A FOCUS of committee evidence sessions so far has been upon the potential savings being sought in some spending portfolios including in enterprise, employability and elements of education and skills.

With the investments made in these areas important for future economic prosperity, and in turn tax revenues, any cuts are always likely to be controversial.

With the government’s resource budget increasing by £1.5 billion next year – a rise of 3.3% – and projected to rise by 17% over the next five years, the fact that some portfolios are under pressure may seem surprising.

However, unpicking the components of how the budget is changing year on year reveals a much more challenging picture for government. It is these challenges, and not just policy decisions per se, which help to explain why some areas of the Budget are under more pressure than others.

For example, the actual “spending power” of next year’s resource budget increase is reduced by around half once accounting for inflation (a rise of just £726 million). Moreover, once consideration is given to fixed commitments made in the Budget that cannot be changed, including to social security and business rates, the resource budget for many portfolios is actually set to fall in real terms next year.

Add to this demands for above-inflation pay awards and new commitments – such as the council tax freeze – and funds must be found from within budgets to free up resource.

The capital budget is under even greater pressure, with a real-terms cut projected not just for next year, but over the next five years. In total, under current plans, devolved capital spending is projected to fall by around 20% between now and 2028/29.

The government has sought to raise revenues to help, including further increases in income tax for the highest earners. Next year, they also plan to use the last of the remaining money from the granting of ScotWind licences. Whether such one-off funds should be used to support day-to-day spending or be invested for the longer-term – as ministers suggested should happen with oil revenues – is open to debate.

But even with such revenue-raising measures, cuts are inevitable in some areas.
Keeping track of how different parts of the budget are faring over time is not easy. This is why last month, for the first time at the Scottish Fiscal Commission, we published a report examining multi-year spending trends in the Scottish Budget.

This analysis focuses not on spending by government-determined portfolios, but by the actual function of such spend. These functions include education, health, economic development, the environment and so on. This means that as portfolios or policy priorities change, we can still track where the government is spending its money over time.

Levelling-up has concentrated on so-called ‘left-behind’ regions

We show, for example, that after a real-terms cut last year, health spending will return to near its 2022/23 levels next year but that “economic affairs” will see cuts of around 7% below 2022/23 levels.

We also see that social protection is forecast to grow by the greatest amount of any function over the next year. This, in part, reflects a sharp increase in the number of people claiming disability benefits across the UK, but also policy choices of Scottish ministers to implement a reformed system of social security in devolved areas.

This includes the Scottish Child Payment – which receives no funding from Westminster – and a new principled approach to social security delivery. If successful, these policies should improve the lives of people in poverty and those with disabilities. But other areas of the Budget and/or tax revenues will need to be adjusted to pay for such commitments.

With scarce resources, policymaking is as much about prioritising what not to spend monies on as it is about new investment. While it is the government’s responsibility to set out its plans, those arguing for increased spending, or a reversal of planned cuts, need to set out where they will make savings too.

Scottish Government income tax policy - the key numbers

With spending commitments relating to an ageing population and the transition to net zero to increase in the years ahead, a strategy for managing pressures in budgets being squeezed will be just as vital as focusing upon where any additional monies are to be spent.

Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School and chairs the Scottish Fiscal Commission