The next Scottish government will face 'really difficult' spending decisions after the 7 May election, including potentially raising taxes or cutting public sector pay, according to economists at the Fraser of Allander Institute. They warn that parties have engaged in 'fiscal denial' and failed to tell voters the true scale of the challenge.
Professor Mairi Spowage, director of the institute, said the next administration would need a 'reckoning' because the Scottish National Party (SNP) government consistently spent more than it received from core funding, relying on one-off windfalls like ScotWind fees. She described the upcoming budget as the most challenging since the Scottish parliament was founded in 1999.
The institute's analysis shows Scottish public spending grew 3.9% a year since 2019, outpacing income growth of 3.6% and the UK average of 3%. The Scottish government faces a £5bn gap between spending commitments and income by the end of the decade. The Scottish Fiscal Commission forecasts day-to-day spending will rise only 1% annually over five years.
Key 'unexploded traps' include public sector pay, which accounts for nearly half of the £59bn budget. The SNP's pay policy caps rises at 9% over three years, but actual deals have already used 8% in two years. Economists say the cap must be breached to keep pace with inflation, creating recurring costs unless the workforce is cut. The SNP claims £1.5bn in savings from efficiency and natural wastage, but experts call this lacking credibility.
All major parties—SNP, Labour, and Conservatives—have ruled out income tax rises, but economists suggest tax increases may be unavoidable. The Institute for Fiscal Studies echoed the concerns, calling none of the parties' plans 'fiscally credible'. The next government must address these challenges immediately after the election.
