Scots public finances susceptible to Brexit shocks, CIPFA warns

21 Aug 17

Scotland’s public finances are especially vulnerable to damage from the Brexit process, and ministers should be putting contingencies in place now to absorb future economic shocks, CIPFA has warned MSPs.

Drawing on a range of sources, CIPFA estimates that leaving the European single market could cost the Scottish economy up to £11.2bn in lost trade by 2030, and that Brexit could bring about an annual drop in Scottish tax revenues of between £1.7bn and £3.7bn – equivalent to between 6% and 11% of the entire Scottish budget.

In a submission to the Holyrood Finance Committee’s inquiry into the Brexit impact on Scotland’s public finances, CIPFA urges the Scottish Government to begin planning now to mitigate as best it can the Brexit blows in prospect. “Scottish public spending is significantly vulnerable to the impacts of Brexit,” said CIPFA Scotland head Don Peebles.

“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.”

The paper focuses on what it calls “Scotland’s historic disproportionate benefit” from EU funding, and the critical importance to the Scottish economy of access to an EU-wide workforce. It says that a combination of volatile tax revenues, potential constraints on immigration and a share of the UK’s Brexit “divorce Bill” could markedly reduce public spending power in Scotland.

Peebles said: “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.”

Though the paper admits that it is hard to put precise figures on the Scottish impact of Brexit, it is in little doubt that the effects on public finances north of the Tweed will be significantly adverse.

Prior to Brexit, Scotland – with 8.5% of the UK population – was due to receive €5.6bn from Brussels in the seven years to 2020, equivalent to 14% of the EU funding coming to the UK.

A particular concern is the loss of EU agricultural support, especially important given often difficult Scottish terrain. Scotland’s share of UK receipts under the economic development programme of the EU Common Agricultural Policy is 16.3% of the UK total, pointing to massive cuts if post-Brexit funding from the UK government sticks to the population-based Barnett Formula.

 “A new funding mechanism for farmers requires to be identified before 2020,” the CIPFA paper warns. “Any funding mechanism using the Barnett Formula could result in a significant reduction in funding post-2020.”

  • Keith Aitken
    Keith Aitken

    covers Scottish affairs for Public Finance from Edinburgh. He was formerly economics editor and chief leader writer on The Scotsman and now has a busy freelance career as a writer, broadcaster and event chair.

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