Are parties being upfront about Scotland’s finances?

The upcoming Scottish Parliament election is marked by a surge of pledges to allocate funds toward innovative policies. Yet, alongside these promises, discussions about financial restraint have emerged, with multiple parties vowing to reduce the number of quangos and control public sector expansion. Holyrood’s annual budget reached £68 billion this year, and projections indicate it will grow in the coming years, driven by both the block grant from Westminster and Holyrood’s control over tax revenues.

Despite this, the budget faces significant strain. Rising service demands, substantial public sector pay increases, and an aging population are all contributing to pressure. Economic analysts have labeled the final budget as a “horror show,” warning that the new finance secretary will grapple with mounting challenges. The Scottish government’s own forecasts reveal that spending could outpace available funding by £4.8 billion in 2029-30, creating a financial shortfall often referred to as a “black hole.”

“Radical change is needed due to a widening gulf between demands and available funding.”

Among the most pressing issues is the social security budget, which is projected to rise from £7.4 billion this year to £9.2 billion by 2030-31. Over half of this budget is dedicated to the Adult Disability Payment, with the Scottish Fiscal Commission (SFC) estimating that one million Scots will be receiving such payments by 2031.

Public sector pay, which accounted for 55% of the budget last year, remains a key concern. While the workforce has expanded since the pandemic, pay increases are the greater issue. The SFC notes that Scotland’s public sector is “relatively larger and better paid than in the rest of the UK,” with median salaries £1,500 higher. Pay rises were initially budgeted at 9% over three years, but recent agreements have pushed this figure beyond, leaving only 1% for the current year.

Experts from the Institute for Fiscal Studies (IFS) and the Fraser of Allander Institute (FAI) have cautioned that an emergency mid-year budget may be required to address the financial strain. While Westminster’s additional funding for English schools could temporarily ease the burden, it merely delays the problem to the 2027-28 Scottish budget, set for December.

Prof Mairi Spowage of the FAI described the budget as a “horror show,” citing the combined impact of existing pressures and global factors like the Iran conflict, which are driving inflation and increasing debt costs. Negotiations over pay are also set to be challenging, as current policies leave only enough room for below-inflation settlements. David Phillips from the IFS suggested that aligning public sector pay with UK levels could save nearly £2 billion annually.

The SNP has pursued a strategy of extracting more revenue from higher earners since establishing its distinct income tax system in 2016. It has also utilized fiscal drag by freezing the thresholds at which higher tax rates apply, ensuring that as incomes rise, more individuals fall into higher brackets. The SFC reports that the number of people paying the higher rate of income tax has doubled from 300,000 in 2016-17 to 600,000 today, with projections indicating it could surpass 1 million by 2030-31. John Swinney has promised not to raise tax rates or introduce new bands next term, though the door remains open for further fiscal drag since his pledge does not cover thresholds.

Other parties have also proposed measures to tackle the financial gap, though the specifics remain under scrutiny. With the spotlight on public spending, the question lingers: are the candidates offering practical solutions, or are they simply promising to address the growing challenges?