Scotland is facing the prospect of more swingeing cuts to public services in the coming years – with a warning these will become “increasingly apparent” over the next 12 months.
Spending reductions could hit £1.6 billion, a stark report by the Fraser of Allander Institute at Strathclyde University has warned.
Even before the uncertainty caused by Brexit, Scotland’s budget was forecast to fall by just over 3 per cent by 2020-21 as result of the UK Government’s ongoing austerity cuts.
Economists set out a number of scenarios but the worst would see the Scottish Government facing cuts of up to six per cent – or up to £1.6 billion.
The report comes as Holyrood prepares to take on new powers over raising income tax and social security under the post-referendum Smith Commission powers.
Finance Secretary Derek MacKay will set out his budget to MSPs later this year.
Professor Graeme Roy, Director of the University of Strathclyde’s Fraser of Allander Institute, said: “Brexit uncertainty, a weakening UK fiscal position, ongoing UK welfare reform and a fragile Scottish economy means that the devolution of powers over tax and social security could not have come at a more challenging time.
“The combination of a weakening in the outlook for the UK public finances impacting on Scotland’s block grant, a challenging outlook for devolved revenues and a series of significant spending priorities – particularly in health and the planned transformation in childcare – will require a substantial re-prioritisation of spend and reform of public services in Scotland.”
Labour and the Liberal Democrats are already calling for a one pence rise in the basic rate of income tax north of the Border to counter the cuts’ impact.
The Scottish Government has set out costly plans to increase the NHS budget, double childcare provision and protect the police budget. This could mean “unprotected” areas, like council budgets, face a cut of about £1bn by 2020-21 without radical reform.
Mr MacKay said: “Brexit has put Scotland’s economy and our public services at risk and the UK Government must change course immediately. The Chancellor must stimulate the economy, not compound austerity, and end indecision by backing the single market.”
The report also warns that the possibility of a second independence referendum could also increase economic uncertainty.
Tory finance spokesman Murdo Fraser said: “The buck now stops at Bute House. A strong economy will boost public spending, but that’s not what we’re seeing north of the Border. Report after report exposes how Scotland is lagging behind the rest of the UK, and this Sturgeon slowdown could leave Scotland in recession while Britain thrives.”