Hansard

I am pleased to have the opportunity to speak on behalf of the Finance and Public Administration Committee, in my role as deputy convener, in this very important debate on fiscal sustainability, which has been an issue of long-standing interest to the committee.

A key recommendation following our pre-budget scrutiny last year was that the Scottish Government should schedule this very debate. We felt that a constructive discussion was needed about the fiscal impact of the demographic challenges that the Scottish Fiscal Commission projected in its first “Fiscal Sustainability Report”, which was published in March last year. Given the magnitude of the challenges ahead, we felt that it was important for the Parliament to debate those ideas across the political divide and to set out how we should respond to the long-term issues in an honest and constructive way. After all, any political party could be governing during the 50-year horizon that the Scottish Fiscal Commission’s projections cover.

However, unfortunately, the motion that has been lodged appears to limit somewhat the ability to build consensus, so I hope that the debate rises above it. Indeed, the political approach that it signals could be said to be illustrative of part of the problem.

The Scottish Fiscal Commission projected that Scotland’s population is expected to fall by roughly 400,000 over the next 50 years, driven principally by a low birth rate. The number of people aged 65 and over is projected to increase from 22 per cent in 2026-27 to 31 per cent by 2072-73. In contrast, the sizes of the working-age and under-16 populations are projected to fall.

Those changes in the population’s structure will have wide-ranging impacts. The size of the productive tax base that is needed to grow the economy and pay for public services will shrink. At the same time, demand for public services among a growing elderly population will increase, and additional pressures on health services will not be offset by fewer young people reducing the demand for school education. Spending on new Scottish social security payments that do not receive funding through the block grant adjustment, including the Scottish child payment, is expected—based on current policies—to increase from £600 million in 2027-28 to £1 billion 50 years later. Continuing with those different policy choices will mean that funding must be found from other portfolio areas in the Scottish budget.

The Scottish Fiscal Commission highlighted that, if public services in Scotland are to continue to be delivered as they are being delivered today, Scottish Government spending over the next 50 years will exceed the estimated funding that will be available by an average of 1.7 per cent a year, which is equivalent of £1.5 billion, at today’s prices. The Scottish Fiscal Commission has suggested that, to address that funding gap, the Scottish Government would have to consistently reduce spending or raise devolved taxes throughout the next 50 years.

In responding to the report, the Scottish Government said:

“A key element in ensuring future fiscal sustainability and that public services are appropriate to support the needs of Scotland’s changing population is our work on public service reform.”

It also pointed to the launch of a talent attraction and migration service and a new addressing depopulation action plan

“with a focus on resilience for local communities”.

It said that it would continue to press the UK Government to put in place

“immigration reforms ... to meet Scotland’s needs”,

as has been laid out by the cabinet secretary. The committee would certainly appreciate an update on those two schemes in the cabinet secretary’s closing remarks and as the debate progresses.

The SFC report was invaluable in informing our pre-budget scrutiny last year, and it continues to inform much of the work that the committee does on sustainability of public finances in Scotland. It gives a longer-term perspective to much of our committee work.

Last year, as part of our pre-budget scrutiny, we sought to establish how the Scottish Government balances its short and long-term financial planning and to identify any improvements that could be made in that area. The evidence that we gathered from businesses, academics, the public and voluntary sectors, think tanks and local government suggested that the Scottish Government is not carrying out enough strategic long-term financial planning and that it appears to be

“firefighting on a number of fronts”.

There is little evidence to suggest a shift away from a short-term approach to financial planning.

The committee notes from the Scottish Government’s motion that the Government plans to publish a five-year fiscal sustainable delivery plan. The cabinet secretary has said a little more about that, but I ask that she engage with the committee so that we understand the scope of what the delivery plan will contain and, crucially, how it will differ from the five-year medium-term financial strategy, given that the MTFS is, according to the budget process review group, intended to provide

“a means of focusing on the longer-term sustainability of Scotland’s public finances”.