Scottish Government could face £2bn ‘black hole’ from Labour cuts

The Scottish Government faces a £2bn “black hole” in public finances after recent cuts announced by the UK Government, according to new data from the Scottish Conservatives.  

Analysing estimates by the Fraser of Allander Institute on the impact of chancellor Rachel Reeves’ spring statement on the block grant Scotland receives from the UK Government, the Scottish Conservatives estimate the deficit in welfare spending will increase from £1.7bn to £2.1bn by 2030.  

Scotland’s welfare bill is set to rise to £9bn by 2029-30 – £1.7bn more than was expected to be allocated to benefits, according to the Scottish Fiscal Commission. The Tories say the £455m the Fraser of Allander Institute estimates will be cut from the Scottish Government's budget in 2029-30 means that the deficit will increase significantly.  

Liz Smith, the Scottish Conservatives shadow social security secretary, has described the spending as “completely unsustainable” and accused the SNP of “doing nothing to rein in Scotland’s enormous benefits bill.” 

The party also accused Labour of “broken election promises”. 

Smith said: “The SNP’s reckless spending on welfare was already set to saddle Scottish taxpayers with a colossal £9bn bill. 

“The broken election promises and budget cuts of the UK Labour government have just made that even more unaffordable. What was a mammoth £1.7bn black hole in the welfare budget is set to soar to over £2.1bn. 

“This black hole is completely unsustainable and yet the nationalists are apparently doing nothing to rein in Scotland’s enormous benefits bill. And it’s Scottish taxpayers who will pick up the tab. They are being hammered by two high-tax, high-spend left-wing governments. 

“Only the Scottish Conservatives are arguing for policies that would balance the books and put money back in people’s pockets.” 

While in the short term it is estimated the Scottish Government stands to gain an extra £28m from next year's Scottish Budget, the Fraser of Allander Institute projects Labour’s budget will deduct nearly £500m from the Scottish Budget in 2029-30.  

It suggests the recent welfare cuts will see £177m deducted from the block grant adjustment in 2027-28, rising to £455m by 2029-30. In the absence of any other changes, these measures will make the Scottish Budget around £900m worse off by the end of the decade, according to the economic research institute.  

Reacting to Reeves’ announcement last month, finance secretary Shona Robison said it would be tough for the Scottish Government to maintain its current level of welfare spending. 

Social justice secretary Shirley-Anne Somerville said: “Our investment in social security will provide vital assistance to enable older people to heat their homes, to help disabled people live independent lives and will keep thousands of children out of poverty.

“The Scottish Fiscal Commission’s December 2024 forecasts show that our investment in social security over and above the money we get from the UK Government is projected to be less than 3.5 per cent of the total Scottish Government resource budget by 2029-30.

“By contrast, in pursuit of its self-imposed fiscal rules, the UK Government is determined to impose austerity and its own analysis estimates its welfare changes announced last month will push a further 250,000 people, including 50,000 children, into relative poverty.  They should change course and abandon these cuts.

“We will publish our next Medium-Term Financial Strategy later this year, alongside a fiscal sustainability delivery plan.  Those calling for cuts in Scottish social security spending should spell out exactly which groups of people they would remove help for.”