Finance Secretary Kate Forbes has said Scotland faces a “very difficult financial position” over the next few years amid rising tax warnings from leading economists.
Ms Forbes said laying out Scotland’s spending priorities will be essential to a stronger economy as the country bounces back from the pandemic and tackles the cost-of-living crisis.
But ahead of the resource spending review on Tuesday, the Institute for Fiscal Studies (IFS) warned Ministers face “tough decisions” on axing key policy priorities or increasing taxes to plug an estimated £3.5 billion budget gap by 2026/27.
The shortfall is the equivalent of £640 per person and the IFS have warned it could rise even higher.
It will be the first time a multi-year spending review has been announced in more than a decade as Ms Forbes sets out plans to focus public sector funds to achieve ambitions to tackle child poverty, reach net zero and deliver sustainable services for the future.
She said: “These are challenging times, and we need to be canny with our spending, but I’m confident that if we work together we can get through this cost-of-living crisis and still achieve our ambitions.
“That means tackling child poverty, driving our economic recovery from Covid and achieving net zero, while building a stronger public sector that is sustainable for the future.
“We face a very difficult financial position over the next few years with funding increases below inflation levels and the challenge of recovering from the pandemic without the financial tools available to every other government in the world.
“That means that while the spending review is not a budget, it will include difficult decisions, to ensure we can really focus on supporting households and services at this time.
“The Resource Spending Review will detail the funding available over the coming years to achieve these goals, and it will be published alongside the Medium-Term Financial Strategy (MTFS) which gives economic context to the challenges and opportunities which lie ahead.”
But opposition parties have condemned the Scottish Government’s spending “mismanagement”.
Scottish Conservatives finance spokesperson Liz Smith MSP said: “It appears Kate Forbes’ response to warnings from the IFS of a £3.5 billion black hole in the SNP Government’s spending plans is to stick her fingers in her ears.
“Years of economic mismanagement by the SNP – including squandering taxpayers’ cash on failed public sector projects like the ferries fiasco – has left Scotland’s finances in a perilous state. Yet there is no acknowledgement of this in Ms Forbes’ pre-spending review spin.
“The reality is Scots face big public spending cuts, huge tax rises or a combination of both if the SNP are to bridge the huge funding gap they’ve created.”
Daniel Johnson, Scottish Labour finance spokesperson, said the IFS assessment “laid bare” the price of “SNP economic failure”.
He said: “It is clear that the spending review will reveal the heavy cost of the SNP economic mismanagement.
“You can hear them trying to get the excuses in now, but the truth is that during a cost-of-living crisis, Scots will pay for nationalists prioritising the constitution over the economy.
“This will be counted in lost jobs, cuts to public services and few will be able to forgive the SNP for it.”