WESTMINSTER spending plans mean the Scottish Budget will "remain flat in real terms" for years to come, according to a report released by the Fraser of Allander Institute (FAI).

Finance Secretary Kate Forbes is due to publish the next Scottish Budget on Thursday, and has promised it will be a “stepping stone towards a fairer, greener, more prosperous future”.

Forbes’s third, it will be the first Budget published since the Holyrood Election in May. The author of the FAI's pre-Budget report, David Eiser, said it “may well be her most challenging”.

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The Scottish Government’s block grant will total £35 billion for the 2022/2023 year, which the report says is the highest it has ever been “outwith the ‘pandemic years’”. It is 8% higher in real terms than it was in 2019/20.

However, pressures on the Scottish Budget are likely to compound in future years as spending promises mount up but the block grant remains “unchanged in real terms according to current UK Government spending plans”.


The FAI report says there are two key decisions on tax which will be made in the Budget.

The first of these is on income tax, where the Government could either freeze tax thresholds or increase them in line with inflation.

The report explains: “Freezing thresholds would constitute a tax increase. It would bring in around an additional £140m in revenue compared to a decision to increase thresholds in line with inflation.”

The second key tax decision is on non-domestic rates. A 100% rate of relief was handed to businesses in the tourism, hospitality and leisure sectors through the pandemic, but the Government may be looking to roll this back.

Providing the full relief costs the Government around £736m in reduced revenue, according to the FAI report.


The report says that health spending is predicted to eat up as much as half of the increase in the Government’s Budget. It estimates around £17bn of the block grant will be spent on the sector.

The FAI warned that meeting aspirations such as a 10% increase in capacity will be “extremely challenging” even with a larger Budget.

The report further cautions that even a commitment to increase social care spending by 25% will not be enough to implement the recommendations of the Feeley Review - one of which was the flagship creation of a National Care Service.

There are further warnings that, although the doubling of the Scottish Child Payment may be “critical” to fighting child poverty, it will have to impact on the Budget elsewhere.

The FAI say the scheme will cost “well over £300m” when it is fully rolled out to all low-income families with a child aged under 16.

“Taken together, the SCP and the planned more expansive system of disability and carers benefits will place significant constraints on the Budget by the middle of parliament,” the report adds.

READ MORE: Scottish Child Payment to be doubled, Nicola Sturgeon announces

Eiser, a senior knowledge exchange fellow at the FAI and the report’s author, said: “A core resource block grant in 2022/23 that is 8% higher than pre-pandemic might sound generous, but to deal with the pandemic’s legacy and underlying pressures on public services it is anything but.

“In this context, Kate Forbes’ third Budget may well be her most challenging.

“But the challenges are unlikely to dissipate in subsequent years, as commitments and aspirations on health, social care and social security in particular rub up against a budget that is currently forecast to remain flat in real terms between 2022/23 and 2024/25.”

FAI director Mairi Spowage added: “A challenging budget for 2022/23 is the precursor to a challenging spending review next year. Navigating the health and economic recovery from the pandemic, alongside longer-term commitments on climate change and inequality will require a delicate set of budget decisions and trade-offs.

“This week’s Budget will reveal how those choices and trade-offs have been made for 2022/23, but the more difficult trade-offs may be yet to come.”