THE auditor general has said that the “hardest work remains” as the Scottish Government grapples with an almost £5 billion “black hole” in the public finances.
In a blog post earlier this week, Stephen Boyle, auditor general for Scotland, noted that the language coming from ministers has become more focused on reform and they have “upped the ante”.
But what is the £5bn “black hole” and what are the issues facing the Scottish Government?
There is a well-known funding gap of around £4.7bn by 2029-30. This is the difference between what ministers want to spend and the funding available to them.
Around £2bn of this is expected to come from social security, on which Scotland spends more than it receives through the block grant from Westminster.
There is also a large chunk from rising workforce costs, particularly in the NHS, due to public sector pay deals.
The auditor general noted that overall this is “relatively bigger” than the UK public sector workforce.
“That locks in future spending and reduces the government's budgetary wiggle room,” Boyle explained in a blog post.
The Fraser of Allander Institute said that, according to the Scottish Government’s Medium Term Financial Strategy, there would be a £5bn gap by 2029-30 if: health spending keeps increasing at around 4% in real terms each year; social care spending increases at the same rate; all pay deals that aren’t yet settled meet the government’s pay policy; and social security spending increases in line with forecasts, coupled with no other spending cuts in real terms.
This almost £5bn figure was ahead of the 2026 Holyrood election, where the SNP made several manifesto commitments.
The Scottish Government will set out its Budget towards the end of the year, after the UK Government announces their financial plans, as any changes could lead to Barnett consequentials for north of the Border.
Public service reform is likely to be the main way that the Scottish Government looks to reduce the deficit.
Ivan McKee, as Cabinet Secretary for Public Service Reform, will be in charge of making the decisions on where this will impact.
Boyle has criticised the Scottish Government for struggling to deliver on policy ambitions, adding that there has been a focus on “short-term measures” that help balance annual budgets rather than “fundamental changes to how services are delivered”.
“Hard decisions about the shape, size and, especially, the operation of the public sector have not yet been taken,” he wrote.
“Take prevention – the idea of investing in policies that prevent problems in people's lives taking root and helping relieve future pressures on public services. It's a cornerstone of the new Public Service Reform strategy.
“A big part of prevention is caring for people in their communities to stop them ending up in hospital. But while structures have changed over the last decade, progress has been very slow, and the money hasn't followed the ambition. Meanwhile, the pressure on our hospitals is increasing.”
Boyle argued that going forward, the Scottish Government will need to take “tangible action and at pace”.
He noted McKee’s role, but added that the Cabinet and Scottish Government will need to be “united around the aims of reform for it to be delivered”.
Boyle explained: “Inevitably, there will be trade-offs and compromises. And the Scottish Government will need to bring public service leaders, the public, and the Parliament with them, too.
“For their part, public service leaders will need to rise to the challenge.
“It is a formidable undertaking, and difficult work, but the stakes are now higher than ever.
“If the right foundations aren't put in place in this Parliament, the consequences for public services will be far greater in the future. And much more difficult and painful to fix."
