Scotland is heading into one of the toughest fiscal periods in the history of its devolved parliament, and the political parties that spent weeks wooing voters largely avoided telling them that. Senior economists say whoever wins the May 7 Scottish parliament election will face a spending crunch that demands hard choices almost from day one in office. The Fraser of Allander Institute, based at the University of Strathclyde, says the scale of the problem has gone largely unaddressed throughout the campaign.
Fiscal Denial Across Parties
According to a report by The Guardian, Professor Mairi Spowage, director of the institute, described the situation as a collective round of "fiscal denial" by the parties. She said every major manifesto was loaded with spending commitments while failing to honestly set out how the books would balance. The numbers behind her concern are stark. Since 2019, Scottish public spending grew at an average of 3.9 per cent a year in real terms. Income from taxes, the UK government's block grant and one-off energy revenues grew at only 3.6 per cent.
Windfalls No Longer Available
That gap was papered over with windfalls including fees from the ScotWind offshore wind licensing round and payments from the Treasury that will not repeat. The Scottish government's own estimate put the funding shortfall at 5 billion pounds by the end of the decade. The Scottish Fiscal Commission forecasts that day-to-day spending growth will be held to just 1 per cent a year over the next five years.
Public Sector Pay Pressures
Public sector pay sits at the heart of the problem. It accounts for nearly half of Scotland's 59 billion pound annual budget. The previous SNP administration set a pay policy capping rises at 9 per cent across three years, but actual deals with unions consumed 8 per cent of that within two years alone. João Sousa, deputy director of the Fraser of Allander Institute, said the next government could "only paper over things for so long." He pointed to rising health and social care costs and a social security bill forecast to run 1.2 billion pounds above Scotland's share of UK welfare spending by 2031 as further pressures waiting to detonate.
Parties Avoid Tax Hikes
Despite all of this, the SNP, Labour and the Conservatives each pledged not to raise income tax and spoke of cutting it when finances allowed. Three economists from Glasgow and Strathclyde universities wrote in the Economics Observatory journal that the next parliament's central challenge would be economic and fiscal. They noted that an ageing population, sluggish growth in living standards and rising spending pressures would make budget choices difficult throughout the term.
