Scots could face £3bn tax rise and government spending cuts

Daily Record

2 days ago

David Phillips, Head of Devolved and Local Government Finance at the Institute for Fiscal Studies (IFS) warned taxpayers could face higher taxes.
Scotland could be facing up to £3billion of tax rises and spending cuts, the Sunday Mail can reveal.
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It comes after it emerged last week Chancellor Rachel Reeves is facing a £41 billion budget black hole.
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The economic problems stem from the government's numerous u-turns on policies like winter fuel payments and welfare reform as well as low economic growth and higher borrowing.
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Experts have warned whatever Reeves decides to do to balance the Treasury's books, there will be a direct impact on Scotland - either through tax rises or spending cuts.
David Phillips, Head of Devolved and Local Government Finance at the Institute for Fiscal Studies (IFS) said Scotland's could be impacted by up to £3billion.
He warned that Scottish taxpayers could face higher taxes if Reeves chooses to raise reserved levies such as VAT, corporation tax or capital gains taxes.
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Equally if Scotland's block grant is cut First Minister John Swinney will need to decide whether to plug the hole with increases to taxes controlled by Holyrood, or by slashing public services.
Philips said: 'If Rachel Reeves cuts spending, the impact on the Scottish government's funding will depend on what is cut.
'Cuts to reserved spending wouldn't affect government's funding but would affect Scots directly.
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'Cuts to services that are devolved in Scotland would mean cuts to the Scottish Government budget via the Barnett Formula, or the block grant adjustments for devolved benefits if she revisits cuts to disability benefits, for example.'
If the Chancellor raises taxes rather than cutting services, the impact would be directly on Scots rather than through a reduction in the Scottish government's funding as the majority of taxes are reserved to Westminster.
Phillips said if Reeves chose to raise taxes that are devolved to Holyrood, like income tax, it would lead to a cut to the block grant, leaving ministers to decide whether to iplement their own tax rises or bring in spending cuts.
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He said: 'If those in the rest of the UK are paying more tax to support things that benefit Scotland too, either Scots need to pay more tax or need to forgo those benefits.
'That's what this system of block grant adjustments achieves.'
Influential think tank the National Institute of Economic and Social Research (NIESR) last week predicted Reeves would need to raise taxes to meet her own strict fiscal rules.
It recommended a 'moderate but sustained increase in taxes ' to ensure Reeves meets Labour's 'stability rule' - to get the current budget into surplus by 2028/29 by bringing in more money than it spends on public services and welfare.
NIESR predicted the government would miss this target by £41.2 billion and said tax rises were not just a possibility but were now inevitable.
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