Next Scottish government faces ‘really difficult’ spending choices, economists say

The next Scottish government will need to make “really difficult” spending decisions soon after taking power, including tackling its large public sector pay bill, senior economists have said.

Economists with the Fraser of Allander Institute, at the University of Strathclyde, believe the manifestos published by Scotland’s political parties during the campaign failed to tell voters about the true scale of the challenge.

Prof Mairi Spowage, the institute’s director, said the next government would need to have a “reckoning” after the 7 May election because the last Scottish National party administration consistently spent more money than it received from its core sources of funding.

She said it had been heavily reliant on non-recurring windfalls, such as fees from the ScotWind offshore wind licensing round or one-off payments from the Treasury, to fund its higher spending.

The next government would therefore face the most challenging budget since the Scottish parliament was founded in 1999, she said, and may need to cut this year’s spending to cope with the shortfall.

“The parties have engaged in a collective bout of fiscal denial with manifestos which have lots of commitments, yes, some ways to save money, but any money that is saved is then spent immediately,” she said at a recent briefing for economists.

“We can’t go on as we are, never mind spend more money.”

The FAI’s analysis shows that, on average, Scottish public spending has grown in real terms by 3.9% a year since 2019. Yet its income from taxes, the UK government’s annual grant and one-off sums from energy levies and so on grew by only 3.6% a year.

Scottish spending has also grown “significantly” faster than the UK’s, which has been limited to 3% a year on average over the same period, partly because the SNP government breached its policies on public sector pay, the FAI said.

Last year, the Scottish government estimated it faced a £5bn gulf between its spending commitments and income by the end of this decade. SNP ministers published a revised spending strategy in January, which they said would cope with much of that overspend.

The Scottish Fiscal Commission, the official watchdog, forecasts spending for day to day Scottish services will rise by only 1% a year over the next five years.

The FAI’s analysis echoes the view of the Institute for Fiscal Studies, which said on Monday none of the parties’ plans were “fiscally credible”.

David Phillips, the IFS’s lead on devolved government finances, said every party displayed a “lack of realism regarding just how tough the fiscal challenges facing the next Scottish government are”.

João Sousa, the FAI’s deputy director, said the last Scottish government had trimmed its spending plans in January to partly address the funding gaps but there were still a number of “unexploded traps” laying in wait for the next administration.