TWO respected financial institutions have given their verdict on the SNP Government Budget, noting a “significant increase” in public service spending – but also raising questions about planning for future expenditure.
The Fraser of Allander Institute at the University of Strathclyde and the Institute for Fiscal Studies both issued statements in response to Finance Secretary Shona Robison’s draft spending plans, which were outlined to MSPs at Holyrood on Wednesday.
Among numerous other commitments, Robison announced a £2 billion funding increase for the NHS, tax cuts in the form of rate threshold increases for the basic and intermediate bands, restored cultural funding, and an end to the two-child benefit cap.
The Fraser of Allander Institute
Responding, Joao Sousa, the deputy director of the Fraser of Allander Institute, said it was “a Budget with an eye on the election, but storing up risks”.
On the headline-grabbing two-child limit announcement, he said: "The Scottish Government will be hoping many of the headlines will focus on the measure with most political impact – the promise to mitigate ‘as far as possible’ the impacts of the two-child limit. This was clearly a late addition, and one which has not been included in their own or the Scottish Fiscal Commission’s analysis – though it might cost as much as £200 million a year.
“The Scottish Government will be hoping this is brought in UK-wide before they have to fund it – a heavily caveated 2026 was mooted as the start date, but it can take the moral high ground in the meantime.”
"There was also an announcement of non-domestic rates relief for the hospitality industry, which may seem the same as that announced in England at first glance, but is actually much narrower. It only applies to the smallest premises – many of which will get full relief anyway – and retail and leisure premises are excluded.
“And ScotWind monies will be called upon less than previously pencilled in, although some of the usage will still be for day-to-day spending – not exactly ‘the kind of long-term investment it should be spent on’ that the Finance Secretary espoused.
"But the most surprising decision was to not account for the shortfall increase in employment costs due to the increase in employer National Insurance Contributions, and which we only learned from the Scottish Fiscal Commission’s documents. This is a significant and certain permanently higher cost that will come in on April 1, setting up a possible need for further emergency measures during the course of the next financial year – leaving us wondering whether any lessons have been learned from going into a new year without fully setting aside budget cover for what are known costs, as highlighted by the recent Audit Scotland report."
The Institute for Fiscal Studies
The Institute for Fiscal Studies meanwhile said that the SNP Government had “trumpeted a Budget providing record levels of funding for the NHS and councils, universal winter payments for pensioners, and starting the process of ending the two-child cap in universal credit in Scotland”.
“However, this excludes £1.3bn of funding that Budget documentation implies that the Scottish Government still has to allocate to services this year. Accounting for this would leave day-to-day spending on public services next year essentially flat in real terms between this year and next, falling by 0.3%.
“Depending on how this is allocated across services, the increases next year for health and local government highlighted by Finance Secretary Shona Robison may end up being rather smaller, and other portfolios may find themselves joining rural affairs in seeing cuts to day-to-day spending.”
Phillips said the SNP’s plans indicated that they were “in effect, planning to carry forward £400m for use in future years”.
“If it can, it would be wise to carry forward more than this, to improve the tight future funding situation,” he added.
“A reduction in drawdowns of income from offshore windfarm licenses this year has helped fund the deployment of £326m for capital investment next year. Together with a substantial boost in capital funding from the UK Government, Scottish Government investment is now set to increase by almost 12% in real terms next year.
“However, capital funding is set to fall by close to 5% in real terms in 2026-27 and remain at these lower levels for the following three years. More likely – as in the rest of the UK – next year will see an underspend on capital budgets in Scotland, allowing some top-up to investment spending in subsequent years.”
He also raised concerns about how mitigating the two-child cap would be funded, saying: “The more challenging longer-term funding outlook would mean that finding money for the Scottish Government’s pledge to remove the two-child limit in universal credit at an annual cost of around £200-£300m would likely require cuts to some other areas of spending or tax rises.”
