EXPERTS have warned that “austerity isn’t over” when it comes to public sector spending in Scotland.

A report by economists at the Fraser of Allander Institute predicts the overall size of the Scottish budget in 2019/20 is unlikely to differ much from the previous year.

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And in the near future, despite a 3% rise between the current financial year and 2021, the budget will be around 7% per head lower at the end of the current parliamentary term than in 2010.

The report by the independent economic research unit based at Strathclyde University also suggests the Scottish Government will spend half of its day-to-day budget on health by 2021 or earlier, based on its current spending plans and those of the UK Government.

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It says that means there will be a squeeze in other areas if there are any further increases in health spending to meet projected growth in demand.

The researchers said this means an urgent debate is needed on the future priorities of Scotland’s tax and spending, and the government will need to consider a wider range of revenue-raising options in the future beyond tweaking income tax, or look at further public-sector cuts.

The report shows the outlook for the Scottish budget has improved as a result of the Barnett formula consequentials announced in the UK Budget.

Researchers believe some of this increase is likely to be offset by the Scottish Fiscal Commission’s weak income tax forecasts and indicate many portfolios still face tough financial choices.

Institute director Professor Graeme Roy said: “While the outlook for public spending in Scotland next year has improved compared to what Finance Secretary Derek Mackay will have been planning for this time last year, for many parts of the public sector austerity will be far from over.

“Public spending since 2010 has been focused on core areas of health, education and social care. This pattern is set to continue and while the outlook for unprotected areas has improved, further cuts cannot be avoided.”

David Eiser, the report’s lead author, said the Finance Secretary is likely to come under pressure to at least partly close the income-tax gap with the rest of the UK but this would cost around £280 million.

He said “bolder ideas” to raise revenue may need to be considered in the longer term and, given the parliamentary arithmetic, with the SNP historically relying on the Greens to pass their Budget, this year could see steps to “genuine reform of local taxation”.

“Austerity may be ending, but the Scottish Government will still face challenging decisions on revenue raising and the distribution of expenditure,” Eiser added.

The report follows a warning from Holyrood’s Finance and Constitution Committee that Scotland’s ageing population could put a strain on future budgets.

Highlighting the fact that Scotland’s population is forecast to age faster than that of the rest of the UK and that this rate is expected to accelerate from 2021 onwards, the committee’s pre-Budget scrutiny report questioned whether the Scottish Government has enough policy levers to handle this risk and whether the fiscal framework, which sets out how Scotland is funded, sufficiently recognises this demographic difference.