance of and scale of public spending; how public services are delivered and prioritised; and the way in which devolved revenues are raised, are all likely to be required.
“Continuing as before is not an option if Scotland’s devolved budget is to be sustainable in the long term.”
The Scottish Government – which has vowed to protect the policing budget, close the attainment gap and increase childcare – has said the time is right for a debate on the “progressive” use of income tax powers.
However, the FAI report includes analysis from the Institute of Chartered Accountants (ICAS) warning there is currently only limited understanding of Holyrood’s powers.
ICAS head of taxation Justine Riccomini said: “As the Scottish Government discusses the options to use its new income tax powers, it needs to factor in the interaction of income tax with other UK taxes as there are administrative and practical constraints to be considered when setting the rates and bands.
“These potential limitations are discussed in the report, which calls for clarity on devolved taxes and proposes that the Scottish Government implement a five-year roadmap to set out the objectives of Scottish tax policy.”
A Scottish Government spokesman said: “This helpful intervention by the Fraser of Allander Institute shows that Brexit has put Scotland’s economy and public services at risk, and reinforces our call for the UK Government to change course immediately.
“Brexit remains a damaging uncertainty to our economic future, with the report highlighting the UK economic growth as a whole having ‘slowed markedly’ after the EU referendum, and calls the lack of progress on negotiations, transition to any new arrangement and long-term relationship with the EU ‘a concern’.
“This report confirms that the Scottish resource block grant from the UK Government will continue to experience significant real-terms reductions over the period between 2010-11 and 2020-21 – and that is before taking account of the impact of the UK Government’s further planned efficiency savings of £3.5 billion in 2019-20. This supports our frequent calls for the UK Government to end austerity, lift the one per cent public-sector pay cap and increase public spending on public services.
“The Scottish Government is already taking action to begin an open and transparent debate on public finances, as called for in the report, with plans to publish a discussion paper on income tax. Thereafter, we will set out our priorities and spending plans as part of the Draft Budget 2018-19 on 14 December 2017.”
Scottish Labour’s interim leader Alex Rowley said the FAI proved his party right. “This report endorses what Labour has been saying for years,” he said. “SNP ministers must finally sit up and realise that their approach to tax simply is not working.”
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