By stewartb

I’d like to draw attention to an interesting line of argument being promoted by the Fraser of Allander Institute (FAI) in its ‘Scotland’s Budget Report 2026-27’ (January 9, 2026). In Chapter 1 on ‘Fiscal Outlook’, the FAI goes to great lengths in seeking to undermine the claim that the Scottish government balances its budget.

It states: ‘.. an interested observer will be surprised to hear that the apparent definition used by the Scottish Government of a balanced budget includes borrowed funds. When the Budget Bill is set out and in outturn, the Scottish Government’s expenditure plans are “funded” and fit within the limits set out. That’s of course what a budget is – it does not make it balanced in any meaningful sense, especially when part of the funding is through loans. (my emphasis)

‘If I put some purchases on my credit card to fund my spending, I could hardly claim to have balanced my monthly budget. I may have found a way to finance it, but it’s borrowing all the same.’

The FAI goes on to contrive first to argue against and then to argue for a comparison between the Scottish and UK governments: ‘The Finance Secretary in particular said in March that “[u]nlike the UK Government, the Scottish Government must balance our budget every year. That is what we will do, as we have done for every one of the past 17 years.” But of course, this is an apples and oranges comparison. By the Finance Secretary’s definition, the UK Government also balances the budget – in the sense that it borrows the amount needed to fund the expenditure it sets out. So either both budgets are balanced, or neither is.’

So the argument being advanced is one of equivalence coupled with a less than subtle swipe at the present Scottish Government. Does the latter operate under strict borrowing constraints? Undoubtedly yes! Who sets and enforces those constraints? UK governments and their statutes. Does the UK Government operate under borrowing constraints? No – other than self-imposed ‘fiscal rules’ which can be adjusted (broken) at will anytime. I’d argue that comparing the borrowing powers of Scottish and Westminster governments is certainly an ‘apples and oranges’ – or is it one apple with an orchard – comparison?

And who as the FAI thinking of when it published this : ‘.. an interested observer will be surprised to hear that the apparent definition used by the Scottish Government of a balanced budget includes borrowed funds’?. (Is this remark verging on the snarky?)

The Scottish Parliament Information Centre (SPICe) claims to provide ‘impartial, factual, accurate information and analysis to Members in support of Scottish Parliament parliamentary business’. On July 17, 2025 it published this: ‘Balancing the Scottish budget: the challenges ahead’. In a section entitled ‘The Scottish Government’s funding position’, it states: ‘The Scottish Budget must be balanced’. (my emphasis)

And from the Scottish Fiscal Commission (May 2025) ‘Scotland’s Economic and Fiscal Forecasts’:

‘The Scottish Budget needs to be broadly balanced every year so prioritising spending in a particular area means less funding is available for other devolved responsibilities.’ (Summary para 14)

The SFC’s website has an ‘Explainer’ section. Here we find: ‘In our Fiscal Sustainability Reports we use the annual budget gap to show the level of reductions in spending or increases in tax revenue that would be required by the Scottish Government each year over a 50 year period in order to balance the budget. We use the annual budget gap because the Scottish Government must keep a broadly balanced budget and is limited in how much it can borrow.’

And it spells out dependency on UK government decisions: ‘The fiscal framework means that the annual budget gap is affected by any action the UK Government takes to address fiscal sustainability at the UK level.’ (Something the FAI seems reluctant to acknowledge: see TUS January 18, 2026: ‘How a London-based think-tank is more trustworthy than a Glasgow one with a bias against the SNP’.)

The SFC adds: ’The effect of UK Government action to address fiscal sustainability at the UK level on the annual budget gap depends on what balance future UK Governments strike between reducing spending and raising tax revenue, and to what extent these are in devolved or reserved areas.’ Of course, the Scottish Government will have far from perfect intelligence on what future balance a UK government intends to strike or what it actually achieves.

On ‘fiscal sustainability’ for the UK, the “explainer’ states: ‘Fiscal sustainability usually involves an assessment of whether, based on current policy, government revenue raised will match spending requirements over the long term. Any deficit adds to public debt, with a judgement then made on the sustainability of that debt. High levels of debt lead to higher interest rates, with government funds being diverted from investment and public services to servicing the debt, which may be unsustainable.’

And goes on crucially, in contrast to the equivalence that the FAI’s article seems to be pushing: ‘The situation is different for Scotland. The Scottish Government must keep a broadly balanced budget and cannot borrow for day‑to‑day spending. Therefore, highlighting issues around Scottish fiscal sustainability raises attention to what extent current Scottish Government policies on spending and taxation may need to change to balance budgets in the future.’

From an Audit Scotland briefing (October 2019): ‘Scotland’s new financial powers – Operation of the Fiscal Framework 2018/19’ – from Part 1, para 11 ‘The Scottish Government is required to operate a balanced budget, matching its spending to available funding each year .’. Note the reference to ‘available funding’: including loan funding made available to it under Westminster-imposed rules.

From Part 3, para 106: ‘The Scottish Government has required (sic) to manage a balanced budget since the inception of the Scottish Parliament.’

So lots of experts on Scotland’s and the UK’s public finances will be far from ‘surprised’ as the FAI contends! As far as I can establish, statements by Scotland’s government that it has to balance its budget in the situation described by SPICe, the SFC and Audit Scotland have been made over many years and nothing relevant has changed in the devolution settlement to alter the rules for FY 2026-27.

Has the FAI adopted this position of equivalence of the Scottish and UK governments before? And if not, why is it pushing this viewpoint and in such a manner only now in 2026 – and without reference to relevant statements by authoritative sources?