By Caroline Gardner, Auditor General for Scotland
This week I’m briefing the Public Audit Committee on the Scottish Government’s annual report and accounts for 2017/18. Balance sheets don’t grab the headlines like pressures on the NHS, but these accounts matter. They include spending of almost £35 billion on public services that affect us all, like schools and indeed health services. And Scotland is taking on major new financial powers, which inevitably bring more opportunities and risks that need to be managed.
The Scottish Government will soon be responsible for raising around 50% of what it spends, up from 10% two years ago. It has more scope to raise revenue, and it needs to navigate a much more complex fiscal system. The block grant will still fund around half of the Scottish budget, but the other half will come from a mixture of income tax, VAT and the Land and Buildings Transaction Tax. And there are new borrowing and reserve powers, together with limits on how they can be used.
The budget will be much more uncertain, depending directly on Scotland’s economic performance for the first time. During periods of strong growth, the government will have more money to spend. But if the economy falters the amount of money available will typically fall, while social security costs will rise. The government will have to manage this by borrowing more or drawing on the new Scotland Reserve – or cutting spending.
The good news is that we’ve made a start. Parliament has agreed a new budget process with a year-round approach to looking at how public money is spent and what it achieves over time, rather than focusing on changes from one year to another. And the government recently published its first fiscal outlook, setting out a medium term financial strategy for tax and spending. Both will take time to develop fully, but they’re a good start.
The government now needs to build on these foundations. It urgently needs to fulfil its commitment to publish annual accounts for the whole of Scotland’s public finances. At the moment, the published accounts exclude major liabilities like the amount borrowed under the new financial powers – already more than £1 billion – and the pension liabilities for teachers, NHS staff, police officers and firefighters, which are well above £100 billion.
It’s not just my recommendation – the SNP’s Sustainable Growth Commission also suggested that the government should undertake a comprehensive inventory of the assets and liabilities held by the public sector, and establish a robust system for asset management and reporting. A consolidated public sector balance sheet would show everything the government owns and owes, offering a sound basis for decisions on future borrowing and investment, and for managing the risks associated with more financial devolution.
And, even more important, it will let parliament take a longer-term view and involve people across Scotland in the debate about tax and public services. Much greater public engagement is at the heart of the new budget process, and this sort of information is needed to make it a reality. Done well, it will give us the best chance of managing the opportunities and inevitable risks of Scotland’s new devolved powers, and achieving a sustainable future.