Warning over short-term fixes to Scotland's budget

Short-term fixes to balance Scotland’s budget will not tackle continuing pressure on public services, a spending watchdog has warned.

Audit Scotland criticised a lack of transparency from the Scottish government and said “fundamental change” was needed to keep services affordable.

It comes after Holyrood's finance committee said it was "deeply concerned" about the government's lack of a strategic approach to its finances.

Public finance minister Ivan McKee said “significant work” on reforming public spending had been done since the period covered in the report.

Audit Scotland urged the government to set out a clearer vision for public service reform in future.

It pointed out that the use of £460m in one-off ScotWind revenues to help pay for public sector pay awards could not be repeated in future.

Finance secretary Shona Robison had announced the reallocation of the revenues from an auction of seabed plots.

The £756m total raised from ScotWind had been earmarked for measures to tackle the climate crisis.

Audit Scotland detailed £933m of savings outlined to balance the 2024/25 budget in its Fiscal Sustainability and Reform in Scotland report.

Those included ending the ScotRail pilot which removed peak train fares and diverting funding previously planned for pensioners’ winter fuel payment.

But the watchdog pointed out that £160m from the UK government to pay for the fuel benefit had been diverted as part of the budget savings, and would need to be paid back at some point.

The auditor said it was an example of a “significant risk to the long-term sustainability of the budget”.

Public sector pay is the single biggest cost for the Scottish government.

A budget gap of about £1.9bn is forecast for 2027/28.

The auditors recommended an improvement in the quality of information collected from public bodies on costs, savings and progress on reform

Auditor general Stephen Boyle said: “People do not fully understand the medium-term risks public services are facing because of a lack of transparency from the Scottish government.

"The reality is that we need a fundamental change to how public money is spent to ensure services can meet demand and remain affordable beyond the short-term.

"To turn that into action on the ground, the Scottish government must set out a clearer vision of what its plans for reform will achieve, including delivery milestones and the likely impact of reform on services and people."

The UK government has said its budget outlined last month would provide £1.5bn this financial year and a further £3.4bn next year for Scotland.

MPs on the cross-party Scottish Affairs Committeeare announced on Thursday morning that they are to launch an inquiry into how the Scottish government is funded within the UK.

They will look at the so-called Barnett formula, which determines the change to funding for devolved public services like healthcare, transport and education from one year to the next.

The committee will also examine the impact UK government fiscal events and in-year budgetary changes can have on the funding available to the Scottish government through the annual Block Grant.

The Scottish government is due to announce Scotland's budget on 4 December.

Public finance minister Ivan McKee said ministers would take on board the report's recommendations.

He said: "While this report covers a period in time from March to June this year, there has been significant work on reform since, including capturing data on spending by public bodies."

McKee also said the SNP had taken action to "improve the overall sustainability" of public finances.

He added: "We remain committed to doing all we can to ensure the public finances remain on a sustainable trajectory.

"Through decisions we have made on income tax policy, we expect to raise an additional £1.5bn in 2024-25, compared to if we had matched UK government policy."

The SNP's opponents at Holyrood said it was “damning” report on the party's record in government.

Scottish Labour finance spokesman, Michael Marra, said the party was at risk of “squandering” the block grant settlement from Westminster.

“The SNP has created a blackhole at the heart of public finances but has refused to be honest about how it happened or what it means."

“It’s time for a change in direction and an end to the SNP’s secrecy and incompetence on public finances.”

Scottish Conservative finance spokesman, Craig Hoy, accused the SNP of “gross financial incompetence”.

He said: “It is astonishing that the SNP simply do not even know how much funding will be required to support future reforms.”

Meanwhile, Scottish Liberal Democrat leader, Alex Cole-Hamilton, accused the government of making “one expensive blunder after another”.

He said: "Ministers don't have any plan for public services.

“This report emphasises we need a step change to how public money is spent."