Scottish Spending Review 2026

Chapter 1 Introduction

Introduction

This Spending Review sets out multi-year spending plans that are focused on delivering our priority outcomes for the people of Scotland. It represents an important step forward in progressing our work on fiscal sustainability and providing a funding framework for our partner organisations to plan effectively and strategically.

1.1 Strategic Context

The current economic and fiscal environment poses considerable challenges. The Medium-Term Financial Strategy (MTFS), published in June 2025, outlined that we are facing a series of inter-related and long-term challenges which are putting significant pressure on our public finances. The lasting impacts of austerity imposed by Westminster, the ongoing economic drag of Brexit, the effects on the global economy of conflict and uncertainty, and the needs of an ageing population and its associated expenditure, mean that we face tough choices when it comes to our medium-term spending. These tough choices necessitate decisive action to examine our public finances and our approach to public spending.

Setting out this Government’s strategic approach to managing the Scottish public finances in light of these challenges, the medium-term strategy focuses on three pillars:

• Focused and impactful spend – ensuring public money is focused on delivering government objectives, underpinned by reform and prioritisation to maximise impact;
• Economic growth – supporting sustainable, inclusive economic policies with the greatest potential to grow Scotland’s economy, and expand and broaden the tax-base to fund public services; and
• Strategic approach to tax – ensuring a strategic approach to tax policy, which considers the longer-term impacts of our tax choices and competitiveness.

The Financial Sustainability Delivery Plan (FSDP) – which was published alongside the MTFS – brought together the key actions Government is taking to deliver the fiscal strategy from now until 2029-30. On Focused and impactful spend we are implementing bold measures to deliver greater public value, drive efficiencies, reform services, and embed prevention at the heart of decision-making. These actions are designed to generate significant cashable savings and close the gap between our funding envelope and spending projections.

The Public Service Reform (PSR) Strategy also outlines our commitment to reforming public services. Through a focus on prevention, joined up services, and efficiency, we will drive systematic change across the public sector. We recognise that in order to deliver high quality services and improve outcomes we must take a different approach. The principles and actions outlined in these strategies must be reflected in our spending, and this SSR demonstrates our strong commitment to this agenda.

A sustainable and skilled public sector workforce is central to Scotland’s wider programme of public service reform. We must redesign how services are delivered so they remain high quality, financially sustainable and responsive to changing needs. The Integrated Pay and Workforce Policy, published alongside the SSR and Budget, is the first step in operationalising the commitments in the FSDP to manage the public sector paybill and workforce size through a co-ordinated approach to pay and workforce planning.

Reforms to organisational leadership, design and culture, are critical to achieving fiscal sustainability and delivering a managed reduction of 0.5 per cent per annum to 2029-30. As set out in the FSDP, this will align with service redesign, automation where appropriate, and smarter resource use. This approach is designed to protect frontline services while reducing corporate costs and improving productivity.

1.2 Funding Outlook

The Scottish Government’s funding is largely determined by UK Government policy decisions through the Barnett formula and the Fiscal Framework. We are required by law to balance our Budget outturn each year, but have limited flexibilities and borrowing powers to deliver this position. This means we are working within significant constraints, in what is already a challenging outlook.

The UK Spending Review in June 2025 and the recent Autumn Budget have provided more information on our funding context up to 2030. The Resource Block Grant has an average real terms increase of only 0.5 per cent per annum across the spending review period – falling far short of what is required in the current fiscal landscape.

The Capital Block Grant reduces in real terms by 0.3 per cent by 2029-30. This follows historic real terms cuts to our Capital Block Grant by the previous UK Government, which has led to an increase in our backlog maintenance costs. Inflation-driven cost increases have further eroded our spending power.

The Scottish Government’s full funding position is set out in Annex A of the 2026-27 Scottish Budget, with independent analysis available in Scottish Fiscal Commission’s Economic and Fiscal Forecasts.

Over the SSR period, we will use the limited levers at our disposal to boost the funding available and achieve a smoother funding profile. As in recent years, our opening position will assume initial forecast allocations of Crown Estate revenues to support both the resource position and support climate action through priority capital projects. As we have also done in prior years however, we will work to manage down the utilisation of this revenue to preserve its capacity for future deployment on priority areas that deliver lasting benefit for Scotland.

The Spending Review is underpinned by a funding outlook that reflects published information from HM Treasury, OBR and SFC forecasts. Forecasts of tax revenues are based on current tax policy, which is generally reserved to annual budgets and therefore subject to change throughout the period of the SSR. There are wider risks and uncertainties over the funding outlook, which are explored more fully in the 2025 MTFS. Thus while this SSR is based on robust funding assumptions, plans should be viewed as indicative and subject to substantial change.

1.3 Delivering Fiscal Sustainability

In light of the extremely challenging fiscal context, it is important that we support the public sector to plan for the medium-term, enabling public spending to be managed in the best possible way to drive progress across our priorities and deliver for the people of Scotland. This spending review provides resource spending plans for 2026-27, 2027-28, and 2028-29, with an additional year for capital. These spending plans are shaped by the wider strategic context set out here, with bold reforms and efficiencies enabling our plans to be balanced within the overall funding envelope. These balanced and sustainable spending plans will deliver the savings needed to enable continued investment in our priorities – eradicating child poverty, tackling the climate emergency, growing the economy, and ensuring high-quality and sustainable public services.

Portfolio chapters detail investment priorities and fiscal sustainability measures, supported by Portfolio Efficiency and Reform Plans that outline the actions we are taking to further embed efficiency and productivity across the public sector.

This Spending Review also sets out our continued investment in bolstering the Scottish economy and broadening the tax base by boosting business activity, raising employment, and increasing average wages through skills development and attracting high-value sectors to Scotland. This will positively impact tax revenues, boosting the funding available to address the long-term pressure on public finances. We have also published our infrastructure delivery pipeline, which sets out an affordable pipeline of projects and programmes that will support the Government’s priorities.

The benefits of multi-year funding extend beyond the public sector, and this Spending Review supports our commitment to Fairer Funding for the Third Sector. The Third Sector is essential to communities across Scotland and the delivery of Scottish Government priorities and multi-year funding gives organisations the ability to plan for the future and make the most of their resources. In 2025-26 we launched the Fairer Funding pilot, focused on grants connected to tackling child poverty and the delivery of frontline services to our communities, which is the first step to increasing multi-year funding agreements more widely across the third sector.

This Spending Review and the documents being published alongside it build on our progress so far in delivering for the people of Scotland. They provide a strategic framework for multi-year spending, giving the public sector the increased certainty needed to produce balanced and sustainable budgets, which are focused on our key priorities, while embedding our commitment to fiscal sustainability and public service reform.

1.4 Governance and Accountability of Delivering the Spending Review

The publication of the MTFS and the accompanying FSDP in June 2025 set out our approach to delivering sustainable public finances. As part of this, savings targets and measures were set out that are being delivered through this Spending Review and Budget 2026-27.

A robust monitoring, reporting and governance structure is a key element of ensuring the delivery of the MTFS, FSDP and this Spending Review and the associated Portfolio Efficiency and Reform Plans. The Scottish Government will take this forward through established governance structures, but we intend to supplement this with focused reviews of areas of significant spend over the course of this Spending Review period.

Progress towards delivery of the targets and measures will be regularly monitored and updates on progress of the FSDP will be provided publicly as part of the annual update of the MTFS.