SCOTLAND'S economic recovery is lagging behind the UK as a whole while Westminster funding has been slashed, according to a new report.
A reduction of oil and gas activity is blamed for the relatively sluggish Scottish recovery - though it is predicted the economy to return to pre-pandemic levels by mid-2022.
The Scottish Parliament’s Finance Committee found UK Government capital grants - the money used for big projects such as infrastructure, schools and hospitals - are down by 9.7%.
This means funding a 1.2% increase in infrastructure spend will require the Scottish Government to borrow the maximum amount it is allowed to - £450 million.
Kenneth Gibson, convenor of the Finance Committee, said this made the case for giving the Scottish Government stronger taxation and borrowing powers.
The overall Scottish budget for 2022-23 is 2.6% lower than in 2021 - accounting for inflation that is a cut of 5.2%, according to the Scottish Fiscal Commission (SFC).
Gibson said the continual decline for UK Government grants made the case for more fiscal powers to be given to Holyrood.
“The Committee agrees with the Scottish Government that it faces a challenging year, with further decreases in resource expenditure in the two years that follow,” he said.
“It’s clear that with UK Government grants continuing to decline, further fiscal flexibility for Scotland must be considered. Borrowing limits are too constrained and are being eroded by inflation. Tax rates remain unchanged but, as in the rest of the UK, inflation will bring more people into higher bands.”
Gibson said minister must focus on analysing Scotland’s demographic changes to improve wages and productivity.
He added: “To ensure Scotland’s public finances are placed on a more sustainable footing, productivity, wage growth, demographic change and labour market participation should be a key focus for Scottish Ministers.
“Transparency in the full and timely presentation of figures is also essential, particularly regarding Covid-19 funding, how it is allocated both by the UK Government and subsequently by Scottish Ministers, and the impact of this expenditure.
“As part of the Fiscal Framework review, both the UK and Scottish governments must consider and agree a process by which Barnett consequentials are clearly communicated, to bring greater certainty over what is ‘new’ and what is ‘reprofiled’ money.”
The Budget Bill for the coming year will be debated in parliament for the first time next week.
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