The Scottish Government could be forced to cut public spending by 13% over the next four years, a leading think tank has warned.
The Institute for Fiscal Studies (IFS) based its analysis on predicted government investment in health and net-zero policies, and said future non-benefit spending could be “tight”.
It said that despite raising money through increased tax and UK Government funding, its budget was likely to be 1.6% less in real terms in 2023-24 compared to this year.
When major one-off costs such as council tax rebates are taken into account, the fall will reduce to 0.8%, the IFS said.
Projections from the Scottish Fiscal Commission (SFC) suggest funding will fall by 1.6% in 2024-25 and grow “modestly” in the subsequent three years.
The 13% figure is based on assumptions that spending on health and social care and net-zero policies will rise at the same rate between this year and next year – 2.9% and 4% respectively – up to the 2027-28 financial year.
The report found that £2.7bn would have to be raised to return the funding to 2023-24 levels – the equivalent of an increase of between four and five pence on income tax rates.
“These cuts would imply difficult trade-offs for the Scottish Government as it allocates funding between different services,” the think tank’s first Scottish budget report said.
Bee Boileau, a research economist from the IFS and one of the report’s authors, said: “The outlook for funding has improved a little since last May’s resource spending review – but the picture is far from rosy.
“Official projections imply that funding non-benefit spending is set to fall over the next two years and then grow slowly over the following three years.
“Indeed, it would still be close to 2% below 2022-23 levels in 2027-28, and that assumes a significant improvement in the performance of Scotland’s devolved income tax revenues.
“Without that, this funding could be close to 5% lower than this year in 2027-28.
“If either of these scenarios were borne out, the Scottish Government would likely need to make significant cuts to a range of public services.
“Further big increases in devolved tax rates would be one way to avoid such cuts.”
The Scottish Government said the analysis showed “the difficult choices faced as a result of a UK Government settlement that is not enough to meet the needs of public services in Scotland and fund a response to the cost-of-living crisis”.
A spokesman added: “Above all it highlights the urgent need for additional financial powers for Scotland, such as those which would come with independence.
“This year’s budget faces significant challenges and difficult decisions have been taken to focus on key priorities of eliminating child poverty, investing in public services and supporting the transition to net-zero.”