A Holyrood committee is “disappointed” at the lack of information on how the Scottish Government plans to deal with a forecast £1 billion budget shortfall.
MSPs on the Finance Committee are now calling on Finance Secretary Derek Mackay to outline if sufficient cash is available to ministers, either from borrowing or reserve funds, to deal with the shortfall.
In a report published ahead of the the Scottish budget – for which no date has yet been set due to the General Election – committee members accepted the Government “faces the challenge” of not knowing how much cash it will receive from Westminster in the block grant.
They said they were “somewhat disappointed in the lack of information in the MTFS (medium term financial strategy) regarding the forecast £1 billion negative reconciliation”.
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The MSPs called on Mr Mackay to “identify whether the expectation of the Scottish Government is that sufficient money to fund the negative reconciliations will be available through: resource borrowing; the Scotland Reserve; increases to the block grant”.
Details of the possible funding shortfall, which arises from income tax reconciliations, first emerged in May 2019.
Then, experts at the Scottish Fiscal Commission (SFC) estimated that ministers will receive £229 million less in 2020-21, rising to £608 million less the following year, while in 2022-23 ministers could receive £188 million less cash.
At the time, it warned the “negative reconciliations mean less money will be available for future Scottish budgets”.
The SFC also said borrowing powers available to the Scottish Government and the rules about withdrawing funds from reserves “mean that these will not cover all of the expected reconciliations”.
Income tax reconciliations have only been a factor of Scottish budgets since Holyrood ministers were handed powers over income tax north of the border.
The fiscal framework was drawn up to detail how funding arrangements between the Scottish and UK governments should operate under these arrangements.
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A key part of this was to encourage economic growth in Scotland, with the expectation that if the economy north of the border does better than that of the UK, the Scottish budget would benefit from a higher increase in devolved tax revenues relative to the country as a whole.
However the Finance Committee report said: “It is too simplistic to assume that faster relative economic growth will result in an increase to the size of the Scottish Government’s budget.
“While we would expect a positive relationship between GDP per capita growth and tax revenues over a period of several years, the relationship depends on a number of variables.”
Committee convener Bruce Crawford 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.”
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A Scottish Government spokesman said: “Scotland’s economy continues to perform well and our employment rate is high compared to historical records – and unemployment is low.
“However, the biggest single threat to economic stability is Brexit which, in whatever form it takes, will damage the Scottish economy.
“The findings of the Finance and Constitution Committee underline that further evolution of the fiscal devolution settlement, and a strengthening of devolved financial powers, may be necessary.
“The Scottish Government will make a decision as part of each budget on how to manage any reconciliations, including those for income tax, in a fiscally responsible way that supports our vital public services.”
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