UofG Centre for Public Policy

12 March 2026: Published in The Herald on Monday 9 March 2026, Professor Graeme Roy summarises the key messages from the latest Scottish Fiscal Commission report on the budget constraints facing the next Scottish Parliament.

Article by Professor Graeme Roy

This article was originally published in The Herald on 9 March 2026.

With just two months until the Scottish election, we can expect an increase in policy announcements alongside competing visions for Scotland’s future. That is both inevitable and appropriate. Elections are, of course, about choices.

But choices must be understood within the fiscal environment in which they will be made. In our latest Scottish Fiscal Commission report - our final publication before the election – we set out the funding context facing the next Parliament. Our role is not to assess the merits of policies. But to describe the constraints within which those policies will operate.

On current forecasts, funding for day-to-day public services is expected to grow by just 1.1 per cent a year in real terms, on average, over the next Parliament. Once existing spending pressures are taken into account, it will leave limited scope for significant new commitments without offsetting savings or additional revenue.

The position on capital investment is more constrained still. After a short-term increase next year, capital funding is projected to decline in real terms over the remainder of the Parliament. In practical terms, this means less money for infrastructure including schools, hospitals and transport.

Within the overall funding envelope, pressures are uneven.

Spending on health and social security has grown significantly during the current Parliament and is forecast to continue rising. Social security spending, in particular, has increased far more rapidly than most other areas of the budget.

Other portfolios will inevitably face tighter settlements. This is simply the arithmetic of balancing a budget.

At the same time, the devolved public sector pay bill now accounts for around 55 per cent of day-to-day spending. Pay agreements reached in recent years, while reflecting the higher inflation environment, are now embedded in future budgets.

On the revenue side, devolution has given the Scottish Parliament greater control over taxation. But that autonomy also operates within constraints.

Successive changes to Scottish Income Tax policy have led to divergence from the rest of the UK. The higher-rate threshold in Scotland is, for example, lower than in England and Wales. As earnings rise and thresholds remain frozen, fiscal drag brings more taxpayers into higher bands.

In 2016-17, around 300,000 Scottish taxpayers paid at least the higher rate. On current projections, that figure could approach one million – nearly 30% of taxpayers – by the end of the decade.

Beyond the immediate budget outlook, structural pressures are intensifying.

Living standards have grown only modestly in recent years, and the medium-term outlook remains subdued. Scotland’s population is ageing: the number of people aged 65 and over is projected to increase by around 20 per cent this decade. Disability prevalence has also risen across the UK (and more quickly in Scotland), contributing to sustained growth in social security spending.

At the same time, the Scottish Parliament has legislated for ambitious legal targets. This includes achieving net zero emissions by 2045 and reducing child poverty to below 10 per cent by 2030. Meeting these commitments will require sustained policy focus and, in many areas, additional investment.

Taken together, these trends mean that the next Parliament will operate within tight fiscal limits. New commitments will require clear decisions about how they are funded - whether through reprioritisation, savings, or additional taxation.

Fiscal sustainability is not always prominent in election debates. That is understandable as the complexities of balancing budgets can seem abstract compared to the real-world pressures facing households or public services. But the fiscal position is already shaping policy decisions today, and it will continue to do so in the years ahead.

It would of course be unrealistic to expect detailed discussion of fiscal frameworks during an election campaign. But it is important that the election debate does reflect the scale of the challenge. Where additional spending is proposed, the funding mechanism should be transparent. Where tax changes are advocated, the implications for the economy and households – as well as any additional revenues – should be made clear.

Scotland’s public finances face similar pressures to many other countries. Recognising these realities should not limit ambition. Rather, it provides the foundation for credible and deliverable policy.

The next Parliament will inherit difficult trade-offs. Honest acknowledgement of the fiscal context is the starting point for navigating them responsibly.

Author

Graeme Roy is Professor in Economics, Interim Head of School, Adam Smith Business School (Economics), Dean of External Engagement and Deputy Head of College and Assistant VP (Social Sciences College Senior Management). He is a Senior Fellow of the Centre for Public Policy.

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First published: 12 March 2026