Twin crises of Brexit and Covid push Scotland to almost £700m overspend

THE Finance Secretary has put aside a £300 million war chest to fight the impact of Brexit and Covid in 2021 as a report reveals the pandemic has pushed the Scottish Government almost £700m into the red.

The overspend is the result of two major business support schemes agreed in March. Brexit is also said to have “placed considerable strain” on the Holyrood Budget, according to auditors.

The £699m overspend relates to the 2019-20 Budget. However, most of the £8 billion in Barnett consequentials due from Westminster as a result of Covid will fall in the 2020-21 financial year.

The Scottish Government says it had to commit the funds to support the economy and has not overstepped its bounds.

A separate paper from the Scottish Parliament Information Centre (Spice) shows Finance Secretary Kate Forbes has earmarked £300m in Covid consequentials in case extra help is needed for health and trade in the new year.

A spokesman said: “Our limited borrowing powers mean we do not have flexibility to increase spending to meet demand and therefore must manage our expenditure – much of which is demand-led so cannot be accurately calculated in advance – within the consequentials provided.

“On current planning assumptions, the £48.8m allocation for EU Exit preparations the Scottish Government has received for 2020-21 falls far short of the funding that is required in Scotland to deal with the consequences of a No-Deal or ‘low deal’ EU Exit.”

Meanwhile, Audit Scotland has called for greater clarity over future investment plans in private companies after government loans of £3.5m to Prestwick Airport and £9m to Burntisland Fabrications (BiFab) were valued at nil at the end of the 2019-20 financial year to “reflect the likelihood of repayment”.

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Stephen Boyle, auditor general for Scotland, said: “Covid-19 is understandably having a significant effect on the Scottish Government’s finances.

“It’s now more important than ever that the next financial strategy has clear links between spending plans and what that money is expected to achieve, as Scotland contends with the pandemic’s ongoing impact.

“The Scottish Government also needs to clearly outline its plans for future investment in private companies to increase transparency and value for money.”

Net spending for the year was almost £39.4m, the watchdog found. Two major business support programmes – agreed in March as the pandemic set in – cost the public purse more than £900m.

Audit Scotland said ministers had “quickly revised” governance arrangements in response to coronavirus. Despite this, the pandemic saw the publication of its medium-term financial strategy pushed back to January, reducing the amount of time available for scrutiny ahead of next year’s Budget. Staff are also said to be under “considerable strain” due to both the health crisis and EU withdrawal.

Meanwhile, the airport and BiFab loans were said to be following “a trend of loans and guarantees for private companies deteriorating in value”, including the £45m used to save the Ferguson Marine shipyard.

Jenny Marra, convenor of Holyrood’s cross-party Public Audit and Post Legislative Scrutiny Committee, commented: “The impact on public finances and the economy caused by the Covid-19 pandemic and the UK’s withdrawal from the EU will affect financial and policy decision-making for years to come.

“An overspend of £669m in the 2019-20 budget reveals just how important our committee’s work will be in scrutinising financial management and governance in our collective mission to minimise the effects of the pandemic on our society.”

In its response to the report, the Scottish Government said: “Audit Scotland confirm in their report that we are not in breach of the Budget Act.

“Like other governments around the world, we have listened to businesses and tailored our support during this economic crisis to support jobs and the economy of Scotland. The Scottish Government is committed to sound and transparent management of the country’s finances to deliver the best outcomes for the people of Scotland.”

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