By stewartb

It’s been interesting to compare and contrast how two economic think tanks chose to comment upon the Scottish Government’s recent budget statement and Spending Review.

Let’s take the Glasgow-based Fraser of Allander Institute (FAI) on the Budget first: FAI (January 13) ‘A Budget where the silences were loudest.’ The up front framing made a good start! And on what the Cabinet Secretary did say, it’s tough to find anything remotely positive in the commentary.

The FAI offers this further characterisation of the Budget: ‘Another case of delaying adjustment into the future’. Such a remark emphasises where the FAI ‘s own silence is deafening, namely any explicit appreciation that Scottish government budgets and associated forward plans are constructed and delivered within a context influenced – arguably dominated – by current and possible future (known unknown and unknown unknown) UK government decisions. For that sort of contextualisation – for acknowledgement and explanation of the inherent uncertainty associated with budgeting within the devolution settlement – an interested voter in Scotland would need to turn to the London-based Institute for Fiscal Studies (IFFS).

Source: IFS (January 13) ‘Immediate response to the Scottish Budget and Spending Review’.

Unlike the FAI, the IFS explains reality: ‘When assessing the Scottish Spending Review, it is important to recognise the challenges the Scottish Government faces in predicting how much funding it will have available and hence can allocate to services.

‘Its funding depends to a large extent on decisions by the UK government, as well as uncertain forecasts for tax revenues and social security spending. Combined with the limited borrowing powers it has to offset any changes in its funding, this means the multi-year plans set today could be subject to significant revision – even if there is not a change in government at the upcoming Scottish elections.’

And further context: ‘On the one hand, as we highlighted in November following the UK Budget, current UK government spending plans imply very tight budgets, especially for 2028–29 and 2029–30.’ However, for a UK chancellor in a government with unfettered powers, other options are available: ‘As these years – and the next UK election – approach, the UK Chancellor may feel the need to top-up spending plans, which would generate additional funding for the Scottish Government via the Barnett formula. The next Scottish Government could then choose to top up overall spending plans or reduce taxes.’ But presumably Westminster could choose to ‘top up’ in ways that don’t generate a Barnett consequential?

When the IFS published its briefing on the most recent Westminster government budget in November 26 – ‘Autumn Budget 2025: initial response’ – it included observations that have direct implications for Scottish Government budgeting.

From this briefing, note the following (with my emphasis): ‘.. the Chancellor is relying heavily on tax rises towards the back end of the parliament. More borrowing for the next few years, then a sharp adjustment. Spend now, pay later’. Otherwise known in FAI speak as a dastardly ‘case of delaying adjustment into the future’?

The IFS acknowledges the uncertainties facing the Chancellor going forward: ‘… Rachel Reeves chose to raise taxes. In part, this was to increase her ‘headroom’ to £22 billion, a sensible move for which the Chancellor deserves credit. By providing greater insulation against economic turbulence, the additional buffer will reduce the risk of playing out this year on repeat in 2026. Though, relative to the uncertainties involved, it’s still not that large a buffer.’ These uncertainties all have spillover effects on forward budget planning for governments in Belfast, Cardiff and Edinburgh, for governments with few fiscal and no monetary powers compared to the UK Chancellor.

The IFS added: ‘Taxes also went up, in part, to pay for additional discretionary spending – most notably on universal credit through the scrapping of the two-child limit, as well as welfare more generally due to U-turns earlier in the year. That’s a perfectly reasonable choice – but it is a choice. The key point, again, is that the tax rises are promised for the future, but the spending is coming sooner.’  How on earth do devolved government’s factor the financial risks or opportunities associated with actual or potential Westminster U-turns into their budgeting and spending reviews?

The IFS muses: ‘The additional spending and borrowing in the short term is readily believable. The future restraint, just before the next election? One could be forgiven for treating that with a healthy dose of scepticism.’ How can any ‘devolved’ government predict how much funding it will have available and make firm, detailed longer term plans for its allocation to services in this context?

At least the London-based IFS recognises the spillover impact on devolved government budgeting of Westminster’s management of the UK’s public finances.