Explainers

Annual Budget Gap

The annual budget gap shows the difference between funding and spending in each year as a share of Scottish devolved public spending, and can be thought of as the Scottish-specific fiscal sustainability challenge. In our Fiscal Sustainability Reports we use the annual budget gap to show the level of reductions in spending or increases in tax revenue that would be required by the Scottish Government each year over a 50-year period to balance the budget. More commonly a debt-to-GDP ratio is used in fiscal sustainability reports, but we use the annual budget gap because the Scottish Government must keep a broadly balanced budget and is limited in how much it can borrow.

We assume that spending and funding policy remain constant and project these into the long term, allowing projected population and economy changes to affect these. This allows us to see how sustainable current policy is and whether public services can continue to be delivered to current levels given how the population is projected to change. The annual budget gap is affected by the Scottish Government’s spending and funding choices and by the UK Government’s policy. The fiscal framework means that the annual budget gap is affected by any action the UK Government takes to address fiscal sustainability at the UK level.

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