The FAI welcomes today’s Spending Review – the first multi-year spending settlement published by the Scottish Government since 2011.
The Spending Review covers the government’s spending plans for the remainder of this term of parliament – from 2023/24 to 2026/27.
The main take-aways are:
- The government deserves some credit for setting out its plans despite significant uncertainty in its outlook.
- The funding outlook is extremely tight. The block grant from the UK government – the key factor determining the size of the Scottish budget – is projected to barely increase at all in real terms until 2025/26, and then increase slightly in the final year of the forecast.
- Spending plans are expressed at ‘level 2’ for the four years of the SR period. That’s less detail than desirable for the first two years, but understandable for the final two years, when uncertainty around the budget outlook is much higher. However, organisations that are not lucky enough to be a level 2 funding line on their own will still not have a specific estimate of their allocation over the next two financial years.
- Nonetheless, even at this relatively aggregated level, the key direction of travel when it comes to resource spending is clear enough – and the effects are stark.
- Whilst spending on health, social care and social security will increase, many other significant areas of public spending see their allocations remain flat in cash terms throughout the SR period.
- The Spending Review implies that the local government budget will decline by 7% in real terms between 2022/23 and 2026/27. The enterprise agencies see their allocations decline by 16%. Meanwhile, universities and colleges (including student grant support), the police authority, prisons, fire and rescue services and the legal aid budget, amongst other areas, see real terms declines in their allocations of 8% over the period.
- The overall public sector pay bill will be frozen, with a managing down of numbers of public sector staff to pre-pandemic levels.
Professor Mairi Spowage, Director of the Institute, said “Todays spending review provides a welcome insight into the spending priorities of the Scottish Government for the rest of this parliament.
“The government deserves some credit for setting out its plans despite significant uncertainty in its outlook. However, more detailed plans, particularly for the next two financial years, would have been valuable.
“It is hard to understand from what has been published today how the government will meet its transformational objectives on social care, child poverty and climate change, to name a few within this tight funding environment.
“Particularly challenging is the outlook for public sector pay policy – with the Government assuming they will be able to keep the public sector pay bill flat in cash terms over the next few years, by reducing the size of the public sector back to pre-covid levels by 2026-27. It seems likely that there will be huge pressure the revisit the current public sector pay policy as a result of surging inflation.
David Eiser, Deputy Director of the Institute, said “There was much talk in the run up to the publication of this Spending Review of a “black hole” in Scotland’s finances – that is, the gap between the Scottish Governments aspirations for the spending review and the finance available. Of course, in practice, they’ve had to make decisions to cut back those aspirations to fit within the finance available.
“The result has been a number of spending lines frozen in cash terms – in practice, real terms cut of roughly 7% over the period. This includes local government, much of policing and justice, higher education and enterprise support.
We will be sharing more analysis over the coming hours and days.
Mairi is the Director of the Fraser of Allander Institute. Previously, she was the Deputy Chief Executive of the Scottish Fiscal Commission and the Head of National Accounts at the Scottish Government and has over a decade of experience working in different areas of statistics and analysis.