Fiscal pressures not unique to Scotland but plan needed

This article by our chair Professor Graeme Roy was published in The Herald newspaper on 13 March 2023.

Later this month at the Scottish Fiscal Commission, we’ll publish Scotland’s first fiscal sustainability report (FSR).

An FSR is designed to help policymakers identify key long-term pressures and opportunities facing the economy and the public finances. In turn, the aim is to help inform a debate, not just about policies a decade or more from now, but decisions that we need to take now to help prepare for the future.

FSRs are now commonplace in most countries. With greater fiscal devolution, particularly with new responsibilities over tax and social security, the time is now right for Scotland to follow suit.

We’ll be looking at Scotland’s population projections – both in terms of the number of people likely to be living in Scotland in the future and their age profile – and how this feeds through to spending commitments and the tax base. Other issues, from a more detailed look at health spending through to climate change, will be the subject of future reports.

It’s important to see such projections as illustrations of broad trends in our economy rather than precise estimates. What is important, for example, isn’t the specific price tag attached to future spending commitments but whether these commitments are likely to be greater or lesser than today (and if so, by what order of magnitude).

By looking at Scotland’s demographics we’ll be tracking how our ageing population might lead to increased demand on services we typically use as we get older, such as health and social care. At the same time, we’ll be looking at areas where demand may be less, such as in school education. We’ll also be looking at how our tax base may change too.

As an important context, we’ll be looking at fiscal sustainability under the current devolved settlement and fiscal framework.

That’s important for two key reasons. Firstly, it helps to frame current debates over devolved spending priorities and tax commitments. In particular, our report will have implications for planning in the NHS, social care and education provision. It will also highlight the importance of considering how commitments made today don’t just have cost implications in the short term, but can embed long-term financial commitments that may increase in the years ahead.

Secondly, Scotland’s current fiscal framework itself will shape how any pressures on spending and tax feed through to future Scottish Government budgets. This can get complex quite quickly. Different factors will impact the outlook for the block grant and the Scottish Government’s net tax position. But the overall outlook will be clear.

Our report will undoubtedly highlight some tough choices future Scottish administrations will face in maintaining the quality of public services that we all depend upon and value. But our report will also make clear that these pressures are not unique to Scotland. Indeed, one avenue through which we know pressures will emerge is the fact that the UK fiscal position is also challenging and future UK governments will have to make difficult choices over tax and spending. These will, in turn, have a knock-on effect to the Scottish budget.

By setting out our future fiscal challenges (and opportunities) we hope that this can support a wider conversation about the type of Scotland that we want to live in and the public services available for our children and grandchildren. Public service reform is undoubtedly an important element of that conversation. But the evidence from other countries is that reform can only be part of the solution. Ultimately, we’re going to require a frank conversation about what services to prioritise and how to pay for them. This will cover difficult debates about the role of the public sector and how much, who, and what we tax.

None of this will be easy. For some, there will be the temptation to put this in the “too difficult” box. But as we have seen in recent times, longstanding pressures in health, social care and education can quickly lead to poorer outcomes and significant day-to-day delivery challenges. Over 10 years on from the Christie Commission into public service reform, a debate – and plan – to manage Scotland’s long-term fiscal sustainability is urgently needed.