Budgetary Struggles Persist for the Scottish Administration, Discussion 96
In a bid to ensure medium- to long-term fiscal sustainability, the Scottish Government (SG) has outlined a comprehensive plan that focuses on economic growth, tax system reforms, public spending reforms, and addressing funding challenges. This plan, known as the Fiscal Sustainability Delivery Plan, forms a key part of Scotland's Medium Term Financial Strategy (MTFS).
The plan is structured around three pillars: economic growth interventions, tax system priorities, and public spending reforms. The economic growth initiatives aim to stimulate economic activity, expand the tax base, and create a flexible business environment. The tax system priorities are geared towards revenue-raising reforms for fiscal sustainability. Public spending reforms, identified as the most immediate lever for fiscal sustainability in the short to medium term, include a strong commitment to achieving significant savings on corporate functions costs within five years.
Significant reforms under the Public Service Reform (PSR) Strategy are also highlighted, with a focus on removing barriers in public service delivery by making services more preventative, better coordinated, and more efficient. The SG has committed to reducing the FTE of the devolved public sector workforce by 0.5% "on average per annum over the next five years."
The MTFS, published alongside the Fiscal Sustainability Delivery Plan, aims to manage public finances over the next five years amid profound economic uncertainty and external challenges. The SG criticizes UK Government decisions that negatively impact Scotland’s public finances, citing a £400 million shortfall due to incomplete funding of employer National Insurance contributions and proposed UK cuts to disability support, which could have a severe funding impact of £440 million less by 2029-30.
However, the UK Spending Review has confirmed some positive commitments relevant to Scotland, such as City Region growth deals, investment zones, and green freeports. Total resource and capital funding through the block grant is set to increase incrementally from 2026-27 to 2028-29, providing some fiscal space.
The SG has also committed to reducing the FTE of the devolved public sector workforce by 0.5% "on average per annum over the next five years." NHS spending is assumed to grow at over 4% a year in the outlook for resource spending. The MTFS publication this week includes detail about how projected spending has been calculated.
Both the resource and capital "fiscal gaps" are projected to grow to over £2 billion by 2029-30. The Scottish Spending Review will include a savings target of between £0.3 billion and £0.7 billion per annum over the five years. Social Security spending is taking up an increasing proportion of the budget. The SG will publish workforce and pay bill information on a regular basis.
The MTFS presents the funding outlook and compares it with the spending the government thinks it will require. The SG will set out the Scottish Government's indicative spending plans for 2027-28 and 2028-29 for resource, with an additional year (2029-30) for capital. Wider public sector efficiencies and productivity, reform, and revenue raising are set to increase savings from £0.6 billion to £1.5 billion per annum over the five years.
In summary, the Fiscal Sustainability Delivery Plan and the MTFS outline Scotland's approach to ensuring medium- to long-term fiscal sustainability by managing public expenditure carefully while promoting economic growth and reforming public services to deliver better value. The SG is taking a strategic, long-term outlook in its financial planning, focusing on creating a dynamic and flexible business environment, improving skills provision, supporting economic growth, and managing fiscal challenges.
- The Scottish Government's Fiscal Sustainability Delivery Plan includes a focus on both economic growth and reforming the tax system, which are key aspects of personal finance and investing for businesses.
- Policy-and-legislation changes, such as the proposed reduction of the devolved public sector workforce, aim to reduce public spending, a relevant topic in banking-and-insurance, general-news, and policy discussions.
- The Scottish Government criticizes the UK Government's decisions that negatively impact Scotland’s public finances, a political issue that has financial implications.
- The Fiscal Sustainability Delivery Plan and the Scottish Spending Review outline savings targets, which could influence the overall financial landscape and relevant policies in the finance and personal-finance sectors.
