SCOTLAND faces “significant challenges” in funding devolved public services long-term, including a £10billion annual shortfall, Holyrood’s budget watchdog has warned.

The Scottish Fiscal Commission said that over the next 50 years spending would need to increase because of pressures from rising costs and an ageing population.

Spending on health in particular would surge, up from around a third of the current budget to about half, or up 218 per cent in cash terms from £19billion today to £60bn in 2072/73.

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In comparison, education would grow from £10bn to £14bn over the same period, and all other spending would grow from £25bn today to £46bn in 2072/73. 

Scotland’s population is forecast to fall by 8% by 2072/73, while the UK’s grows by 5%.

It means Scotland’s working age population will shrink by 17%, while the UK’s falls just 2%, worsening the mismatch in their respective economies and hitting Scottish tax revenue.

In addition, Scotland’s population of over-65s is forecast to rise by 31% over the next 50 years, pushing up demand for health and care services, while the UK’s increases by 42%.

The Commission warned this spending would run ahead of the likely increases in the funding to the Scottish Government from the UK Treasury and devolved tax revenues. 

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On current trends, spending would exceed funding by an average of 1.7% per year. 

However, the Commission noted this was not unique to Scotland, and the UK finances are also seen by the Office for Budget Responsibility (OBR) as unsustainable in the long term.

The OBR has said that on current policies UK debt will reach 267% of GDP in 2071/72. 

A big potential problem is that if the UK Government follows the OBR’s advice and cuts spending to make its finances sustainable, it will lead to deep cuts in Holyrood’s budget too.

“The end result is a considerably higher fiscal gap in the Scottish Government budget, with an average over the next 50 years of 10.1 per cent of total spending each year,” it said. 

“This equates to around £10 billion in 2023-24 prices.

“This gap is equivalent to 26% of the average Scottish Government spending on health in each year, or 38% of average devolved income tax revenues.”

Such a gap would force Holyrood to slash its own spending or push up taxes. 

Commission Chair, Professor Graeme Roy said: “The pressures of an ageing population and rising costs would occur under any constitutional settlement.

“Managing them under the current fiscal framework is a shared endeavour between both the Scottish and UK Governments.

 “We hope this report can support a wider and more informed conversation about the public services available for our children and grandchildren and the tax policies necessary to sustain these.”

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Deputy First Minister John Swinney today wrote to the Commission noting its work was based on the current constitutional arrangement continuing, not independence.

He said: “Scotland lacks the full range of powers required to manage the financial challenges it is likely to face over the next 50 years.

“It is our view that the current constitutional settlement is insufficient to properly tackle the long-term challenges that Scotland faces. 

“I believe the challenges of an ageing population illustrate the necessity for Scotland to be independent, with full control over the economy and powers over migration.”

Scottish Labour MSP Daniel Johnson said: “This damning report lays bare the scale of the challenge we face.

“This blackhole ripping through Scotland’s finances is the result of years of economic failure by both the SNP and the Tories, and it will do untold damage to public services and household budgets if we continue down this path.

“The SNP cannot keep burying their heads in the sand about the mess they are presiding over.

“The next First Minister must make economic growth a priority, before this economic catastrophe hits home.”