Why Scotland’s next government faces tough choices
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This episode of IFS Zooms In explores the challenging fiscal outlook facing Scotland's next government following the upcoming Scottish Parliament elections. Despite receiving around 26% more per capita funding from the UK government than England for devolved services—largely due to historical funding formulas like the Barnet and Goshen formulas—Scotland's funding advantage is set to shrink, falling to about 22% by 2028. This narrowing gap, combined with rising public service demands and past fiscal mismanagement, creates a precarious situation. The Scottish government has used its tax powers to implement a more progressive income tax system and expand targeted benefits like the Scottish Child Payment, significantly reducing child poverty. However, these policies have been financed through one-off funding sources and generous public sector pay deals, leading to unsustainable budgeting habits. As a result, the 2027-28 budget is expected to be extremely tight, forcing tough choices between tax increases, spending cuts, or efficiency reforms. The discussion reveals a deep disconnect between political rhetoric and fiscal reality. While parties are beginning to diverge on policy—such as the SNP's childcare pledges and the Greens' free bus travel proposal—none are fully addressing the difficult trade-offs required to balance the books. Experts express concern that voters will be handed incomplete stories: promises of tax cuts or expanded services without clear explanations of where the money will come from. The episode concludes with a call for greater transparency and honesty from politicians, urging citizens to demand clear answers on how the next government will make the budget work. Ultimately, Scotland faces a reckoning: it cannot afford to maintain current levels of public services without fundamental changes.
Scotland's per-capita funding advantage from the UK government is shrinking from 26% to 22% by 2028, creating a tight fiscal outlook.
The Scottish government has used devolved tax and benefit powers to reduce child poverty and make the system more progressive, but this has been financed through unsustainable one-off funding and generous pay deals.
The 2027-28 budget will be a 'crunch year' requiring tough choices—tax increases, spending cuts, or major efficiency gains—yet political parties are avoiding full transparency.
Public services like health and education are under strain despite increased funding, due to productivity challenges, rising demand, and policy choices that have not delivered proportional outcomes.
Voters should demand honesty from politicians: if a party promises tax cuts or new spending, they must also explain which services will be cut or how they’ll be funded.
The Funding Advantage and Its Erosion
“The biggest reason why Scotland has higher funding per person is not those taxes. It has increased taxes. But actually, it's the funding that gets from the UK government that is higher.”
How Devolution Works and Its Hidden Dependencies
The panel unpacks the mechanics of devolution, explaining how Scotland controls two-thirds of public spending and has significant tax powers. They reveal the irony of greater tax devolution: Scotland now depends more on UK fiscal events, especially the OBR’s forecasts, making its budgeting less predictable and more delayed.
Public Service Performance: A Mixed Picture Amidst Crisis
“It feels like they're in crisis. So both things can be true at once, that the government saying we're spending loads of money on this, but people are feeling that the system is in crisis.”
The Tax and Benefit System: Progressivity at a Cost
“Households in the second or third poorest tenth of the population are around £2,500 a year better off because of Scottish government policies, mainly through the Scottish child payment.”
The Coming Reckoning: Bad Budgeting Habits and the 2027-28 Crisis
“It's only going to be affordable if the pay deals this year are 1%, say the Scottish Fiscal Commission, which is not going to happen. Then there's a kind of reckoning coming on that.”
“If you want to cut the taxes, that's fine. You have to identify which services you no longer want to provide. And if you want to provide more services, that's fine too. You have to work out how to fund them.”
“It feels like they're in crisis. So both things can be true at once, that the government saying we're spending loads of money on this, but people are feeling that the system is in crisis.”
“It's only going to be affordable if the pay deals this year are 1%, say the Scottish Fiscal Commission, which is not going to happen. Then there's a kind of reckoning coming on that.”
Host
Guests
scottish government
organization
uk government
organization
david phillips
person
marius bowage
person
barnet formula
other
helen miller
person
income tax
other
scottish child payment
other
institute for fiscal studies
organization
council tax
other
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