The Sustainability of Scotland’s Finances

Overview

Short to medium-term financial pressures:

The Scottish Government’s Medium-Term Financial Strategy published in May 2023 sets out the government’s expectations and broad financial plans and projections for the next five years. It states that the Scottish Government expects its public spending to grow at a faster rate than its central forecasts of the funding it expects to receive.

This means the government is forecasting that it will not have sufficient money to fund the spending it currently wishes to make.

Resource spending requirements could exceed the Scottish Government’s central funding projections by 2% (£1 billion) in 2024-25 rising to 4% (£1.9 billion) in 2027-28.

The Scottish Government also states that its plans for capital spending are more than the funding it expects to be available, with a 16% gap forecast in 2025-26.

Longer-term financial challenges

The total Scottish population is projected to fall by 8% by 2072-73.

Based on current tax and spending plans, the Scottish Government expects an average budget gap (the difference between demand for services and revenues) of 1.7% in each year during that period, the equivalent of £1.5 billion in today’s prices.

Areas of expenditure such as health, social care, social security and education are influenced by the size and structure of the population.

The proportion of the population aged 65+ increases from 22% in 2027-28 to 31% in 2072-73, while the population aged 16 to 64 and under 16 is falling.

These changes in the age structure have implications for the demand for public services: with more demand for services used more by older people, such as health, and less demand for those used more by younger people, such as education.

Committee inquiry

The committee will examine the sustainability of Scotland’s finances in both the short and longer-term.

This inquiry will form the basis of the committee’s pre-budget 2024/25 scrutiny, along with the evidence gathered from its Public Service Reform inquiry.

Remit of the inquiry

• to develop a greater understanding of, and to scrutinise, the Scottish Government’s plans to address the financial pressures on the Scottish Budget 2024-25 and beyond
• to establish how the Scottish Government balances its short and long-term financial planning and to identify any improvements in this area
• to influence the ‘refresh’ of the government’s multi-year spending plans for resource and capital to 2026-27, to be published alongside the Scottish Budget 2024-25
• to understand how the financial pressures might impact on the delivery of national outcomes and climate change targets, both in the short and longer-term, and to identify steps that the Scottish Government could take to alleviate these impacts

Pre-budget scrutiny aims to:

• influence how the Budget is prepared
• improve transparency and increase public awareness of the Budget
• consider how the Scottish Government’s Budget for 2024-25 should respond to new fiscal and wider policy challenges
• lead to better results and outcomes when compared against the Scottish Government’s targets and goals

How to submit your views

There are 10 questions in the call for views. The Committee welcomes responses to any, or all, of the questions. To inform this inquiry, the committee is particularly keen to hear from:

• academics, experts and think-tanks
• public bodies
• the voluntary sector and community groups
• businesses

The deadline for submitting views is 16 August 2023.