THE Scottish Government faces "considerable uncertainty" around its funding ahead of the upcoming Westminster Budget, independent economic forecasters have said.
Holyrood ministers are "facing a challenge" in balancing their budget due to financial pressures from Westminster and the Government's own decisions, the Scottish Fiscal Commission (SFC) warned.
Ministers in Scotland are required to broadly balance the books every year due to a lack of borrowing powers under devolution, but higher than expected pay deals, the council tax freeze and social security reforms are straining public finances.
Paired with uncertainty in funding coming from Westminster ahead of the Budget at the end of October, the SFC warned in a report there would be touch choices ahead for Scotland.
It came as the Prime Minister warned of "painful" spending decisions lying ahead, just weeks after his Chancellor cut the universal Winter Fuel payment.
“The Scottish Government will need to make difficult decisions to balance the budget and ensure decisions now are sustainable in the future,” the report said.
"While UK Government policies contribute to the pressures on the Scottish budget, much of the pressure comes from the Scottish Government’s own decisions," it added.
More than half of the Scottish Government’s resource spending is allocated to public sector pay and the SFC warned above expectation increases will likely result in cuts elsewhere, including to public services.
“If a budget is set based on pay assumptions which are lower than those that materialise, this creates challenges with in-year management of the budget, requiring the Government to reduce its planned spending on services.
“The recent emergency spending controls the Scottish Government has put in place for 2024-25 are the result of those challenges.”
The Finance Secretary earlier this month wrote to Government departments, urging them not to spend in areas that were not absolutely necessary, while a number of initiatives have been cut to pay for the public sector pay deals.
Professor Graeme Roy, the chair of the SFC, said there needed to be better planning for pay deals, to ensure mid-year financial restrictions were not required.
“The past choices of the Scottish Government narrow its room for manoeuvre now and in the future,” he said.
“Previous pay settlements, the approach to social security payments, and the council tax freeze have all added to the in-year pressures that must be accommodated as it continues to negotiate pay with the public sector unions.”
“With pay making up more than half of the Scottish Government’s day-to-day budget, we need more transparency and planning around pay awards at budget time to avoid disruptive spending controls being introduced partway through the year.”
While Robison, responding to the report, said: “I welcome this report, which provides useful independent analysis.
“As it says, there is significant uncertainty on the level of funding we will receive from the UK Government ahead of the UK Budget on October 30.
“The First Minister and I have both made clear that, following the UK Chancellor’s July statement, the Scottish Government continues to face the most challenging financial situation since devolution.
“I will be providing an update to Parliament on the urgent action being taken to address these profound financial pressures.”
