Fiscal sustainability delivery plan

Context

As set out in the MTFS, in recent years, the Scottish Government has faced a challenging and volatile economic and fiscal environment. Our public finances have borne the impact of Brexit, the COVID-19 pandemic, inflation, driven in part by the war on Ukraine, and the cost of living crisis.

Combined with the previous lack of clarity provided by the UK Government around our annual and multi-year funding, these factors have meant that the Scottish Government has been required to take difficult in-year budget decisions to deliver a balanced budget. Levels of spending UK-wide continue to constrain the Scottish Government’s ability to deliver its priorities. Our limited tax, borrowing and revenue raising powers also constrain our flexibility to respond.

The economic and fiscal environment remains uncertain and is likely to remain so into the foreseeable future. The economic context is marked by global uncertainty, due to the range of tariff announcements from the United States, rising energy prices, inflation, and growing geopolitical risks.

The MTFS sets out a number of significant risks facing the public finances over the medium term, which need to be managed. These include:

• the level of demand-led growth in spending on social security and health and social care;
• persistent inflation, impacting public spending in a number of ways, including on pay, which is exacerbated by a proportionately larger public sector workforce than the rest of the UK;
• continued uncertainty over the funding position; and
• the fact that Scotland’s population is ageing, and ageing earlier, than the rest of the UK.

There are also a number of longer-term risks facing the Scottish Government. The Scottish Fiscal Commission (SFC) in their long-term fiscal sustainability reporting have noted that pressures on the public finances will continue to grow beyond the next five years. Their most recent Fiscal Sustainability Report, published on 8 April 2025^[3] focused on population health and health-related spending, noting an expectation that health spending will increase significantly as a result of the ageing population over the next 25 years.

As reflected in the 2025 MTFS, considerable action has been taken since the 2023 MTFS to strengthen the public finances, including focusing spending on priorities, actions to grow the economy, and setting out our strategic approach to tax. Despite this, and in large part exacerbated by decisions taken by the UK Government that weaken Scotland’s funding position, the projected demands on public spending continue to outstrip forecast funding. The resource fiscal gap is projected to grow from a balanced budget in 2025-26, to £2.6 billion in 2029-30.