Scottish Government budget facing six percent cut by 2021

The Scottish Government budget could face a cut of up to six percent by the end of the next parliament, according to leading economists.

In a new report the Fraser of Allander Institute warned the scale of cuts represent entire budgets for the Finance and Economy, Fair Work, Skills and Training, Culture and External Affairs, and Rural Affairs, and Food and Environment portfolios combined.

The report suggests that the Scottish budget could be cut by between 3-4 per cent in real terms by 2020-21 and up to six per cent – around £1.6bn – under a worst case scenario.

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As it stands, Scotland’s resource budget is five per cent lower in real terms than 2010-11, with capital spending down 12 per cent in real terms since 2010-11.

The authors say uncertainty surrounding Brexit has hindered previous signs of an improving economic outlook in Scotland, but that even before the EU referendum outcome, the budget was facing real terms cuts over the next few years driven largely by the plans set out by previous chancellor George Osborne.

The SNP Government will need to face a “serious reprioritisation of existing spending” according to the report, with the party having pledged a £500m increase in health spending, maintaining real term spending on police and the flagship policy of doubling the provision of free childcare.

This could mean cuts of up to 17 per cent in “unprotected public services”. Local authorities are expected to be among the hardest hit, with a potential cut of £1bn, which increases in business rate and council tax income would only partially offset.

The report acknowledges however that the Government will face “unprecedented autonomy”, following the devolution of fiscal powers, “to shape the distribution of incomes, the incentives facing individuals and businesses alike, and the effectiveness by which economic and social policy objectives can be achieved.”

The Scottish Parliament will eventually raise 40 per cent of tax revenues with limited borrowing powers, when the powers agreed by the Smith Commission are fully transferred.

Professor Graeme Roy, director of the University of Strathclyde’s Fraser of Allander Institute, said: "The combination of a weakening in the outlook for the UK public finances impacting on Scotland’s block grant, a challenging outlook for devolved revenues, and a series of significant spending priorities – particularly in health and the planned transformation in childcare – will require a substantial re-prioritisation of spend and reform of public services in Scotland.

“While the challenge falls on the Finance Secretary, critics of the forecast cuts in unprotected public services will have to point out where – with a highly constrained overall funding settlement – their priorities for cuts would be and what taxes they would increase.”

First Minister Nicola Sturgeon tweeted that the figures “demonstrate why the Tories must use the Autumn Statement to end austerity.”

Chancellor Phillip Hammond is due to publish his Autumn Statement on 23 November, while Scottish Finance Secretary Derek MacKay is expected to lay out his draft budget shortly after.