THE public spending outlook for Scotland is “absolutely dismal”, John Swinney has said in the wake of the autumn statement.

The deputy First Minister said some of the measures announced by Chancellor Jeremy Hunt were “welcome, including raising benefits and the state pension in line with inflation from April.

However Mr Swinney, who will set out his response to the statement in the Holyrood budget for 2023/23 on December 15, said Mr Hunt’s had been an “austerity budget” over all. 

He said it had failed to address the impact of inflation on the Scottish Government’s budget, which has already forced him to cut £1.2billion in the current financial year. 

The in-year changes were driven by £700m of unforeseen public sector pay rises, and workers are likely to demand more pay rises next year.

The Office for Budget Responsibility has forecast inflation will be 9.1% this year and 7.4% next year, far outstripping pay rises, contributing to the worst fall in household incomes on record.

Mr Hunt announced extra spending on the NHS and education south of the border would generate an extra £1.5bn for Holyrood under the Barnett funding formula by 2025.

However Mr Swinney said the scale of deductions from Holyrood’s block grant were still uncertain, and the net effect could be a real terms cut to his budget in 2023/24.

He told reporters at Holyrood: “Do not underestimate the corrosive effect of inflation. 

“These numbers are all very well, but if inflation is sitting at 9.1%, the estimate this year, and 7.4% next year, these are corrosive increases in underlying costs. 

“So the numbers might sound good, but you've got to take inflation into account as to what you can pay for.

“And the second thing is that the outlook on public expenditure is dismal, absolutely dismal.

“In the short term you've got the effect of inflation, and hopefully inflation settles down over the next two years. 

“But then the outlook on public expenditure is dismal in relation to these forecasts.

“I do think it's an austerity budget because in the short term the effect of inflation is absolutely corrosive. So you can see what I've had to do this year to deal with inflation. 

“That'll be what's under underpinning the budget for next year. I’ll be wrestling with that question all the way through, and then the numbers in the medium term are dire.

“So the outlook is not good.”

He added: “Households across Scotland are paying a steep price for the economic mismanagement of the UK Government, with average household disposable incomes forecast to fall by 7% in real terms according to the Office for Budget Responsibility. 

“This would erode just under 10 years of growth in living standards, taking them back to levels not seen since 2013-14, meaning they would not recover to pre-pandemic levels until after 2027/28 – a devastating indictment of the UK Government’s management of the economy.

“Inflation is eating away at the Scottish budget, and due to the lack of additional funding in 2022/23 and the financial restrictions of devolution, we have had no choice but to make savings of more than £1 billion.

“I welcome the Chancellor’s decision to increase benefits in line with inflation from next financial year and retain the triple lock on pensions - both measures we have consistently called for. 

“The constant U-turns on tax by the UK Government have made planning for the Scottish Budget more challenging this year. We will take time to consider the implications for Scotland before setting out our own plans as part of the normal budget process.

“This leaves me with the difficult task of setting Scotland’s Budget for 2023/24 with no hope of financial flexibility to make a real difference in the lives of those who need it most.”