Forecasting errors from the Scottish Fiscal Commission would put finances at risk, MSPs warn

Economic forecasting errors from the Scottish Fiscal Commission would put public finances at risk, MSPs have warned.

Control over income tax was devolved to the Scottish Parliament from 2017/18, meaning the Scottish Government’s budget is more heavily reliant on the growth in income tax receipts north of the border, relative to the rest of the UK.

In the SFC’s report on Finance Secretary Derek Mackay’s draft budget, the body predicted GDP growth will be just 0.7 per cent in 2018, 0.9 per cent in 2019 and 0.6 per cent in 2020.

But in a new report, MSPs on the Finance and Constitution Committee found that there is now a far greater degree of uncertainty over Scotland’s public finances and that overly-optimistic forecasting by the SFC could have damaging consequences for public spending.

While per capita growth in Scotland has generally tracked the UK’s since 1999, MSPs noted that a gap has grown over the past two and a half years, with Scotland lagging behind.

The committee recommended that tax revenues should be closely monitored by the Scottish Government and that HMRC should publish monthly outturn data for Scottish Income Tax as soon as possible.

Committee convener Bruce Crawford MSP said: “The SFC is effectively forecasting that without tax policy differences, income tax revenues per capita will grow at the same rate in Scotland as in the rest of the UK. That, importantly, will offset wider predictions of Scotland generally seeing slower economic growth per capita than the rest of the UK.

“However, these are only forecasts and there is a risk to public finances if there is any significant forecast error - particularly if income tax revenues do not grow as strongly in Scotland as in the rest of the UK.

“Having said that, there may also be some benefit to the public finances if SFC income tax forecasts prove to be overly pessimistic.”