| The Scottish Fiscal Commission has today highlighted that against a backdrop of economic and fiscal uncertainty, it is vital that the Scottish Government now sets out in detail the pressures on its spending plans, including the scale of savings it has made so far this year. The global economic outlook has weakened since January. With rising energy prices and food likely to cost more, inflation is likely to be higher than previously forecast. This could further squeeze household incomes and place added pressure on public spending. Low-income households are likely to continue to be hardest hit, as they spend a greater share of their income on essentials such as food, energy and housing, and have less flexibility to absorb rising costs. While the economic outlook has deteriorated, the implications for the Scottish Budget remain uncertain. Key decisions by the UK Government, including those in the UK Budget on 28 October, will play a significant role in determining the Scottish Government’s future funding position. Although additional UK Government funding has improved the Scottish Government’s position for 2026-27, the outlook for 2027-28 remains considerably more challenging. Current funding forecasts suggest day-to-day spending could fall after taking account of inflation. The capital budget was already forecast to fall after taking account of inflation, and efforts by the UK Government to prioritise its Defence Investment Plan are expected to further reduce capital funding. The Scottish Spending Review in January had tight settlements for all parts of the public sector, and this was underpinned by commitments to efficiency savings. The spending plans for 2026-27 relied on delivering £563 million of planned savings, including significant savings from NHS boards. Failure to achieve these savings would present difficulties this year and increase pressure on future budgets. With the size of the public sector workforce rising over the past year, there does not appear to be progress so far towards the Government’s planned reductions in the workforce. Higher inflation may also increase pressure for larger public sector pay awards than currently planned for. The Commission’s Chair, Professor Graeme Roy, said “Although funding has increased for 2026-27, the Scottish Government continues to face significant challenges in balancing future budgets. The delivery of planned savings, managing workforce costs, and the impact of the upcoming UK Budget will all be important factors in determining the funding available for public services in Scotland. Transparency on the delivery of planned efficiencies and the scale of emerging pressures will help Parliament and the public understand the choices that lie ahead. At the start of the new Parliamentary term, the Scottish Government has an opportunity to provide a clear update on progress towards its planned efficiency savings and to identify any new or emerging pressures affecting the 2026–27 and 2027–28 Budgets.” Notes 1. The Scottish Fiscal Commission’s three Reports, Fiscal Update, Forecast Evaluation Report and Statement of Data Needs, are now available. Background information is also available including spreadsheets with data for tables and charts. 2. The Commission’s Statement of Data Needs calls on the Scottish Government to build on its work to improve the transparency of the information it provides to Parliament at Budget time. 3. In Annex B of the Fiscal Update the Commission explains plans to remove Employability Services from forecasts of social security spending. Annex C presents its first forecast of Air Departure Tax. The tax is being introduced in April 2027 with forecast revenue of £428 million in 2027-28. This additional tax revenue will have a limited effect on funding in 2027-28 as rates of Scottish Air Departure Tax will match UK Air Passenger Duty rates and there will be a corresponding Block Grant Adjustment that removes funding from the Scottish Budget. 4. The Commission has also published its annual Forecast Evaluation Report which reviews its forecast performance in 2025-26 and Income Tax forecasts for 2024-25. Outturn for Income Tax and other devolved taxes was 1 per cent below forecast. Social security spending was 3 per cent below forecast, a relatively large error compared to recent years. 5. The Scottish Fiscal Commission is the independent fiscal institution for Scotland, established by the Scottish Fiscal Commission Act 2016. Our statutory duty is to provide the independent and official forecasts of Scottish GDP, devolved tax revenue and devolved social security spending for the Scottish Government to use in its budget and financial planning. We are required to evaluate those forecasts each year. 6. Our reports represent the collective view of the Scottish Fiscal Commission, comprising the Commissioners: Justine Riccomini, Dr Eleanor Ryan, and the Chair, Professor Graeme Roy. Webinar 26 August 12 to 1 PM There will be a webinar on Wednesday 26 August between 12:00 and 1:00. Our chair, Professor Graeme Roy, will present the main results from the reports published on Tuesday 25 August. There will also be an opportunity to ask our three Commissioners questions. You can register for the webinar by clicking on the button below Register Here Social Media If you’re not already you can follow us for regular updates on our social media channels X (@scotfisccomm) Bluesky LinkedIn If you know of anyone else who would like to receive our updates straight to their inbox, please share the following registration link with them http://bit.ly/SFCupdates |
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