No-deal Brexit would damage Scottish economy and is ‘not in the national interest’, Holyrood committee concludes

Scottish Parliament windows - Image credit: Holyrood

A no-deal Brexit would be damaging to Scotland’s economy and public finances, according a unanimous report from the Scottish Parliament’s Finance and Constitution Committee.

In its budget report published today, the committee warns that Scotland’s public finances are becoming “increasingly complex and dependent on a number of moving parts which are interwoven”.

It suggests they already exposed to volatility and risk through the way in which the fiscal framework works.

The fiscal framework links the performance of the Scottish economy and the level of devolved tax receipts with the performance of the UK economy and the level of the equivalent tax receipts in the rest of the UK.

The report says: “Essentially this means that the Scottish Government now has more opportunity to both grow the Scottish economy and to generate increased tax revenues.

“But any benefit which accrues to the public finances in Scotland from economic growth and increased tax revenues is dependent to some extent on the equivalent performance of the UK economy and equivalent tax receipts in the rest of the UK. 

“A significant number of tax and economic powers are also reserved to Westminster which limits the opportunities for the Scottish Government to grow the Scottish economy relative to the UK economy. 

“Furthermore, Brexit introduces a great deal of economic uncertainty which was not anticipated when further tax devolution and the fiscal framework were introduced.”

A no-deal Brexit would be damaging to the economy and is “not in the national interest”, the committee said.

Finance and Constitution Committee convener Bruce Crawford said: “The Office for Budget Responsibility (OBR) states that the referendum vote to leave the EU appears to have weakened the economy and predicts that a no-deal Brexit could have a severe short-term impact on the public finances and would be a lot worse than an orderly Brexit.

“The committee is strongly of the view that a no-deal Brexit would be damaging to the Scottish economy and public finances and, therefore, is clearly not in the national interest.”

He added: “The budget is becoming increasingly complex and subject to a greater level of risk.

“This is a result of both new financial powers and the way the fiscal framework works.

“The budget is now much more aligned to the performance of the Scottish economy and how much tax we raise in Scotland relative to the rest of the UK.

“This reinforces the committee’s view of the need to closely monitor the level of actual tax receipts on an in-year basis, both in Scotland and the rest of the UK.”

The committee’s report, along with that of other parliamentary committees, will inform the stage one debate of the Budget Bill on Wednesday.