Meeting of the Parliament 29 October 2024
Today’s debate comes at a timely moment, as we await the first budget of the new United Kingdom Government tomorrow. All eyes will be on the Chancellor of the Exchequer as she sets out the steps that she will take to address the economic and fiscal challenges ahead, and on whether those will be sufficient to properly tackle fiscal sustainability. The Scottish Government has been clear about its expectations, and I reiterate those calls on the UK Government today. However, I am also clear that we need to take action here in Scotland over the short, medium and longer term, and it is vital that all members of the Parliament have the opportunity to engage in the debate.
The challenges that we face are significant and systemic and will stretch well beyond the current parliamentary session. In the immediate term, the latest medium-term financial strategy was clear that we face a significant and growing gap between funding and spending, as do the other devolved nations. Just last month, we took difficult steps to deliver further necessary savings to reach a balanced position in 2024-25—of course, we have reached such a position in every year of the 17 years for which we have been in government.
As we look ahead over the longer term, we will face broader strategic challenges. In March last year, the Scottish Fiscal Commission published its report on the Scottish Government’s long-term fiscal sustainability. I am very grateful for the SFC’s work. By bringing independent forecasts, insight and analysis to the Scottish Parliament, the commission plays an important role in ensuring that the public finances are fiscally sustainable.
Through a combination of low birth rates and a rapidly ageing population, Scotland’s demographic outlook is likely to change significantly over the coming decades. The population of Scotland is expected to fall by approximately 400,000 over the next 50 years, driven by the low birth rate. Recent birth rates in Scotland have been historically low, and it is assumed that they will remain at that level for the next 50 years. Those changes in the age structure have implications for the demand for public services, as there will be more demand for services that are used more by older people, such as health, and less demand for services that are used by younger people, such as education.
There are now also more deaths than births each year in Scotland, and the gap is expected to get wider each year. That reduced labour supply has a direct impact on our nation’s productivity and, through reduced tax revenues and lower economic growth, on our fiscal sustainability. The implications of that are stark under the devolution settlement. As the Fraser of Allander Institute has noted,
“the increased spending on public services will run ahead of the likely increases in the funding available to the Scottish Government”,
including from the block grant and devolved revenues.
However, those challenges are not unique; all four nations face the challenges of an ageing population and declining productivity. I hope that members would accept that while some of the tools to address those challenges sit with the Scottish Government, not all of them do.
In that context, it should be noted that there is some positive data regarding migration into Scotland. The latest figures from National Records of Scotland show that,
“In the year to mid 2023, Scotland’s population rose faster than at any time since the 1940s”.
NRS said that
“The main driver of population growth over the year was people moving to Scotland from abroad and other parts of the UK”,
with inward migration being highest for young adults. That demonstrates how control over migration policy could work to improve the fiscal outlook in the medium to longer term.