HOLYROOD’S Finance and Constitution Committee has warned that the Fiscal Framework negotiated by John Swinney could have “unintended consequences”.

In a pre-Budget report published today, the cross-party group of MSPs say their scrutiny of the available economic data – the first since Scotland started using its tax-raising powers – has left them with concerns.

They also say they’re “somewhat disappointed” at the lack of information on how the Government plans to deal with a forecast £1 billion Budget shortfall. The MSPs are calling on Derek Mackay to make clear if sufficient cash is available to ministers, either from borrowing or reserve funds.

There is currently no date for the Scottish Budget. It can’t happen until after the UK Budget, which has been postponed until after the General Election.

Details of the billion pound shortfall first emerged in May 2019 when the Scottish Fiscal Commission (SFC) estimated that ministers will receive £229 million less in 2020-21, rising to £608m less the following year, while in 2022-23 ministers could receive £188m less cash.

The fiscal framework was drawn up to detail how funding arrangements between the Scottish and UK governments should operate following the devolution of powers over income tax. A key part of the agreement was to encourage economic growth in Scotland, with the expectation that if the Scottish economy does better than that of the UK, Holyrood’s Budget would benefit from a higher increase in devolved tax revenues relative to the country as a whole.

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At the time, it warned the “negative reconciliations mean less money will be available for future Scottish Budgets”.

However the Finance Committee report said: “It is too simplistic to assume that faster relative economic growth will result in an increase to the size of the Scottish Government’s Budget.

“While we would expect a positive relationship between GDP per capita growth and tax revenues over a period of several years, the relationship depends on a number of variables.”

Committee convener Bruce Crawford said: “A key element of the Fiscal Framework is that it is intended to incentivise the Scottish Government to increase economic growth relative to the UK economy.

“After one year’s outturn data for Scottish income tax, our committee is warning that it is too simplistic to assume that faster relative economic growth will indeed result in an increase to the size of the Scottish Government’s Budget.

“Our pre-Budget report notes that there may be potential structural issues affecting how the fiscal framework operates arising from the extent to which the make-up of the tax base is ‘more unequal’ in the rest of the UK compared with Scotland.

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“As such, we recommend that the review of Scotland’s Fiscal Framework – due to happen in 2020/21 – should consider the impact of differences in the Scottish income tax base relative to the rest of the UK.”

A Scottish Government spokesperson said the economy had performed well, but the “single biggest threat” to stability is Brexit.

They continued: “The findings of the Finance and Constitution Committee underline that further evolution of the fiscal devolution settlement, and a strengthening of devolved financial powers, may be necessary.

“The Scottish Government will make a decision as part of each budget on how to manage any reconciliations, including those for income tax, in a fiscally responsible way that supports our vital public services.”