Explainers

Fiscal sustainability

Fiscal sustainability usually involves an assessment of whether, based on current policy, government revenue raised will match spending requirements over the long term. Any deficit adds to public debt, with a judgement then made on the sustainability of that debt.  High levels of debt lead to higher interest rates, with government funds being diverted from investment and public services to servicing the debt, which may be unsustainable.

The situation is different for Scotland. The fiscal arrangements under the current constitutional settlement mean that the Scottish Government is required to run a broadly balanced budget each year, and has very limited powers to borrow. Therefore, highlighting issues around Scottish fiscal sustainability raises attention to what extent current Scottish Government policies on spending and taxation may need to change to balance budgets in the future.