FUTURE devolution settlements could “tighten” due to the impact of Donald Trump’s tariffs on the UK, a think tank boss has warned.
Stephen Boyd, the director at the Institute for Public Policy Research (IPPR) Scotland, said that the impact on the Scottish budget is still “uncertain” and depends on how Chancellor Rachel Reeves responds.
In response, the SNP criticised Reeve’s self imposed fiscal rules and said they were “redundant” in the wake of Trump’s tariffs.
Stock markets fell sharply at the end of last week in response to the new levies imposed by the White House.
A 10% import tax on goods coming into America from around the world kicked in on Saturday morning, while a 25% levy on foreign cars had come into force on Thursday.
Many nations will face even higher levies in the coming days, including the EU, which will see tariffs imposed increase to 20% later in the week.
Boyd, speaking to Scotland on Sunday, said that the White House tariffs could “obliterate” any headroom in the public finances created during Reeves Spring Statement, where she made swingeing cuts to welfare.
"The Office for Budget Responsibility had already warned that the Chancellor’s fiscal headroom could easily be obliterated by forthcoming trade conflict,” he said.
“The tariffs Trump announced this week were significantly higher than anticipated and, as a result, the prospects for economic growth and fiscal headroom look even bleaker than when the Spring Statement was delivered.
"The impact on the Scottish budget is uncertain and largely dependent on how the Chancellor chooses to respond to deteriorating forecasts. Nevertheless, as things stand, it is difficult to envisage anything other than tighter settlements in future years.”
“She - and the UK government as a whole - must now start to show some flexibility in adapting to these changed circumstances,” Boyd told the newspaper.
“Fiscal rules cannot continue to be met by cutting the spending that supports the living standards of society’s most vulnerable people".
It comes as the Institute for Fiscal Studies (IFS) said that Scotland faces long-term funding issues due to the “Barnett squeeze”.
In response to the IPPR claims, Finance Secretary Shona Robison said “With US tariffs now threatening the UK’s economic growth, we support calls for the Chancellor to show more flexibility around her fiscal rules – inflicting further austerity cuts on Scotland would be unacceptable.
“Given the implications for our funding, we are seeking engagement with the UK Government ahead of the Spending Review.”
With economic growth predicted to amount to just one percent this year, experts have suggested this could be 0.5 percentage points lower than anticipated over the coming years as a result of the tariffs.
Scottish industries such as whisky and salmon are expected to take a huge hit due to the White House’s decision.
The SNP’s Westminster economy spokesperson, Dave Doogan MP (below), said that the Chancellor’s current fiscal rules “make no sense at a time when businesses and public services are being forced to respond to a global economic storm”.
“Despite repeatedly telling us ‘the world has changed’ the Labour Government appears paralysed in policies totally unfit for the era we live in and instead seem intent on following the outdated Tory playbook of cutting support for the disabled and robbing pensioners of their Winter Fuel Payment.
"The Labour Government is stuck in the mud, isolated in broken Brexit Britain and Scotland cannot afford to be dragged down with it.”
A UK Government spokesperson said: “We’re committed to supporting businesses, including Scotch whisky producers, through capping corporation tax at 25 per cent and publishing a business tax roadmap so that future investments can be planned with confidence.
“To provide specific support to the Scotch Whisky industry, the UK Government will reduce fees for geographical verification making it cheaper for producers to badge their products.”
