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Tough decisions on ‘taxing and axing’ ahead of spending review, IFS says

(Jane Barlow/PA)
(Jane Barlow/PA)

The Scottish Government’s spending review will face “tough decisions” between “axing, taxing or hoping for extra funding”, the Institute for Fiscal Studies (IFS) has warned.

The Scottish Resource Spending Review report by IFS economists said the finance review will be “no easy task” as the economy faces a £3.5 billion deficit by 2026/27 – the equivalent of £640 per person.

This figure could shift to a £10 billion shortfall or a £4 billion surplus, according to Government predictions, but the IFS has warned a “substantial” gap is likely.

On Tuesday, Finance Secretary Kate Forbes will announce a multi-year resource spending review for the first time in more than a decade.

Kate Forbes comments
Finance Secretary Kate Forbes (Jane Barlow/PA)

It will set out spending plans to help the Scottish Government meet child poverty targets, address climate change and “secure a stronger, fairer, greener economy”.

But economists have warned the Scottish Government may have to consider axing some policy commitments or increasing taxes to cover the shortfall.

Ministers could also ask Westminster for more funding, or overspend in the hope that the UK Government boosts its funding or gives Scotland more borrowing powers.

“Difficult choices on Scottish tax and spending over the next few years will eventually have to be faced,” the IFS said.

“Political considerations – including those related to the Scottish Government’s desire for another independence referendum – will undoubtably play a role in whether those choices are made clear next week or not.

“Announcing them could be delayed but they can’t be avoided for long.”

Opposition politicians have condemned Scottish Government “misspending” which has led to the “black hole” in the budget.

Scottish Conservative finance spokeswoman Liz Smith said: “Their forecasts are a damning indictment of the SNP Government’s economic mismanagement and will be deeply concerning to both Scottish taxpayers and the wider public.

“There is already a huge black hole in the Scottish Government’s budget and now economists are telling us it has just got a whole lot bigger thanks to the profligacy of Nicola Sturgeon.

“The financial shortfall is the product of incompetence from an SNP Government which has squandered taxpayers’ money on a whole range of failed public sector projects, of which the ferries fiasco is top of the long list.”

Scottish Labour finance spokesman Daniel Johnson said the report “lays bare the price of SNP failure”.

He added: “”It is clear that the spending review, due next week, will spell out the heavy cost all Scots will have to pay for nationalists prioritising constitution over the economy.

“This will be counted in lost jobs, cuts to public services and few will be able to forgive the SNP for it.”

A spokesperson for Ms Forbes said: “The IFS are right to highlight the challenges caused by rising inflation and by uncertain UK Government funding decisions, which can dramatically reduce Scotland’s budget at the drop of a hat.

“While the Chancellor offered some support to households, he has done nothing to support the public sector and public sector workers, who have helped the country through the pandemic, in the face of rising costs.

“Our budget is already worth less this year as a result of inflation and – without the borrowing levers available to other governments – the Scottish Government faces challenging spending decisions.

“The spending review is not a budget but it will set out how, within those limited means and powers, we will focus our resources to help with the cost-of-living crisis, to tackle child poverty – which is only being exacerbated by the actions of the UK Government – to grow our economy and to support our public sector.”