The outlook for the Scottish budget over the remaining years of the parliament has improved since last year, following the announcement of significant Barnett Formula consequentials in last month’s UK Budget, according to the Fraser of Allander Institute.
However, the Institute also cautions that some of this improvement is likely to be offset by weaker income tax forecasts should the Scottish Fiscal Commission continue with their relatively pessimistic outlook for Scotland’s public finances.
Despite this, the Scottish budget on a like-for-like basis is now projected to rise by 3% between 2018/19 and the end of the parliament. But it will remain below its 2010/11 peak and, in per capita terms, it will be around 7% lower than it was at the start of the austerity period.
In this report:
- The analysis shows that the outlook for the Scottish budget has improved since last year, but many portfolios will continue to face a tough financial squeeze.
- Some of the uplift to the budget flowing from new consequentials at last month’s UK Budget are likely to be offset by weak income tax forecasts from the Scottish Fiscal Commission.
- Overall the size of the Scottish budget is unlikely to be much different in 2019/20 compared to 2018/19. But the budget will still be lower by the end of the current parliamentary term than in 2010 – a cut of around 7% in per capita terms.
- The report’s authors argue that with spending on the NHS likely to account for £1 of every £2 of the Scottish resource budget by the start of the next decade – and with ever-growing pressures on health spending from an ageing population – an urgent debate is needed about future priorities for tax and spending in Scotland.
- Further tweaks to income tax are possible, but the government will – in time – need to consider a wider range of options to raise revenue and/or take a more strategic look at areas of the public sector where cutbacks will have to be made, no matter how politically challenging.
Authors
The Fraser of Allander Institute (FAI) is a leading economy research institute based in the Department of Economics at the University of Strathclyde, Glasgow.