Scotland faces multi-billion pound fiscal Brexit shocks, warns CIPFA

Don Peebles

The Chartered Institute of Public Finance and Accountancy (CIPFA) has warned the Scottish Government that it is facing a post-Brexit public spending black hole of as much as a £3.7 billion.

CIPFA Scotland has said it predicts that Brexit will likely have a negative impact on public spending power and therefore it is of “critical importance” that Holyrood leaders start preparing plans for public services post-Brexit.

In its submission, CIPFA Scotland cite research suggesting that Scottish GDP could be reduced by up to £11.2 billion by 2030, with a reduction in tax revenues of between £1.7 billion and £3.7 billion annually.

Summarising factors which will impact upon the Scottish budget, the Institute highlights that public services may experience volatility in tax revenue due to Brexit impacts on economic growth and potential constraints on immigration.

If combined with a share of the Brexit Bill and a loss in current EU funding levels, Scottish public spending power could reduce.

CIPFA Scotland argues that the Scottish Government should consider the impact during its budgeting process to ensure the financial resilience of public finances is not undermined during the Brexit negotiation process and once the UK has left the EU.

CIPFA Scotland also recommends that the Scottish Government should seek to understand how policy and tax measures could help services overcome any loss in income.

Head of CIPFA Scotland, Don Peebles said: “Scottish public spending power is significantly vulnerable to the impacts of Brexit. As it is likely that many of the fiscal risks predicted will be realised in future years, the Scottish Government must begin to budget for Brexit so that it will be in the best position to sustain any financial shocks.

“Considering the impact of Brexit may be keenly felt in Scotland, it is important that the Scottish Government has an influence on the negotiations to ensure any Brexit deal works for its public services.”

Scottish Finance Secretary Derek Mackay argued that the report highlighted the need for Scotland to have a seat at the Brexit negotiation table.

He added: “This report further highlights the danger posed by the UK Government’s extreme Brexit plans, which threaten jobs, investment and living standards. Leaving the European single market and customs union threatens 80,000 Scottish jobs over a decade and could cost our economy more than £11billion a year by 2030.”

However, MSP Alexander Burnett, who sits on Holyrood’s finance committee, responded that the report might be jumping the gun.

He said: “While the CIPFA report speculates there may be future fiscal shocks for Scotland, it comes with an important caveat that the process for withdrawal from the EU is still in its early stages.

“The key point is that what happens in terms of Scotland’s budget is very much dependent on the outcome of these negotiations and what the UK’s future relationship with the EU will be.”

To help guide the Scottish Government and negotiators, CIPFA’s Brexit Advisory Commission for Public Services, comprised of public service leaders, academics and economists, will be evaluating the finance and policy implications for public services in the UK.

The Commission will release analysis later this year which will include recommendations on how best EU funding could be replaced to bridge divides in regional inequalities between devolved nations.