How stable are Scotland’s finances?

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By Caroline Gardner, Auditor General for Scotland

It’s in our nature as humans to pay attention to immediate threats to our way of life. It’s much harder to plan for scenarios that we imagine as distant. A complex threat like climate change is the classic example. We’ve heard about the risks for decades but it’s taken an extraordinary teenage girl from Sweden to galvanise public protest, and put pressure on politicians to do more in the here and now.

Like the environment, the NHS is another cornerstone of our lives. But it needs reform to be able to meet the needs of a population that’s living longer. A 23% rise in pensioners is expected over the next 25 years – that’s a lot more Scots living with chronic diseases at time when the working-age population is set to decline.

Both are complex problems without easy solutions. But the tougher and more uncertain the outlook the more vital effective planning becomes.

And that’s why I was concerned by the Scottish Government’s publication of its medium-term financial strategy (MTFS) earlier this year: a document that didn’t include ministers’ spending plans  or address the challenge of a possible £1 billion budget shortfall over the next three years.

The sparseness of the MTFS really matters. It’s the main tool for Parliament, through its committees, to hold the government’s spending commitments up to the light. That’s difficult to do without much detail.

Meanwhile, wider uncertainty abounds. We now have a General Election before Christmas that offers no guarantee of unlocking the Brexit stalemate in Westminster, and we still don’t have a date for the UK budget. All of that makes it harder for the Scottish Government to plan its own budget, as the Cabinet Secretary has noted.

But there is a difference in knowing the size of your budget and mapping out where you need to spend it to get the best outcomes.

There is an onus on the Scottish Government to be clear with Parliament about its spending priorities well in advance of the Scottish budget being published. And that’s not happened this year. It also needs to understand where it can flex its budget when times are tough. Equally, when the economy is stronger it should have a plan for the priority areas it can quickly divert funding to for the biggest impact on Scots’ quality of life.

There is unprecedented pressure on government. But, as I’ve written before, Parliamentary scrutiny of government spending commitments matters more than ever before because of the impact of Scotland’s new financial powers.

The rules that now govern Scotland’s budget – the fiscal framework – are incredibly complicated. Put simply, without a plan to manage the volatility in tax take and the budgetary risks of Scotland’s new social security powers, the public finances as a whole are more at risk. That’s spending on health, education, growing the economy and public services we rely on.

briefing_191017_financial_powers_3dColleagues at Audit Scotland will continue to take a keen interest in this extremely knotty area. In the meantime, to try and cut through some of the detail they’ve produced a briefing paper on how Scotland’s budget works. It’s worth a read, and lays out why, as uncertainties continue to increase, financial planning has never been more important.

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