Fraser of Allander: Spring statement 'challenging' for Scotland's finances

Changes announced in the chancellor's spring statement make the outlook for Scotland's budget "significantly more challenging", according to an independent think tank.

Joao Sousa, deputy director of the Fraser of Allander Institute, has described the UK Government's "scramble" to announce major welfare reforms as "disheartening".

The changes, aimed at saving £5bn in benefit payments, were widely trailed ahead of the announcement and estimates suggest three million families will be impacted by 2030.

And he warned the changes raise new questions about Scotland's finances.

Sousa said: "Given how long these measures have been speculated about, the last-minute tweaks and the scramble to announce further welfare reforms to make the sums add up to the £5bn in savings are pretty disheartening. It also makes us wonder about the reasons for announcing the headline amounts last week; it is simply not credible that the chancellor or the work and pensions secretary were not aware of the OBR’s concerns at the time of the announcement."

Sousa said Reeves "would have seen her fiscal rules broken" without taking some action. 

The decisions mean current spending will be cut by almost £9bn per year by 2029-30.

Incapacity and disability benefits will fall by £4.6bn over the period.

In contrast, defence spending has been increased.

Sousa said: "In the very short-term, there is a small amount of additional funding (£28m) for the Scottish Government in 2025-26 due to a small increase in departmental spending at UK Government level.

"Towards the end of the forecast, however, the picture is significantly more challenging in terms of what it means for Holyrood’s finances. 

"The cuts in departmental budgets announced by the UK Government – even after accounting for some consequentials from employment support programmes and DWP delivery of welfare reforms – mean significant reductions in funding for the Scottish Government relative to what was previously included in the forecasts. 

"Of particular significance are the £200m and £435m cuts in implied funding for the Scottish budget in 2028-29 and 2029-30.

"The current forecast points to the PIP [Personal Independence Payment] reforms reducing the block grant adjustment for social security devolution by increasing amounts, from £177m in 2027-28 to £455m in 2029-30."

He went on: "Put together, and in the absence of any other changes, the Scottish budget would be around £900m worse-off on the current side in 2029-30 than previously projected. On the other hand, some additional capital spending on areas which are devolved in Scotland – so aside from the defence spending increases – are expected to raise the Scottish Government’s capital budget by nearly £250m by 2029-30 relative to current plans."