The Scottish Government has delayed the allocation of VAT from Westminster over “fundamental and quite profound concerns” about how it would be affected by Brexit.
The proposal to assign devolved VAT revenue has been indefinitely delayed because of fears Brexit volatility poses an “enormous risk” to the Scottish budget, Nicola Sturgeon added.
Finance Secretary Derek Mackay told MSPs of his intention to delay the assignment of the tax because of disagreements about estimating the amount Scotland might receive.
Addressing Holyrood’s Finance Committee, Mr Mackay said he has concerns around the accuracy of how the amount is calculated and added: “We have not found a way that addresses that issue of risk, which is compounded by Brexit uncertainty.”
“It is an assignation which carries disproportionate risk because of the uncertainty and lack of data. The level of risk is such that we’re not in a position to sign that off.”
Mr Mackay estimated VAT revenues of almost £6 billion were due to be assigned to the Scottish budget, calculated from forecasts of the tax revenue generated north of the border.
The First Minister meanwhile, being questioned by conveners of the Scottish Parliament’s committees, said she had “fundamental and quite profound concerns about the implication for the Scottish budget”.
She added: “The concern comes from the methodology that is being proposed.
“It’s based on estimates and while that, in normal times, would give rise to concerns anyway, at a time where there is such instability largely because of Brexit, proceeding on that basis could – in the Scottish Government’s judgment – result in a significant hit to the Scottish budget.
“It’s about a way of calculating the Scottish budget that has enormous risk attached to it and it isn’t sensible to allow that to be done on the proposed methodology at a time where there is so much volatility in some of the factors that drive this.”
Although Ms Sturgeon stressed the assignment of VAT is not a devolved power, the Scottish Conservatives accused her of “running a return-to-sender government”.
Scottish Conservative shadow finance secretary Murdo Fraser said: “This move exposes the fact that Nicola Sturgeon is running a return-to-sender government.
“It’s bad enough that she handed back social security powers earlier this year, then suddenly decided she wanted nothing to do with control over air departure tax this week.
“Now we learn the SNP Government doesn’t even have the wherewithal to cope with the VAT assignment it so furiously demanded previously.
“This is a Government which said it could have an entire, separate country up-and-running within just 18 months.
“Yet when powers begin to arrive at Holyrood, instead of embracing them and making them work for Scotland, the nationalists hand them straight back.
“That’s the hallmark of a grievance-driven, incompetent administration whose time has long been up.”
Following Mr Mackay’s announcement, Scottish Labour finance spokesman James Kelly added: “This is quite a climb-down from Derek Mackay and also makes a mockery of claims the SNP could have set up a separate state within 18 months.
“While the SNP Government again hands Scotland’s powers back to the Tories, Labour would use them to invest in Scotland’s people, communities and public services.”