Warning of budget black hole due to rising health costs

The Scottish Government faces a significant funding gap due to the rising cost of health spending for an ageing population, a report has warned.

The Scottish Fiscal Commission said the government faced a shortfall of 11.1 per cent over the period 2030-31 to 2074-75, meaning it would need to reduce spending or increase tax revenues each year by an average of £14 billion in 2024-25 prices.

Health spending makes up the largest proportion of the Scottish budget, and is growing faster than any of other area of public spending.

The SFC’s 2025 Fiscal Sustainability Report predicted health spending is projected to rise from around 34 per cent of Scottish public spending in 2029-2030, to almost 47 per cent in 2074-2075.

The median age of the Scottish population is also set to rise from 43 in 2029-30, to 49 in 2074-75, increasing pressure on the financing of health services. The number of people aged 85 and over is set to increase by 95 per cent over the same period.

Scotland’s share of the UK population is projected to fall from around eight per cent in 2029-30 to around seven per cent in 2074-75.

This population shift would result in a lower allocation of central UK Government funding under the Barnett formula.

An increase in the prevalence of long-term health conditions associated with such demographic shifts will have a significant impact on the sustainability of the Scottish Government’s finances, according to the SFC.

The report predicts health spending will exceed the funding available from the block grant leaving a gap of £1bn in 2024/25 prices.

If the UK Government responds to its own fiscal sustainability pressures, it would have a knock-on effect to block grants and this spending gap could widen further.

The SFC said some of these costs could be mitigated if Scottish public health could be improved through healthier ageing.

However, over the past decade, the health of the Scottish public has been declining and life expectancy in England has been consistently higher.

The SFC said it was likely that the disparity between Scottish and English life expectancy would increase in the future.

According to the 2022 Scottish Health Survey, some of this regional imbalance can be attributed to a sharp rise in the prevalence of mental illness in Scotland.

The survey found that people with mental illnesses are more likely to suffer from poor physical health. These challenges often compound together to further lower life expectancies.

Professor Graeme Roy, chair of the SFC, said: “The Scottish population ageing earlier than the rest of the UK will result in health spending over the next twenty‑five years growing faster than the funding provided through the Barnett formula.

“Improving the underlying health of Scotland’s population would lead to benefits to the public finances through lower spending and higher tax revenues and help to address the long‑term fiscal sustainability challenges.”

Health secretary Neil Gray said: “We note the SFC’s analysis and outline projections for the coming 25 years.

“While there are obvious limits to long-term projections of this nature due to our rapidly changing world, we are cognisant of the anticipated change in Scotland’s demographics.”