VAT assignment plans to be postponed indefinitely
Method being used to calculate VAT has enormous risk attached to it.
Allocation of half of VAT revenues to Scotland was included in the Smith Commission proposals following the 2014 independence referendum.
It was to be introduced next April, but is to be delayed over a lack of clarity about how much VAT is raised in Scotland and how it might adversly affect Holyrood’s annual £33 billion budget.
Appearing before Holyrood’s Finance Committee, Secretary for Finance, Economy and Fair Work Derek Mackay said that he has concerns around the accuracy of how the amount is calculated.
He added: “We have not found a way that addresses that issue of risk, which is compounded by Brexit uncertainty.”
“It is an assignation which carries disproportionate risk because of the uncertainty and lack of data. The level of risk is such that we’re not in a position to sign that off.”
Mr Mackay estimated VAT revenues of almost £6 billion were due to be assigned to the Scottish budget, calculated from forecasts of the tax revenue in Scotland.
Derek Mackay also told MSPs that the VAT assignment plans would be postponed indefinitely until further discussions could be held with the UK Government.
The First Minister while being questioned by conveners of the Scottish Parliament’s committees, about the Scottish Governments plans for VAT assignment, said she had “fundamental and quite profound concerns about the implication for the Scottish budget”.
Ms Sturgeon added: “The concern comes from the methodology that is being proposed.
“It’s based on estimates and while that, in normal times, would give rise to concerns anyway, at a time where there is such instability largely because of Brexit, proceeding on that basis could, in the Scottish Government’s judgment, result in a significant hit to the Scottish budget.
“It’s about a way of calculating the Scottish budget that has enormous risk attached to it and it isn’t sensible to allow that to be done on the proposed methodology at a time where there is so much volatility in some of the factors that drive this.”
“It is based on estimates, and while that in normal times would give rise to concerns anyway, in a time where there is such instability at the moment, largely because of Brexit, then proceeding on that basis could absolutely result in a significant hit to the Scottish budget,” she said.
The FM added: “I would stress the point there is no power here for the Scottish Government, so it is not about not taking on a power or postponing a power.
“It is about a way of calculating the Scottish Budget which has enormous risk attached to it, and it isn’t sensible to allow that to be done on the proposed methodology at a time when there is so much volatility.”
The Fraser of Allander Institute had warned ministers against taking on VAT receipts without accurate data, stating there was a “significant and unreasonable risk” to Scotland’s budget.