Finance Secretary Shona Robison is facing budget constraints, according to experts at the Fraser of Allander Institute. Despite the additional cash Holyrood ministers will receive from the UK Government, there is limited room for manoeuvre in next week’s Scottish Budget.
The Scottish Government is set to receive an additional £1.5 billion for the current financial year and a further £3.4 billion in 2025-26 as a result of the UK Budget. However, Joao Sousa, deputy director at the think tank, highlighted that a large portion of the government’s spending is allocated to just four areas – health, pay, social security, and grants to local government. This allocation limits the flexibility to make significant changes to the overall budget.
The lack of a medium-term financial strategy from the Scottish Government has made it challenging to navigate the funding position for 2025-26. The report from the Fraser of Allander Institute outlines the various pressures that the budget is likely to face. With public sector wages accounting for more than half of the government’s day-to-day spending, pay rises will have a substantial impact on the budget position.
The report emphasizes the importance of decisions regarding pay and areas like social security, where costs exceed funding from the UK Government. When factoring in pressures from pay, national insurance contributions, and other commitments, there is little room for additional funding that isn’t already allocated.
If pay rises end up being higher than planned, the Scottish Government may need to take emergency action. Additionally, while efforts to tackle child poverty have increased since 2018-19, spending in this area remains relatively low compared to overall discretionary resource funding. Capital spending on child poverty reduction has actually decreased in real terms since 2019-20.
A Scottish Government spokesperson stated that the budget will prioritize funding to address the First Minister’s priorities, including economic growth. The government is advocating for full reimbursement of over £700 million in employer national insurance contributions from the UK Government to support public services in Scotland. Discussions with the Treasury are ongoing, and uncertainty remains ahead of the Scottish budget presentation.
