Scotland is facing the prospect of more swingeing cuts to public services in the coming years - with a warning these will become "increasingly apparent" to Scots in the next 12 months.
Spending reductions could hit £1.6 billion, a stark report by the Fraser of Allander Institute at Strathclyde University today warns, with ministers facing a major rethink in their spending priorities.
Even before the uncertainty caused by Brexit, the Scottish Government’s budget was forecast to fall by just over 3 percent in real terms by 2020-21 as result of the UK Government’s ongoing austerity cuts.
But the report warns that under a worst case scenario for the block grant and revenues from Scotland’s new tax powers, the Scottish Government may have to prepare for cuts of up to six per cent – or up to £1.6 billion – over the course of the parliamentary term.
Professor Graeme Roy, Director of the University of Strathclyde’s Fraser of Allander Institute, said: “The Scottish Government has set out plans to deliver ambitious new policy priorities, including real terms increases in the health budget, a doubling of childcare provision, and protection of the police budget.
“Delivering on these will, however, require a tough re-prioritisation in other areas.
“As an area of unprotected spend, the grant to local government could be cut by around £1 billion on a like-for-like basis by 2020-21. Without radical reform, cuts to services are likely to become increasingly apparent in the years ahead, providing a controversial backdrop for next year’s local elections.”
Scotland’s Budget, the first major, independent analysis of the opportunities and challenges facing Finance Secretary Derek MacKay ahead of his forthcoming Budget, was presented to politicians of all parties this morning in Edinburgh.
It comes as Holyrood prepares to take on sweeping new powers over raising income tax and some social security under the post-referendum Smith Commission powers.
Professor Roy continued: “Brexit uncertainty, a weakening UK fiscal position, ongoing UK welfare reform, and a fragile Scottish economy, means that the devolution of powers over tax and social security could not have come at a more challenging time.
“The combination of a weakening in the outlook for the UK public finances impacting on Scotland’s block grant, a challenging outlook for devolved revenues, and a series of significant spending priorities – particularly in health and the planned transformation in childcare – will require a substantial re-prioritisation of spend and reform of public services in Scotland."
Labour and the Liberal Democrats at Holyrood are already calling for a one pence rise in the basic rate of income tax north of the border to counter the impact of cuts and are likely to step these calls following this latest warning.