A PREDICTED decline in Scotland’s working-age population could be a “real risk” to its UK funding deal, MSPs say.
In a report issued today, Holyrood’s Finance and Constitution Committee raises fears that failure to review the impact of Brexit and other factors on the deal made by then finance secretary John Swinney and the UK Treasury in 2016 could create major Budget problems for the future.
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The fiscal framework was agreed after protracted talks that went past the deadline, with the Holyrood and Westminster teams locked in tense discussions about Scotland’s block grant and new fundraising powers devolved to Edinburgh as part of the Scotland Bill.
A compromise was reached to cover the first five years and the deal is due for review by an independent panel in three years’ time.
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Now the committee says it has uncovered two “fundamental questions” that must be addressed in the review as a result of population predictions.
While the number of Scots aged 16-64 is expected to decline from this year onwards, the level in the rest of the UK is forecast to grow.
The committee says this divergence will “place a drag on GDP growth”
in Scotland.
It is calling for consideration of whether the Scottish Government has the ability to address this risk – such as powers over immigration – and whether the fiscal framework fully takes the headcount changes into consideration.
The committee’s report warns that the current set-up means there is a “real risk to the size of the Scottish Budget if there is a fall in Scotland’s working-age population due to a disproportionate decline in immigration relative to the rest of the UK”.
And with Brexit approaching, it wants the fiscal framework review to examine the impact of immigration policy after the UK quits the bloc.
The comments come in its pre-Budget scrutiny paper, which states: “The committee recognises that migration policy is a reserved matter and that the UK Government does not agree with the need for a specific migration policy for Scotland.
“However, within the context of Brexit and a different demographic dynamic within Scotland relative to the rest of the UK, the committee recommends that the review of the fiscal framework should fully consider the impact of immigration policy following the UK’s departure from the EU.”
Bruce Crawford MSP, who chairs the cross-party body, said: “The demographic risk identified in our report raises two fundamental questions – whether the Scottish Government has sufficient policy levers to address the risk and whether the fiscal framework sufficiently recognises demographic divergence.
“It is essential that both of these fundamental questions are fully considered as part of the review of the fiscal framework.”
According to the Scottish Government’s fiscal outlook, a big rise in the number of people aged 75 or more, coupled with a drop the number of younger adults, will see our already-established ageing population trend speed up from 2021. Crawford said: “The bad news is that while our ageing population is not new, it is set to accelerate from 2021, and this is happening faster than rest of the UK.
“In the longer term, all future Scottish Governments will need to respond to the pressures this creates.”
The Scottish Government estimates that reduced migration could cost the country’s GDP 4.5% annually by 2040, making for a drop of almost £5 billion a year.
Appearing before the committee, Finance Secretary Derek Mackay said there is not enough “flexibility” in the fiscal framework to deal with the “shock” of Brexit.
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