“These cuts to overall funding would imply difficult trade-offs for the Scottish Government as it allocates funding between different services,” the think-tank’s first Scottish Budget report said.
Bee Boileau, a research economist from the IFS and one of the authors of the report, said: “Additional funding from the UK Government and a forecast boost to devolved tax revenues mean the outlook for funding has improved a little since last May’s resource spending review, but the picture is far from rosy.
“Official projections imply that funding non-benefit spending is set to fall over over the next two years and then grow slowly over the following three years.
“Indeed, it would still be close to 2 per cent below 2022/23 levels in 2027/28, and that assumes a significant improvement in the performance of Scotland’s devolved income tax revenues – without that, this funding could be close to 5 per cent lower than this year in 2027/28.
“If either of these scenarios were borne out, the Scottish Government would likely need to make significant cuts to a range of public services.” “Further big increases in devolved tax rates would be one way to avoid such cuts. “The Scottish Government will instead be hoping for additional funding from the UK Government – which may not be in vain as the UK Government would also need to make cuts to many services if it sticks to the plans for spending it has pencilled in.”
Scottish Conservative shadow finance and economy secretary Liz Smith said: “This analysis confirms that the Scottish Government will have very difficult spending choices to make over the next few years. Even if devolved tax revenues increase, budgets outside health and net zero are likely to face yet more cuts.
"These will come at a time when economic forecasts continue to predict that the Scottish economy will continue to lag behind the UK economy.”“The saving grace is the additional UK Government funding which – as the IFS points out – has already improved Scotland’s financial position. But the prospect of the SNP Government introducing cuts of as much as 13 per cent is very worrying, especially given the SNP’s poor record when it comes to addressing the priorities that matter most to ordinary Scots.”
According to the SFC, income tax policies north of the border should net an additional £994 million for the Scottish Government – but the total is £325m – a gap of £669m.
SFC chair Professor Graeme Roy said: “In practice they are probably only raising about £300 million more, and that is because weaker economic performance over the last few years.”
The economics expert added: “We think purely on a policy only point of view, they should be raising about £1 billion more in revenue.”
Prof Roy said Scotland has “lagged behind the UK for a long period of time”.
A Scottish Government spokesman said: “The IFS analysis shows the difficult choices faced as a result of a UK Government settlement that is not enough to meet the needs of public services in Scotland and fund a response to the cost-of-living crisis.
“Above all it highlights the urgent need for additional financial powers for Scotland, such as those which would come with independence. That would give Scotland the full range of economic and other policy tools, including over immigration, to allow us the chance to replicate the success of many neighbouring countries which are more prosperous, productive and fairer than the UK.
“The Scottish Government will continue to do all it can to manage public finances and any risks within our current, limited powers.”