SCOTLAND is at risk of seeing its first ever budget overspend since devolution, auditors have warned.

The spending watchdog has urged ministers to commit to “broad reform” of the public sector, against a backdrop which has seen £1.7 billion wiped off the value of the Scottish Government’s budget because of the inflation crisis and economic chaos following Liz Truss’s disastrous premiership.

Never in the Scottish Government’s existence has it failed to balance the books – but Audit Scotland has warned this might happen without changes to the shape and size of the Scottish public sector.

Finance Secretary Kate Forbes has previously warned the state needed to “reshape and refocus”, warning continued growth of staffing levels was not sustainable.

Audit Scotland said the pace and scale of these reforms needed to increase.

READ MORE: Date for indyref2 Supreme Court judgement revealed

Pay deals for public sector workers have cost the Scottish Government an extra £700 million so far, which has been financed by cuts to other departments.

An Audit Scotland briefing paper published on Thursday ahead of the UK Chancellor’s Budget said there is a risk of overspend in the current financial year and the upcoming Scottish budget will be “challenging”.

Forbes’s resource spending review, which set out indicative plans for the remainder of this parliamentary term, had a broad aim of keeping the pay bill for 2023/24 the same as 2022/23.

The auditors said setting the next budget will be affected by spending and tax decisions taken at a UK level.

Stephen Boyle, auditor general for Scotland, said: “The Scottish Government, like all governments, has to deal with the immediate challenges that external events bring.

“But to improve lives and protect services in the long run, these challenges cannot distract from the need for broad reform of the public sector.

“Balancing short and long-term demands is always a difficult task. But the significant financial pressures on Scotland’s public bodies have been growing for several years, and there is now an urgent case for the reform of how services are delivered.”

Responding to Audit Scotland’s report, Public Finance Minister Tom Arthur said the government recognised the scale of the challenge ahead.

READ MORE: Tory shouts down SNP MSP for mentioning independence in Holyrood

He said: “The Scottish Budget today is worth £1.7bn less than when it was published last December because of the rapid rise in inflation and the current devolution settlement leaves us limited in the amount we can borrow.

“At the same time, demand for government support is understandably increasing and so to prioritise help where it is needed most, we have to make tough decisions.

“We are required to balance our budget every year and the recent Emergency Budget Review demonstrated the steps we are having to take to do so.”

He continued: “The Scottish Government is committed to carrying out public service reform as outlined in the resource spending review in a sustainable and progressive way.

“But the decisions we will have to take will only be exacerbated if there is a return to austerity by the UK Government.

“That would heap further pressure onto the cost-of-living crisis people are facing in Scotland and have a knock-on impact on the Scottish Budget and our ability to meet increasing demands on vital public services.”