Scotland’s overspending gap plugged with more English Taxes

Scotland gets £800 million but income tax forecasts fall sharply

Philip Hammond announced an extra £800 million will be added to Scotland’s budget

Scottish ministers are to receive an extra £800 million to spend on improving the country’s infrastructure, the Chancellor has announced as official forecasts for income tax revenue north of the Border were cut sharply.

Philip Hammond said his Autumn Statement contained a “very significant” boost to the Scottish Government’s capital budget, which could be spent improving roads, rail services, public buildings or broadband provision.

He also announced the Government will work with SNP ministers to create a special City Deal to stimulate Stirling’s economy, meaning similar arrangements have been agreed or are in the pipeline for all Scotland’s cities.

A decision to increase by £2 billion spending on research and development will benefit Scotland’s “thriving” universities and research centres, he added.

But his upbeat message masked a sharp decline in forecasts for Scottish income tax, which is being devolved to Holyrood, since the last projections were conducted in March and the Brexit vote in June.

Although Scottish income tax revenues are still expected to grow over the period to 2020/21, the independent Office for Budget Responsibility (OBR) cut its March forecasts by a total of £2.4 billion.

The dominant factor was the sharp decline in forecasts for UK income tax revenues since the EU referendum vote. SNP ministers said the Autumn Statement disclosed “the real cost of Brexit” and castigated it for failing to end austerity or getting the economy back on track.

Derek Mackay, the Scottish Finance Minister, said the Scottish budget for day-to-day spending will be nine per cent lower over the decade to 2019/20, while for capital spending it will be eight per cent down.

But, unveiling his plans, Mr Hammond said: “The investments I have outlined today will have benefits right across the Union.”

David Mundell, the Scottish Secretary, added: “Most significantly for Scotland is the £800 million of extra capital funding. This is as a result of the Chancellor’s decision to invest in infrastructure, but it is for the Scottish Government to step up now.

“If it is used properly by the Scottish Government, this will make a real difference to productivity, jobs and growth in Scotland. The UK government’s decisions today mean a secure economy based on the broad shoulders of the UK, more funding and more powers for Scotland.”

The additional £821 million of capital spending was allocated to Scotland using the Barnett formula thanks to a series of funding pledges made by Mr Hammond for extra infrastructure south of the Border.

An extra £125 million will be handed to the Scottish Government in 2017/18, with a further £197 million the following year, £239 million the year after that and £257 million in 2020/21.

The OBR predicted Scottish income tax revenues, based on the powers already devolved to Holyrood, will increase by £750 million per year by 2020/21 but revised down its March estimate for that year by £581 million.

Mr Mackay said: “The truth about Brexit – and the UK’s financial and economic future – was laid bare by the Chancellor today. The real cost of Brexit has now been revealed – and it is a cost which will be paid through lower growth, lower tax revenues, higher borrowing, higher debt and higher inflation.”

The OBR revised North Sea oil revenues upwards for the first time since March 2011 thanks to a combination of a partial recovery in the oil price and the falling pound, but still projected that the industry will make a £500 million loss for the taxpayer this year.

However, it revised upwards its estimates for every year after that, with a £2.5 billion rise for 2020/21 compared to its March forecast. Its report predicted that prices will average £44 per barrel and production will be flat until 2019.