SOMETHING is afoot in Scotland’s public finances. It’s fairly technical, so bear with me, but it could have a very large real-world effect. It seems to have the SNP Government spooked and tongue-tied, even though they’ve known it’s been coming down the tracks for years.

This headache was chewed over by Holyrood’s finance committee on Wednesday, as MSPs drilled down into the detail with the Scottish Fiscal Commission (SFC), the independent body which produces the official forecasts that set the envelope for Scotland’s budget each year. It was an event for aficionados. But this week, the committee will have Finance Secretary Derek Mackay in front of it, and MSPs want to know what he’s going to do about it. The opposition sense a bad day lies in store for Mr Mackay.

It all goes back to the fiscal framework, the rulebook agreed between the Scottish and UK governments three years ago to cover the operation of the tax and benefit powers devolved to Holyrood after the 2014 referendum.

With Holyrood given the power to raise its own income tax, generating around £11bn, almost a third of the budget, a formula was agreed to reduce the block grant from Westminster by a roughly comparable amount each year.

This involved estimates. The SFC forecast the tax take, and the UK Office of Budget of Responsibility forecast the block grant adjustment. The result was fed into the budget process and effectively told Mr Mackay how much money he had to spend on services.

The system has been used to set the Scottish budget since 2017/18. But no one really knows how good the forecasts are. There is a 16-month lag between the end of a financial year and the final figure showing how much income tax was actually raised. The outturn figure for 2017/18 only arrives this July. And when it does, there will be a reckoning, a “reconciliation” to the 2020/21 budget.

As these backdated adjustments start to come into focus, the SFC is warning they represent a significant risk. They estimate - and of course they could be wrong - that they add up to just over £1bn over the next three years. A negative £229m reconciliation to the 2020/21 budget to correct forecast errors behind the 2017/18 budget. A negative reconciliation of £608m hitting the 2021/22 budget because of forecast errors behind the 2018/19 budget. And a negative reconciliation of £188m blow to the 2022/23 budget because of forecast errors behind this year’s budget.

This is not the Scottish government’s fault, but it falls to the government to respond. True, the SFC forecasts were largely off because income tax revenue was lower than expected in Scotland. But it is not the state of the economy to blame. It’s all to do with the forecasts. If the forecasts had been dead on, there would be no reconciliations. But, as usual, they weren’t, and and so we’re looking into a £1bn hole.

Over time, as data accumulates, the forecasting should get more accurate. There should also be some positive reconciliations. But for now, it’s three fat negatives in a row. This is uncomfortable new territory for SNP ministers.

The government knew there would be some reconciliations. Indeed, the fiscal framework includes a borrowing scheme for just such an eventuality. The trouble is, it’s not enough.

Ministers can borrow up to £300m a year to cope with forecast errors. But this has to cover forecast errors in new devolved benefit payments, as well as income tax reconciliations, and these could be pretty large in their own right.

Benefit payments are due to be £3.5bn next year, but could go a lot higher if official publicity increases take-up rates.

In theory, the government can also draw down £250m a year from its piggybank, the Scottish Reserve, but that’s £100m more than is in it right now. And, of course, if you use the cash to cover one year’s reconciliation it’s not there for the next one. That borrowing also has to be repaid within five years, so doing it year after year isn’t sustainable either, as the bill would soon fall due. The system won’t be reviewed till 2021.

As the SFC said in a report last week: “These negative reconciliations mean less money will be available for future Scottish budgets. The borrowing powers.. and the rules about.. the Scottish Reserve mean that these will not cover all of the expected reconciliations. The Government will have to adjust its spending plans or increase taxes.”

That was more than the Scottish Government felt comfortable saying. Publishing its five-year outlook the same day, it gave the reconciliations a glancing mention, saying it planned “to use the Scotland Reserve as far as possible to smooth resource funding over time”, while downplaying the forecast errors as “not certain”. The Fraser of Allander Institute ripped into them for a “striking” lack of engagement with the problem. It was not the only bad omen.

When he presented the outlook to parliament, Mr Mackay merely said the reconciliations were uncertain, and suggested extra borrowing powers and the ability to draw even more money from the Scottish Reserve to cover them. Short-term avoidance measures, not facing the facts. Worse, he failed to share the updated SFC numbers with MSPs before he spoke, letting them discuss old figures. It was only in the last minute of the debate that Tory MSP Murdo Fraser revealed the true scale of the black hole.

When Mr Fraser tried to raise the reconciliation issue at FMQs this week, John Swinney simply hid behind the final outturn figure not being ready yet and slagged off the Tory tax plans. I’m not saying our government is in denial, but it does a very good impression of it.

At finance committee, Green MSP Patrick Harvie showed why his party and the SNP have good reason to be jumpy, as he raised the £608m whale of a reconciliation set to take a bite out of the 2021/22 budget. “There are huge political implications from a reconciliation of that scale on a budget that’s being voted on in this parliament two months before a Scottish general election,” he said. Quite so.

It’s not just that parties like to offer giveaways at elections. A hole that big could strain SNP-Green relations on the budget just as they’re meant to be working to secure a pro-Independence majority on a common platform of Indyref2. And while forecast errors are not the government’s fault, cuts and higher taxes to cope with them would be portrayed by the opposition as a grim foretaste of independence. It wouldn’t be fair, but that’s politics. Ministers may try to hide from the reconciliations, but they can’t ignore them much longer.

Heads in the sand is not a plan.