Urgent reforms and better workforce planning are needed to protect the future of public services in Scotland, auditors have said.
Audit Scotland said the growing public-sector wage bill will make services unsustainable without change.
In a briefing paper, it said these reforms must take place quickly and should not solely focus on controlling workforce numbers.
Pay deals agreed for the current and previous financial years have ended up costing £1.7 billion more than initially planned, it said.
The size of the devolved public-sector workforce has increased substantially, going from 150,000 full-time equivalent staff in 1999 to more than 245,000 in the current financial year.
The report said: “Reform is urgently needed to address budget shortfalls of more than £1 billion over the coming years.”
Stephen Boyle, Auditor General for Scotland, said: “Significant reform of the public sector – including its workforce – is needed to protect services over the long term.
“That means better workforce planning and wider changes to how staff work within and across organisations.
“An approach to reform purely focused on controlling workforce numbers will not address workforce pressures and is unlikely to balance the public finances.”
The Conservatives said new taxes should not be used to close the budget gap.
Finance spokeswoman Liz Smith said: “This is a stark warning from the auditor general to the SNP government that our essential public services risk becoming unaffordable due to the widening black hole in their finances.
“The large growth in the size of the Scottish Government workforce means that the higher pay deals agreed will be a major component of the Scottish budget.
“The SNP, which has received record funding from the UK Government, needs to be honest and transparent about how it intends to fund these.”
A Scottish Government spokesperson said: “Recent growth in the public sector workforce can be attributed to a range of issues such as the Covid-19 pandemic, significant new powers such as in social security, and the crisis in Ukraine.
“The Scottish Government recognises that workforce costs – driven by a sustained period of high inflation – are now contributing to unsustainable budget pressures, as set out in the Medium Term Financial Strategy published in May 2023.
“Public bodies are best placed to assess both the opportunities and action that must be taken to ensure fiscal sustainability within their budgetary allocations. They are responsible for ensuring they have the right size of workforce to deliver what is needed and must balance the affordability of their workforce alongside prioritising efficiency and managing pay sustainably.
“Delivering high quality, sustainable public services is one of our key missions. That’s why we are working with public sector bodies to reform services, ensuring workforces are sustainable, efficient and meet the needs of the people of Scotland.”
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