Analysis by the IFS suggests that the Scottish government will face ‘stark funding challenges’ over the next five years and beyond. The research, which is to be published in the IFS Scottish Budget 2023/24 report in February 2023, highlights a number of key findings:
funding for Scotland will fall by up to 1.6% in 2023/24 compared to the previous year, and by a further 1.6% in real terms in 2024/25, even though net revenues from devolved taxes in Scotland are expected to increase significantly over the next few years.
day-to-day non-benefit spending is likely to be 2% lower in 2027/28 than it was in 2022/23 - without the increased tax revenues, the reduction could be closer to 5%; and
in recent years Scotland’s tax base has grown more slowly than the rest of the UK.
The Scottish Fiscal Commission (SFC) forecasts that, even by 2026/27, almost one-third of the yield from Scotland’s higher income tax rates will be offset by slower tax base growth since devolution of income tax in 2016/17. This would still represent an improvement over the current year, for which the SFC estimates that income tax revenues will be more than fully offset by slower underlying growth.
Falls in overall funding suggest difficult trade-offs in different sectors. For example, if spending on health increased to meet rising cost and demand, cuts would be required elsewhere.
Bee Boileau, IFS Research Economist and co-author of the research, said: ‘Further big increases in devolved tax rates would be one way to avoid such cuts. The Scottish government will instead be hoping for additional funding from the UK government – which may not be in vain as the UK government would also need to make cuts to many services if it sticks to the plans for spending it has pencilled in.’
Analysis by the IFS suggests that the Scottish government will face ‘stark funding challenges’ over the next five years and beyond. The research, which is to be published in the IFS Scottish Budget 2023/24 report in February 2023, highlights a number of key findings:
funding for Scotland will fall by up to 1.6% in 2023/24 compared to the previous year, and by a further 1.6% in real terms in 2024/25, even though net revenues from devolved taxes in Scotland are expected to increase significantly over the next few years.
day-to-day non-benefit spending is likely to be 2% lower in 2027/28 than it was in 2022/23 - without the increased tax revenues, the reduction could be closer to 5%; and
in recent years Scotland’s tax base has grown more slowly than the rest of the UK.
The Scottish Fiscal Commission (SFC) forecasts that, even by 2026/27, almost one-third of the yield from Scotland’s higher income tax rates will be offset by slower tax base growth since devolution of income tax in 2016/17. This would still represent an improvement over the current year, for which the SFC estimates that income tax revenues will be more than fully offset by slower underlying growth.
Falls in overall funding suggest difficult trade-offs in different sectors. For example, if spending on health increased to meet rising cost and demand, cuts would be required elsewhere.
Bee Boileau, IFS Research Economist and co-author of the research, said: ‘Further big increases in devolved tax rates would be one way to avoid such cuts. The Scottish government will instead be hoping for additional funding from the UK government – which may not be in vain as the UK government would also need to make cuts to many services if it sticks to the plans for spending it has pencilled in.’
