The Scottish Government’s finance secretary Shona Robison has announced £500 million of spending cuts to balance the 2024-25 Scottish Budget in the face of what she called “enormous and growing pressure on the public finances.”
The cuts include implementing “emergency spending controls across the public sector, particularly targeting recruitment, overtime, travel and marketing.”
The Scottish Government said the cuts also include ending the ScotRail Peak Fares pilot, “mirroring the UK Government’s policy to means test Winter Fuel Payment” and making “additional savings across portfolios, including in sustainable and active travel and in health and social care.”
The Finance Secretary also said she was currently planning to use up to £460 million of additional ScotWind revenue to address in-year pressures in 2024-25.
Robison said: “This Government has consistently warned of the significance of the financial challenge ahead.
“Prolonged Westminster austerity, the economic damage of Brexit, a global pandemic, the war in Ukraine, and the cost of living crisis have all placed enormous and growing pressure on the public finances.
“In the last three years alone cumulative CPI inflation has seen prices increase by 18.9%, diminishing how far money will go for households and governments alike.
“In the face of these challenges, the Scottish Government has stepped in to support people and services where it has been needed most: on social security, health and public services.
“But we have done so without equivalent action from the UK Government, which has repeatedly failed to properly review the adequacy of funding settlements.
“We cannot ignore the severe financial pressures we face. We will continue to be a fiscally responsible government and balance the budget each year, as we have done every year for 17 years and as we will do again this year. But this will mean we must unfortunately take difficult decisions along the way.”
REACTION:
David Phillips, Associate Director at the The Institute for Fiscal Studies (IFS) and head of devolved and local government finance said: “Scottish Finance Minister Shona Robison has today announced in-year spending cuts of up to £500 million in order to fund public sector pay deals and other inflationary pressures hitting the Scottish budget.
“This includes restrictions on recruitment, overtime, travel and marketing across the Scottish Government. Peak-time rail tickets will be reintroduced, and cuts made to budgets that were intended to encourage cycling and walking. Cuts will also be made to budgets for NHS training, mental health, and health and social care transformation as part of £116 million of cuts to non-pay elements of the health and social care budget.
“Ms Robison also plans to draw down up to £460 million of unspent income from offshore windfarm licences – although hopes further savings may make this unnecessary, so the funds remain available for future years. If this one-off funding is needed then further cuts may need to be made next year.
“The Scottish Finance Minister tries to pin the blame for these difficult decisions on Westminster and a lack of fiscal flexibility under Scotland’s current fiscal framework. It is true that even with the top-ups to funding announced by the new Chancellor Rachel Reeves alongside her recent Spending Audit, UK government funding this year is still very tight: Ms Reeves’s plans imply departments and devolved governments having to find one-third of the additional cost of this year’s pay deals, over and above what had already been budgeted, from within existing budgets, for example.
“And as we have highlighted before, there is a case for giving the Scottish Government some additional borrowing powers to address in-year public service spending pressures, as well as the benefit spending pressures and tax shortfalls that it can already borrow for. The Scottish Government has far fewer options to address pressures than the UK government.
“But the Scottish Government is not blameless here. It was already clear at the start of the year that things were going to be financially challenging, with public sector pay deals of 2–3% likely insufficient to avoid industrial action.
“The Scottish Government could have held back funding to help meet additional pay and other cost pressures, rather than be forced to make in-year cuts to other spending. A decision to freeze council tax also cost almost double the amount raised from increases in income tax rates on higher earners. Tax policy decisions therefore reduced rather than raised revenues, increasing the pressure on Scotland’s public finances.
“As the Scottish Fiscal Commission has highlighted, the last few years have seen the Scottish Government increase public sector pay, and roll out new, more generous social security benefits. These are legitimate things to prioritise. But they do reduce the amount available for other areas of spending and add to budgetary pressures. Previous pay increases, which were more generous than in England, also mean higher pay levels – increasing the cost of further increases.
“More difficult decisions are likely next year and beyond given the difficult fiscal outlook. The Scottish Government should use its forthcoming Budget and subsequent Scottish Spending Review to be clear about priorities – and which areas will see cuts – in order to reduce the need for in-year cuts, which are often more damaging.”
Mairi Spowage and Emma Congreve of the Fraser of Allander Institute at the University of Strathclyde: “Shona Robison started off by setting out the reasons that there had been a material change in circumstances since the budget was first presented to parliament in December 2023. In the main, she laid the responsibility for the difficulties they are facing at the feet of the new UK Government in Westminster.
“Specifically, she pointed to the Chancellor’s spending audit which was published in late July, which set out that public sector pay deals that had been agreed with workers in England would have to be partially funded from reallocating within departmental budgets.
“Had she funded the pay deals entirely from new borrowing instead, there would have been equivalent Barnett consequentials to help pay for deals north of the border.
“Is it reasonable to blame UK Government for the lack of new money coming to Scotland?
“We have commented extensively in recent weeks that this is not entirely fair (if you want the detail of this, listen to our podcast or read here). Indeed, the Scottish Fiscal Commission, in their publication last week, said that ‘much of the pressure comes from the Scottish government’s own decisions’, citing the council tax freeze, more generous public sector pay deals in previous years and social security reforms.
“A really important point in the SFC’s report was highlighting the much higher median public sector pay in Scotland vs the UK, which means that is will cost relatively more in Scotland to settle the same level of pay deal. This would mean that even if the Chancellor had set out that pay deals would be funded from extra spending, the consequentials would not likely be enough to cover a similar deal in Scotland …
“We’ve highlighted that this approach to budget planning may lead to spending being cancelled which can be stopped, rather than what the government may have chosen to stop if all these choices had been weighed up prior to the budget being set.
“The finance secretary set out that there was pay pressure of roughly £800m, and other in year spending pressures. There was still not an actual articulation of the funding “gap” as they see it. She set out the detail of the savings that had been identified –
- Up £60m will be found from emergency spending controls, including recruitment freezes and restrictions on overtime, travel and marketing costs.
- As announced recently, they will not progress with the removal of Rail Peak Fares, or the concessionary fares extension to asylum seekers pilot. As has also been reported in the press, the SG have also agreed with Local Government that they can draw on specific existing programmes (e.g. flood defence spending, funding for tablets for some children) to fund the pay deal offered to council refuse workers. Together these decisions amount to a further £65m of savings.
- A further £188m has been identified from ‘additional specific savings across all portfolios’. According to this statement, this includes a reduction in resource spend on sustainable and active travel, and ‘increased interest income on Scottish Water loan balances’ (we’re checking into the detail of exactly what this means). The detail of these reductions has been set out in a letter to the Finance and Public Administration Committee, and we’ll be scrutinising the detail of this carefully. The details include an £19m cut to mental health services: the Annex in the letter is worth looking through.
“The money that had been allocated at the time of the Scottish Budget for the delivery of the devolved version of the Winter Fuel Payment (which has now been delayed) gives another £160m of funding that can be used in this year (but will have to be paid back in future years through a reconciliation process).
“The Cabinet Secretary has also said she is planning on the basis of using £460m of Scotwind revenue funding, to make up the remaining shortfall.
So, the measures announced free up £60+65+188+160+460 m = £933m, which leads us to the Cabinet Secretary saying “the measures being announced today to support the 2024-25 Budget total to up £1 billion.”
Liz Cameron, Chief Executive of the Scottish Chambers of Commerce: “The Finance Secretary’s statement underlines the scale of the challenge facing the public finances. Businesses understand that tough decisions must be made, but we also need certainty from the government that growing the economy remains the top priority.
“The Finance Secretary is right to initiate reforms and seek efficiencies. As highlighted by Audit Scotland, reform of the public sector is needed to deal with longer-term financial pressures. How these will be implemented will require transparency to ensure businesses are not faced with new additional costs or taxes.
“We have been clear about what businesses are asking for: a reduction in the overall taxation burden which is undermining the ability of Scottish business to attract and retain talent; a close look at cutting the mountain of regulation adding costs to business and consumers; a coherent energy strategy which protects jobs and investment.
“We do not underestimate the scale of the challenge which is impacting communities across the United Kingdom. That’s why we need to see a clear plan of how the Scottish and UK Governments intend to work in partnership to support economic growth and business investment which is the only route to fund vital public services.”
Owen Mapley, CEO of the Chartered Institute of Public Finance and Accountancy (CIPFA): “ … statement from Scotland’s Finance Secretary outlines several tough choices and necessary cuts to balance in-year funding pressures. However, while balancing the current budget is essential, CIPFA emphasises the need for longer-term stability. Public services require more than short-term solutions; they require longer-term horizons and sustained funding to plan effectively.
“Beyond immediate financial constraints, rising pay awards, demographic shifts, and increasing demands and costs in health and social care highlight the need for comprehensive reforms and longer-term funding plans. These challenges go beyond the current focus on balancing the annual budget.
“CIPFA acknowledges the challenging financial conditions faced by public service leaders in Scotland. While Scotland does not have the equivalent of ‘s114 notices’ used in England, financial pressures remain substantial. To address these challenges, CIPFA is collaborating with LGIU and senior finance practitioners in Scotland to develop additional guidance to support finance teams through these difficult times.”