Scotland could face £10bn budget shortfall in 50 years, experts warn

Scotland could be facing an annual budget shortfall of £10 billion within 50 years, a major new report has warned.

Outgoing Deputy First Minister John Swinney said the report, from the Scottish Fiscal Commission (SFC), shows “Scotland lacks the full range of powers required to manage the financial challenges it is likely to face over the next 50 years”.

The SFC forecasts spending on public services could increase to £54 billion by 2027-28 – with it then projected to keep growing to reach £120 billion in today’s prices by 2072-73.

Spending on health alone is set to account for half of all spending by the Scottish Government by then, the commission said, rising from a predicted £19 billion in 2027-28 to £60 billion in 2072-73 – an increase of 218%.

Crucially, it warned this increase in public spending would not be matched by the future increases in the cash available to the Scottish Government – which raises its own money through devolved taxes but also receives funding from Westminster via the block grant

In a report looking at Scotland’s fiscal position over the next half century, the SFC warned if the current arrangements continue as they are, then “Scottish Government spending over the next 50 years will exceed the estimated funding available by an average of 1.7% each year”.

That is the equivalent of about £1.5 billion in today’s prices, it said, adding: “To address this, the Scottish Government would have to consistently reduce spending or raise devolved taxes throughout the next 50 years.”

However this funding gap could grow to about £10 billion if the UK Government cuts spending in a bid to deal with its deficit – with the SFC saying if “fiscal tightening” is applied evenly across all areas of UK Government spending and taxation, it would “lead to a reduction in funding for the Scottish Government”.

Such action from future UK governments could see the Scottish annual budget gap (ABG) rise from an average of 1.7% of spending each year to an average of 10.1% each year by 2072-73.

On this, the report said: “This equates to around £10 billion in 2023-24 prices.

“This gap is equivalent to 26% of the average Scottish Government spending on health in each year, or 38% of average devolved income tax revenues.”

The report was produced by the SFC to look at Scotland’s fiscal sustainability over the next 50 years, with the experts saying that “by setting out future fiscal challenges for the Scottish Government, we hope this report can support a wider conversation about public services over the next 50 years”.

GDP in Scotland is projected to grow by an average of 1.2% each year between 2027-28 and 2072-73 – 0.4 percentage points lower on average than similar forecasts for UK GDP.

The report explained that a “large part of the difference” is the number of people aged 16 to 64 in Scotland is projected to fall by 16% over the next 50 years, compared with a fall of 2% for the UK.

Scotland’s overall population is projected to fall by about 400,000 over the next 50 years, driven by the low birth rate, the SFC noted.

SFC chair Professor Graeme Roy said: “The pressures of an ageing population and rising costs would occur under any constitutional settlement.

“Managing them under the current fiscal framework is a shared endeavour between both the Scottish and UK governments.

“We hope this report can support a wider and more informed conversation about the public services available for our children and grandchildren and the tax policies necessary to sustain these.”

Mr Swinney said: “Scotland lacks the full range of powers required to manage the financial challenges it is likely to face over the next 50 years.

“It is our view that the current constitutional settlement is insufficient to properly tackle the long-term challenges that Scotland faces.

“I believe the challenges of an ageing population illustrate the necessity for Scotland to be independent, with full control over the economy and powers over migration.”

Scottish Labour finance spokesperson Daniel Johnson said the “damning report” from the SFC “lays bare the scale of the challenge we face”.

Mr Johnson said: “This blackhole ripping through Scotland’s finances is the result of years of economic failure by both the SNP and the Tories, and it will do untold damage to public services and household budgets if we continue down this path.

“The SNP cannot keep burying their heads in the sand about the mess they are presiding over.

“The next first minister must make economic growth a priority, before this economic catastrophe hits home.”