THE Scottish Government is facing particular “challenges” balancing its books after the coronavirus crisis, despite £3.5billion of immediate Treasury support, the budget watchdog has said.
The Scottish Fiscal Commission, which sets the envelope for Holyrood’s budget, warned devolved tax revenues would be “heavily affected” as the lockdown hits the economy.
Although there will be no immediate impact on the 2020-21 budget, any shortfall will have to be fixed through a so-called “reconciliation” to the budget of 2023-24.
However, the Scottish Government may struggle as it has only limited borrowing powers under the framework that governs its finances.
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Finance Secretary Kate Forbes said the report underlined the need for Holyrood to have more fiscal levers and greater borrowing powers at its disposal.
The UK Government is planning to borrow £225bn from bond market investors in just four months to fund its extra coronavirus spending.
But the Scottish Government can only borrow £300m to help smooth out budget reconcillations, which are usually caused by wayward tax and spending estimates.
In its new update on the 2020-21 budget, the Commission said the combined effect of the Scottish Government’s spring budget deal and the UK Budget on 11 March would be an increase in spending of £247m in Scotland in 2020-21.
The Scottish Government should also receive £3.5bn from the UK Government, as part of its share of extra Treasury spending to tackle the Covid-19 crisis.
READ MORE: Coronavirus: Edinburgh Council needs 'radical action' to plug £53m pandemic gap
SNP ministers had been expecting to raise £12bn in income tax this year, more than a quarter of the £40bn budget, but this is now expected to slump as workers lose their jobs and salaries shrink through furloughs.
The Commission said the lockdown would also reduce business rate imcome as firms went bust and fell into arrears, land and buildings transactions tax as house sales fell, and landfill tax as waste and recycling services ceased.
At the same time, spending on some devolved benefits would increase as take-up rates rose through the crisis, and more deaths meant more Funeral Support Payments, although more old and sick people dying could also “reduce spending as claims are ended earlier”.
However the Commission said it would not publish any detailed forecasts - a key part of its job in normal circumstances - as the impact of lockdown was so unpredictable.
It said: “We do not at the moment know how long the lockdowns in Scotland, the UK and around the world will last. It is possible that the lockdown restrictions could be eased and then tightened again.
“The extent to which the economy returns to normal, people are able to return to previous jobs and demand for goods and services rebounds to previous levels will determine the long-term effects of the crisis on our economy.
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“For these reasons we are not providing updated forecasts.”
Fiscal Commission Chair Dame Susan Rice said: “In the light of the changes since our last forecast, today we are providing an updated perspective on the current Scottish Budget position.
“The Scottish Government is required to broadly balance its budget and has limited scope for borrowing and using its reserves. Given the uncertainties about the level of funding and the spending required to respond to the crisis this may present some challenges.”
SNP Finance Secretary Kate Forbes said: "The COVID-19 pandemic is having severe economic consequences for people across Scotland and the Government is doing everything we can to mitigate that impact.
“The Scottish Fiscal Commission’s report highlights the particular challenges faced by the Scottish Government, due to uncertainty over the funding levels from the UK Government and required spending levels in Scotland.
“The current global situation proves yet again that we need more fiscal levers, including an increase to the limits on our borrowing and reserve powers, to manage Scotland’s public finances effectively.”
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