Scotland's fiscal outlook: medium-term financial strategy

Introduction

This is the Scottish Government’s seventh Medium-Term Financial Strategy (MTFS). It sets out the medium-term context for annual budget decisions by presenting the economic, funding and spending outlooks to 2029-30; provides an analysis of the risks and uncertainties to the economic and fiscal outlook; and confirms the Government’s strategic approach to manage the public finances within the current constitutional settlement. This year’s MTFS is accompanied by a Fiscal Sustainability Delivery Plan (FSDP) which sets out the actions across Government to ensure Scotland’s finances are on a sustainable trajectory.

The previous MTFS, published in May 2023, set out the Scottish Government’s strategic approach to managing the public finances over the medium term against a backdrop of significant spending pressures and acute funding challenges. There was no MTFS published in 2024 due to the timing of the UK General Election. However, the Fiscal Statement^[10] published on 3 September 2024 provided an update to the public finances between the 2023 and 2025 MTFS publications, and a multi-year funding projection was published at 2025-26 Budget.

The Scottish Government delivers against the fiscal rules set by the UK Government. Scotland’s Fiscal Framework, agreed by the Scottish Government and the UK Government in 2016 and revised in 2023, determines how the Scottish Government is funded. The Framework includes how the Block Grant operates, the budget management tools (borrowing and reserve powers) available, and the independent fiscal institutions and forecasting arrangements for Scotland. The majority of Scottish Government funding is determined by UK Government spending plans and the operation of the Barnett formula to provide our consequential share each year.^[11]

The UKSR was published on 11 June 2025, setting the UK Government’s resource (day-to-day) departmental budgets until 2028-29 and capital departmental budgets until 2029-30. The funding outlook in this MTFS reflects the impact of these spending announcements on Scotland’s Block Grant position.

We use projections of funding, taxation and spending to establish the medium-term fiscal outlook. This helps us to understand the challenges facing Scotland’s finances, and to plan effectively with the funding that is likely to be available. The outlooks presented here are informed by the latest Scottish Fiscal Commission (SFC) Economic and Fiscal Forecasts, published on 29 May and updated on 25 June 2025. These projections can, and do, change at each annual budget and the uncertainty in the outlook increases over time.

Chapters 1 to 3 cover the economic, funding and spending outlooks to 2029-30. Chapter 4 provides an update on the fiscal strategy and progress across the three pillars since 2023.