Property tax shortfall raises fears over Holyrood budget

Forecasts published with the Autumn Statement predict a widening gap between the Scottish Government’s last forecasts and the sum collected, with almost ten per cent knocked off revenues by 2021.

Finance Secretary Derek Mackay is now expected to be forced to slash his own projections for LBTT when he publishes the draft budget for 2016-17 next month.

Experts and opposition parties said the shortfall confirmed the tax had been badly designed, with too much of the burden falling on the most expensive properties.

Labour warned persistent problems with LBTT went “right to the heart” of the SNP’s economic competence.

The shortfall also raises questions about the reliability of analysis by the Scottish Fiscal Commission, as it prepares to become Scotland’s official independent economic forecaster when income tax powers are devolved in 2017.

The Fiscal Commission called for improvements to the modelling used in LBTT forecasts, but signed off the Scottish Government’s estimates as “reasonable” when they were published in December.

LBTT, which replaced stamp duty after the tax on property sales was devolved in April 2015, is currently the largest national tax administered by the Scottish Government.

Last year John Swinney, then the finance secretary, admitted that LBTT would raise tens of millions of pounds less than expected in its first year, blaming a cut in stamp duty by the UK Government which saw transactions rushed through to avoid higher charges.

An additional three per cent levy on sales of second homes was introduced this year to fill the gap, raising roughly £60 million per year, without which the black hole after five years would be in excess of half a billion pounds.

“The government didn’t do a behavioural analysis, and they didn’t do any modelling prior to launching it, which they should have done,” said Faisal Choudhry, director of Scottish research at estate agents Savills. “Scotland’s taxation structure doesn’t make us competitive with the rest of the UK.”

A Scottish Government spokesman blamed the latest shortfall on the impact of the EU referendum result and the collapse in the oil price over the past two years, which has hit the northeast property market.

The Scottish Conservatives’ shadow finance secretary, Murdo Fraser said: “We repeatedly warned the Scottish Government that its stamp duty changes would be damaging in the medium-to-long term. And now we learn these LBTT changes won’t raise anything like the amount the SNP said.”

He called for the LBTT rates to be overhauled to create a “fairer playing field” for homeowners moving up the housing ladder.

Labour’s economy spokeswoman Jackie Baillie said that with budgets under strain, the government “needs to get its numbers right”.

She said: “The Scottish public need to have faith that the government will raise as much money from their taxes as they say they will. Public finances must be open and accountable.

“This shortfall goes right to the heart of the SNP’s competence in government.

“With new powers coming to Scotland over tax and welfare the Scottish people deserve at the very least a government that will use them correctly, transparently and competently.”

A Scottish Government spokesman said: “Since our last published forecasts, there have been significant changes in economic conditions, particularly in the north-east of Scotland.”

He added: “We will publish updated devolved tax forecasts as part of the Draft Budget to be published on 15 December.

“The Scottish Fiscal Commission will set out its assessment of the Scottish Government’s forecasts in a report to be published alongside the Draft Budget.”