Scottish Government faces challenge in balancing budget, say experts

The Scottish Government is “now facing a challenge in balancing its budget” due to financial pressures, the Scottish Fiscal Commission (SFC) has said.

Ministers north of the border are required to broadly balance the books every year due to a lack of borrowing powers under devolution, but higher than expected pay deals, the council tax freeze and social security reforms are straining public finances.

Paired with uncertainty in funding coming from Westminster ahead of the budget at the end of October, the SFC warned in a report there would be touch choices ahead for Scotland.

“The Scottish Government will need to make difficult decisions to balance the budget and ensure decisions now are sustainable in the future,” the report said.

More than half of the Government’s resource spending is allocated to public sector pay and the SFC warned above expectation increases will likely result in cuts elsewhere, including to public services.

“If a budget is set based on pay assumptions which are lower than those that materialise, this creates challenges with in-year management of the budget, requiring the Government to reduce its planned spending on services.

“The recent emergency spending controls the Scottish Government has put in place for 2024-25 are the result of those challenges.”

The Finance Secretary earlier this month wrote to Government departments, urging them not to spend in areas that were not absolutely necessary, while a number of initiatives have been cut to pay for the public sector pay deals.

Professor Graeme Roy, the chair of the SFC, said there needed to be better planning for pay deals, to ensure mid-year financial restrictions were not required.

“The past choices of the Scottish Government narrow its room for manoeuvre now and in the future,” he said.

“Previous pay settlements, the approach to social security payments, and the council tax freeze have all added to the in-year pressures that must be accommodated as it continues to negotiate pay with the public sector unions.”

“With pay making up more than half of the Scottish Government’s day-to-day budget, we need more transparency and planning around pay awards at budget time to avoid disruptive spending controls being introduced partway through the year.”

While Ms Robison, responding to the report, said: “I welcome this report, which provides useful independent analysis.

“As it says, there is significant uncertainty on the level of funding we will receive from the UK Government ahead of the UK Budget on October 30.

“The First Minister and I have both made clear that, following the UK Chancellor’s July statement, the Scottish Government continues to face the most challenging financial situation since devolution.

“I will be providing an update to Parliament on the urgent action being taken to address these profound financial pressures.”

The report is the latest warning of Scotland’s financial strife, with most coming from inside the Scottish Government in recent weeks.

On the day the Government Expenditure and Revenue Scotland (Gers) figures were released – showing an increase in Scotland’s notional deficit – Ms Robison said ministers were in the process of deciding what areas should be de-prioritised, but she stressed the Government would “make sure (public services) don’t crumble away”.

Scottish Labour leader Anas Sarwar, who published a dossier on Tuesday accusing the Scottish Government of presiding over financial “chaos”, said: “This financially and economically illiterate SNP government has been attempting to mislead the public to mask their own financial mismanagement.

“This is a government that always attempts to shift the blame and find excuses instead of taking responsibility.

“The reality is experts have warned for years that this SNP government’s decisions are causing mounting financial pressures and today’s damning Scottish Fiscal Commission report has confirmed that.”

Scottish Tory finance spokeswoman Liz Smith said: “Despite their hollow protestations, it’s clear that the drastic cuts the SNP government are continuing to impose are the product of their own decision-making and mismanagement of Scotland’s finances.

“Despite receiving record block grants from Westminster and imposing the highest tax rates in the UK, SNP waste and economic incompetence has created a huge black hole in Scotland’s finances.”