Scottish Government will 'likely have to slash frontline services' as £700m to be cut from Budget next year
The Institute for Fiscal Studies (IFS) and Future Economy Scotland warned that public sector cuts could be necessary to balance the Scottish Budget from 2026-27.
The Scottish Government will likely have to “cut frontline services” in a couple of years time due to a £700 million reduction in the Scottish Budget, think tanks has warned.
The Institute for Fiscal Studies (IFS) and Future Economy Scotland warned that public sector cuts could be necessary to balance the Scottish Budget from 2026-27.
The Scottish Fiscal Commission’s annual update showed that funding is to go up next year but will fall afterwards.
The reduction is to correct the difference between forecast and actual income tax revenues.
The Scottish Government has also so far failed to make the efficiency savings it promised, with public sector employment increasing instead of going down.
João Sousa, senior research economist at the IFS said: “The Scottish Government now has an extra £860 million available to spend this financial year – broadly in line with our estimates published last week.
“But as with our analysis, the SFC’s analysis points towards a stormier outlook for future years, and a particularly tough set of choices for the new Finance Secretary Jenny Gilruth in her first Budget covering the 2027–28 financial year. With overall funding set to fall compared to 2026–27, if Ms Gilruth wants to protect the NHS from cuts, she will need to make even bigger cuts to spending on other services.
“The SFC also highlights disappointing progress on some of the headline targets for efficiency savings set out by the Scottish Government. Rather than falling by 0.5% as planned, public sector employment increased by 0.6% in 2025–26.”
He continued: “Alongside the effect of higher-than-expected inflation – including, potentially, on public sector pay awards – the fiscal challenges facing the Scottish Government are now stacking up. Tough decisions and ruthless prioritisation will be needed to square the budgetary circle.”
Hanna Wheatley, Senior Economist at the think tank Future Economy Scotland, said: “While the government’s funding this year will now be higher than anticipated in January’s Budget, it is far from out of the woods.”
She continued: “Looking ahead, 2027-28 faces a crunch point: no one-off funding uplifts and a negative reconciliation payment of £720 million, which is higher than resource borrowing limits for the year.
“These factors are contributing to a 1.2 per cent real terms fall in the Scottish Government’s funding for day-to-day spending next year. The UK Government’s decision to divert capital funding to defence will further hamstring Scotland’s squeezed capital budget.
“The Scottish Government’s plan to close its budget gap largely rests on public service reform, and today’s update highlights how little progress has been made. This means the current approach is unlikely to be able to deliver the required savings without cuts to frontline services.
“Instead, we urge the Finance Secretary to use the upcoming Scottish Budget to set out a progressive and efficient tax strategy for the coming five years to raise the necessary revenue to fund Scotland’s future.”
The Scottish Fiscal Commission urged the Scottish Government to be honest about the challenges it faces.
Chair Graeme Roy said: “Although funding has increased for 2026-27, the Scottish Government continues to face significant challenges in balancing future budgets.
“The delivery of planned savings, managing workforce costs, and the impact of the upcoming UK Budget will all be important factors in determining the funding available for public services in Scotland.
“Transparency on the delivery of planned efficiencies and the scale of emerging pressures will help Parliament and the public understand the choices that lie ahead.”
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