The Chancellor may have tried to portray it otherwise, but her words in the Commons and the length of the scorecard of measures published by the OBR betray a different story: this really was a fiscal event, and a significant one at that.
It was also one where the forecasting process was nowhere as smooth as we hoped it might be given how much hay the Chancellor made out of strengthening the role of the OBR in the Autumn.
Given how long these measures have been speculated about, the last-minute tweaks and the scramble to announce further welfare reforms to make the sums add up to the £5bn in savings are pretty disheartening.
It also makes us wonder about the reasons for announcing the headline amounts last week; it is simply not credible that the Chancellor or the Work and Pensions Secretary were not aware of the OBR’s concerns at the time of the announcement.
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As widely predicted, the Chancellor would have seen her fiscal rules broken had she not made significant policy decisions, mainly due to higher debt servicing costs.
Faced with this, and after staking her credibility on complying with the fiscal rules, the Chancellor decided to mostly lean on the spending side of the ledger to essentially get back to where she started.
Rachel Reeves’ announcements then cut current spending by nearly £9 billion a year by 2029-30.
Changes to incapacity and disability benefits reduce spending by £4.6 billion by 2029-30, and cuts to the path of day-to-day departmental spending also rise to over £5 billion by 2029-30, although some of that is offset by specific investment programmes.
In total, current departmental spending has been cut by £3.6 billion by 2029-30 relative to plans.
In the very short-term, there is a small amount of additional funding (£28 million) for the Scottish Government in 2025-26 due to a small increase in departmental spending at UK Government level.
Towards the end of the forecast, however, the picture is significantly more challenging in terms of what it means for Holyrood’s finances.
The cuts in departmental budgets announced by the UK Government – even after accounting for some consequentials from employment support programmes and DWP delivery of welfare reforms – mean significant reductions in funding for the Scottish Government relative to what was previously included in the forecasts.
Of particular significance are the £200 million and £435 million cuts in implied funding for the Scottish Budget in 2028-29 and 2029-30.
The current forecast points to the PIP reforms reducing the block grant adjustment for social security devolution by increasing amounts, from £177 million in 2027-28 to £455 million in 2029-30. This is in line with what we discussed in recent blogs.
Put together, and in the absence of any other changes, the Scottish Budget would be around £900 million worse off on the current side in 2029-30 than previously projected.
On the other hand, some additional capital spending on areas which are devolved in Scotland – so aside from the defence spending increases - are expected to raise the Scottish Government’s capital budget by nearly £250 million by 2029-30 relative to current plans.
João Sousa is the Deputy Director of the Fraser of Allander Institute
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