Rising public sector pay bill makes spending squeeze 'more acute'

The rising public sector pay bill in Scotland has made spending pressures “even more acute", an independent think tank has warned.

The Fraser of Allander Institute (FAI) said SNP finance secretary Shona Robison will have "little room for manoeuvre" when she sets out her Budget next week, despite “significant” additional cash from the UK Government.

It said total spending on pay may be as high as £15 billion this year, rising to £25 billion if local authorities are included.

If the pay bill were to rise by 3 per cent next year – which would still be lower than in any year since at least 2019/20 – this would cost around £750 million, the think tank said.

SNP finance secretary Shona Robison | PA

It said £7 out of every £8 spent by the Scottish Government goes on just four areas – health, pay, social security and grants to local government.

UK Chancellor Rachel Reeves announced an extra £1.5 billion for Scotland this year and £3.4 billion in 2025/26 as part of her Budget last month.

However, the Scottish Government says the funding provided for this year “is already largely committed”, the FAI noted, adding: “If this is the case, the uplift for 2025/26 is under more pressure than it would appear.”

Tory MSP Craig Hoy said: “This is a stark warning that the SNP government’s bloated public sector pay bill is likely to add to the financial pressures imposed by their upcoming Budget."

He added: “It’s the SNP’s own misguided decisions that have limited their options, but it’s Scottish households and businesses that are paying the heavy price for their incompetence.”

The FAI, which is based at the University of Strathclyde, said public sector pay makes up more than half of the Scottish Government’s resource budget.

"The fact that public sector workers are, on average, paid more in Scotland, will mean that the challenges are even more acute, given the country’s much larger public sector," it said. "The decisions on this, and on areas like social security, have put additional pressure on the Scottish Government’s budget."

Dr João Sousa, deputy director of the FAI, said calculating the Scottish Government’s funding position for 2025/26 had been “near impossible” due to the lack of a medium term financial strategy this year.

But he added: “Health spending, all other pay, social security and grants to local government make up £7 in every £8 the Scottish Government spends. This seriously limits their room for manoeuvre in changing the overall shape of the Budget.”

The think tank warned that if pay rises are “higher than planned”, the Scottish Government could need to take emergency action again.

First Minister John Swinney and his predecessors have previously set out their determination to tackle child poverty. The FAI said spending on this has “grown significantly” since 2018/19, but “it would not be fair to say that it has become a large part of the Scottish Budget”.

It said spending in this area “remains under 3 per cent of all discretionary resource funding”, adding capital spending on child poverty reduction – through, for example, the provision of affordable housing – has “actually fallen by 13 per cent in real terms since 2019/20”.