Scotland's fiscal outlook: medium-term financial strategy
This is the seventh Medium-Term Financial Strategy published by the Scottish Government. It provides the economic and fiscal context for the Scottish Budget and sets the medium-term strategy for sustainable public finances.
Footnotes
1 Scottish Government (2025), GDP First Quarterly Estimate 2025 Q1 (January to March) – Accessed May 2025
2 Office for National Statistics (2025), HI11 Regional Labour Market: Headline Indicators for Scotland – Accessed June 2025
3 Scottish Government (2025), Scotland's Public Service Reform Strategy: Delivering for Scotland - gov.scot – Accessed June 2025
4 Scottish Government (2022), Scotland's National Strategy for Economic Transformation - gov.scot – Accessed May 2025
5 Scottish Government (2023), National Innovation Strategy 2023 to 2033 - gov.scot – Accessed May 2025
6 Scottish Government (2024), Green Industrial Strategy - gov.scot – Accessed May 2025
7 Scottish Government (2024), Programme for Government 2024-25: Serving Scotland - gov.scot – Accessed May 2025
8 Scottish Government (2025), Programme for Government 2025 to 2026 - gov.scot – Accessed May 2025
9 Scottish Government (2024), Scotland's Tax Strategy: Building on our Tax Principles - gov.scot – Accessed December 2024
10 Scottish Government (2024), Fiscal pre-budget update: Cabinet Secretary for Finance - 3 September 2024 - gov.scot – Accessed March 2025
11 For further information on how the Scottish Government is funded, visit Scottish Budget 2025 to 2026: Your Scotland, Your Finances - a guide - gov.scot
12 Scottish Government (2025), GDP First Quarterly Estimate 2025 Q1 (January to March) – Accessed May 2025
13 Royal Bank of Scotland (2025), Royal Bank of Scotland Regional Growth Tracker report for May 2025 – Accessed June 2025
14 Scottish Government (2025), Scottish Consumer Sentiment Indicator – Accessed April 2025
15 Office for National Statistics (2025),Consumer Price Inflation, UK: May 2025 – Accessed June 2025
16 Office for National Statistics (2025), HI11 Regional Labour Market: Headline Indicators for Scotland – Accessed June 2025
17 Office for National Statistics (2025), Earnings and employment from Pay As You Earn (PAYE) Real Time Information (RTI), seasonally adjusted – Accessed June 2025
18 Scottish Fiscal Commission (2025), Scotland’s Economic and Fiscal Forecasts – May 2025 – Accessed May 2025
19 Scottish Fiscal Commission (2025); Scotland’s Economic and Fiscal Forecasts - May 2025 – Box 3.1 - Accessed May 2025
20 Scottish Fiscal Commission (December 2024, revised January 2025), Scotland's Economic and Fiscal Forecasts (SEFF) – Accessed January 2025
21 For 2025-26 the current funding outlook is compared with the funding position after Stage 3 of the Budget Bill
22 Scottish Government (2025), National Insurance Contributions: public sector costs - gov.scot – Accessed February 2025
23 Scottish Fiscal Commission (2024), Scotland’s Economic and Fiscal Forecasts – December 2024 | Scottish Fiscal Commission – Accessed March 2025
24 British Geological Survey (2025), UK Minerals Yearbook 2024 released - British Geological Survey – Accessed May 2025
25 Scottish Fiscal Commission (2024), How we set policy baselines – Accessed March 2025
26 For 2025-26 the current funding outlook is compared with the funding position after Stage 3 of the Budget Bill
27 HM Treasury (2025), Spending Review 2025 (HTML) - GOV.UK – Accessed June 2025
28 Scottish Government (2024), Scottish Budget 2025 to 2026: Scottish Government borrowing - gov.scot – Accessed March 2025
29 Scottish Government (2023), Scottish Budget 2024 to 2025: implementing the renegotiated fiscal framework - gov.scot – Accessed March 2025
30 Scottish Government (2023), Scottish Government capital borrowing and bonds: memorandum - gov.scot – Accessed March 2025
31 This figure excludes Financial Transfers (£167 million), Non-Cash (£807 million) and UK AME (£3,904 million).
32 This is higher than the resource position detailed in the 2025-26 Budget due to increased funding received at the UK Spring Statement and Main Estimates alongside underspends carried forward through the Scotland Reserve from 2024-25 reported at Provisional Outturn.
33 HM Treasury (2025), GDP deflators at market prices, and money GDP - GOV.UK – Accessed April 2025
34 This only includes funding provided to Local Government from the Scottish Government and does not take account of other sources of funding available to Local Government, such as council tax and other forms of income.
35Pay deals that have been settled as of 13 June 2025 have been included. Pay awards are settled for Further Education Colleges at 4.14 per cent in 2025-26; Agenda for Change and Scottish Prison Service both at 4.25 per cent in 2025-26 and 3.75 per cent in 2026-27; ScotRail and Caledonian Sleeper at 3.6 per cent in 2025-26 and 3 per cent in 2026-27; and Fire service at 3.2 per cent in 2025-26. For selected workforces (mainly SG core), an additional 1.5 percentage points is added to growth in basic pay awards to account for other factors affecting average pay, such as pay progression. Further work is required to improve our understanding and evidence of pay drift, and how this changes over time, and the methodology will be reviewed further for the Budget.
36 Office for Budget Responsibility (2025), Economic and fiscal outlook – Accessed March 2025
37 Bank of England (2025), Monetary Policy Report – Accessed May 2025
38 It is noted that there are no available forecasts for January 2026 RPI inflation.
39 Based on Budget Bill data between 2021-22 and 2025-26.
40 Scottish Fiscal Commission (April 2025) Fiscal Sustainability Report – April 2025 | Scottish Fiscal Commission – April 2025
41 All pensioners in Scotland will receive £203.40 or £305.10 per household, depending on age, and we are in discussion with the UK Government to extend the proposed arrangements in England and Wales to recover payments from those pensioners with an individual income of more than £35,000 through the tax system.
42 Mainly delivered by the Department for Work and Pensions (DWP) in Scotland.
43 The SFC do not include Young Carers Grant, Job Start Payment or Care Leavers Payment in their forecasts for materiality reasons, so these are not included in our Social Security Assistance forecast.
44 Scottish Fiscal Commission (2024), Forecast Evaluation Report – August 2024 | Scottish Fiscal Commission – Accessed May 2025
45 Scottish Fiscal Commission (2024), Forecast Evaluation Report – August 2024 | Scottish Fiscal Commission – Accessed May 2025
46 Note: forecast errors used for the scenario analysis here are one-year forecast errors, which we have then applied to the full forecast period cumulatively for illustrative purposes. It is to be expected that the final outturn for outer forecast years may display greater volatility from the currently forecast spend levels, given the increased uncertainty over an extended timeframe and given that new payments are still being rolled out or in early years of implementation.
47 International Financial Reporting Standard 16 (IFRS16) is a technical change to the budgeting and accounting treatment of leases. There is now a requirement to capitalise the value of leased assets. These costs fluctuate as new leases are signed.
48 Scottish Fiscal Commission (2024), Fiscal Sustainability Perspectives: Climate Change | Scottish Fiscal Commission – Accessed March 2025
49 Scottish Fiscal Commission (2024), Fiscal Sustainability Perspectives: Climate Change | Scottish Fiscal Commission – Accessed March 2025
50 Climate Change Committee (2025), Scotland's Carbon Budgets - Climate Change Committee – Accessed May 2025
51 Scottish Government (2024), Climate change: Scottish National Adaptation Plan 2024-2029 - gov.scot – Accessed March 2025
52 Scottish Fiscal Commission (2024), Fiscal Sustainability Report – April 2025 | Scottish Fiscal Commission – Accessed April 2025
53 Scottish Fiscal Commission (2024), Fiscal Sustainability Perspectives: Climate Change - Summary – Accessed March 2025
54 Scottish Government (2025), NHS Scotland operational improvement plan - gov.scot – Accessed April 2025
55 Scottish Government (2025), Scotland's Population Health Framework - gov.scot – Accessed June 2025
56 Scottish Government (2025), Health and Social Care Service Renewal Framework - gov.scot – Accessed June 2025
57 Scottish Government (2022), Scotland's National Strategy for Economic Transformation - gov.scot – Accessed May 2025
58 Scottish Government (2023), National innovation strategy 2023 to 2033 - gov.scot – Accessed May 2025
59 Scottish Government (2024), Green industrial strategy - gov.scot – Accessed May 2025
60 Scottish Government (2024), Natural Capital Market Framework - gov.scot – Accessed May 2025
61 Scottish Government (2024), Programme for Government 2024-25: Serving Scotland - gov.scot Accessed May 2025
62 Scottish Government (2025), Programme for Government 2025 to 2026 - gov.scot – Accessed May 2025
63 The Tax Advisory Group provides strategic advice on tax policy and strategy to the Scottish Government. Further details, including membership and minutes, are available at Tax Advisory Group - gov.scot
64 Scottish Government (2024), Scotland's Tax Strategy: Building on our Tax Principles - gov.scot – Accessed December 2024
65 Further information on the principles can be found here: Air Departure Tax - Taxes - gov.scot
66 Scottish Government (2023), Scottish Budget 2024 to 2025: implementing the renegotiated fiscal framework - gov.scot – Accessed March 2025
67 Scottish Fiscal Commission (2023); Box 3.3, page 73 – Scotland’s Economic and Fiscal Forecasts – Accessed December 2023
68These are published at: Labour Market Statisticshttps://www.gov.scot/collections/public-sector-employment-statistics/
69 Scottish Government (2025),Public Sector Employment in Scotland Statistics for 1st Quarter 2025 - gov.scot – Accessed June 2025
70 Scottish Government (2025), Public Sector Employment by Devolved and Reserved Responsibility - Public Sector Employment in Scotland Statistics for 1st Quarter 2025 - gov.scot – Accessed June 2025
71 Scottish Government (2025), Infographic - Public Sector Employment in Scotland Statistics for 1st Quarter 2025 - gov.scot – Accessed June 2025
72 Number of employees on a full-time equivalent (FTE) basis are based on converting part-time employees' hours into a full-time employee equivalent.
73 See published statistical tables (Table 5) Public Sector Employment in Scotland Statistics for 1st Quarter 2025 - gov.scot
74 Agenda for Change, Scottish Prison Service, Scotrail and Caledonian Sleeper and Fire.
75 Scottish Local Government Finance Statistics 2023-24 (2025), Scottish Local Government Finance Statistics 2023-24 - gov.scot – Accessed June 2025
76 Scottish Government (2023), Fiscal framework technical note: October 2023 - gov.scot – Accessed May 2025
77 Scottish Government (2025), Fiscal framework: factsheet – Accessed May 2025
78 See the Fiscal Framework outturn report 2019 for further background.
79 Further information can be found at the Cashback for Communities website
80 Scottish Government (2025), Data annex and data update - Fiscal framework: factsheet - gov.scot – Accessed April 2025
Contact
Email: Scottish.Budget@gov.scot