The next Scottish government will need to make 'really difficult' spending decisions soon after taking power, senior economists have warned. The Fraser of Allander Institute (FAI) at the University of Strathclyde said manifestos published during the election campaign failed to tell voters about the true scale of the challenge, accusing parties of 'fiscal denial'.
FAI director Professor Mairi Spowage said the next administration would need a 'reckoning' because the previous Scottish National Party government consistently spent more than it received from core funding, relying on one-off windfalls such as ScotWind fees. She described the coming budget as the most challenging since the Scottish Parliament was founded in 1999, and warned that spending may need to be cut this year.
FAI analysis shows Scottish public spending grew by 3.9% annually in real terms since 2019, while income from taxes, block grants and one-off sums rose by only 3.6%. Scottish spending also outpaced UK growth of 3%. The Scottish government faces an estimated £5bn gap by the end of the decade, and nearly half of its £59bn annual budget goes on public sector pay. A pay cap of 9% over three years has already seen 8% used within two years, meaning the cap will likely be breached to keep pace with inflation.
The Institute for Fiscal Studies echoed the FAI's concerns, saying none of the parties' plans were 'fiscally credible'. All major parties—the SNP, Labour and Conservatives—have ruled out income tax rises, despite the looming shortfall. FAI deputy director João Sousa said efficiency savings of £1.5bn from cutting the public sector workforce lacked credibility, adding that the next government could 'only paper over things for so long'.
