MSPs alarm over welfare costs as bill to soar to £9 billion

The Herald Scotland

03-07-2025

Richard Leonard, the convener of the Holyrood committee, wrote to auditor general Stephen Boyle, to respond to future work plans he had presented committee earlier in the year.
"The committee supports the areas set out in your draft work programme and agrees that the sustainability of public services in their current models are now in doubt and that fundamental change is required. We also share your concerns around the persistent inequalities in areas such as health and poverty," said Mr Leonard.
'We agree with your assessment that 'social security spending is increasingly outstripping Barnett consequentials in Scotland' and that this is a risk to the Scottish Government's financial position.'
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Mr Leonard's letter to Mr Boyle on Monday comes as the fiscal watchdog the Scottish Fiscal Commission forecast that social security spending in Scotland is projected to increase significantly, from £6.8bn in 2025/26 to £9.4bn in 2030/31.
In its report last November, Audit Scotland warned public services were at risk as a result of the Scottish Government's failure to implement meaningful reforms while making a series of multi-billion pound spending commitments.
The spending watchdog accused the administration of not knowing how it will pay for above inflation public sector pay deals or rising welfare costs.
It added that the Scottish Government had set out plans to balance the books in 2024/25 with a one-off raid of up to £460 million on a clean energy fund, but "does not know how this higher spending will be funded in the future".
Meanwhile, spending on welfare has ballooned, owing to policies such as Nicola Sturgeon's Scottish Child Payment which cost £467m in the current financial year.
Mr Boyle told the public audit committee on April 30: "The current context for the Scottish Government and public services in Scotland remains challenging.
"Rising demands together with a constrained financial outlook pose risks to the sustainability of public services in their current form. A clear vision and strong leadership are required to drive the reforms that are needed to ensure the sustainability of services into the future."
He added: "The scale and pace of the public sector reform that is required to support future sustainability have not yet been delivered."
In its latest five-year outlook, published in May, the Scottish Fiscal Commission (SFC) said that while overall funding for the Scottish budget is forecast to grow, much of the increase will be absorbed by the rising cost of devolved welfare benefits, public sector pay settlements, and new policy commitments, such as the permanent scrapping of peak-time rail fares.
The Commission noted that Scotland is forecast to spend £1.3bn more on devolved social security than it receives in UK funding in 2025-26, with that gap widening to around £2.2bn by the end of the forecast period.
A key factor is the Scottish Government's decision to mitigate the two-child limit in Universal Credit, a policy expected to cost £156m in 2026-27 and rise to £199m by 2029-30.
The MSPs' concerns over the rising costs of welfare in Scotland comes after a climbdown by the UK Government on Monday to reform the welfare system.
In a late concession on Tuesday evening, ministers shelved plans to restrict eligibility for the personal independence payment (Pip), with any changes now only coming after a review of the benefit.
The changes, which were made to meet demands from Labour backbenchers, has left Chancellor Rachel Reeves with a £4.5bn gap to fill with tax rises or cuts elsewhere, after the retreat means the package of welfare reforms may end up increasing spending.
Meanwhile, the outlook for the Scottish and UK economies has weakened, with growth now expected to remain sluggish through the rest of 2025, according to the Fraser of Allander Institute at the University of Strathclyde.
The analysis said economic growth is now slowing compared to the start of the year and inflation has also edged up to 3.4%, after staying below 3% throughout 2024.
It added that the business environment is showing signs of strain, with companies reporting cutting back on activities in the first quarter compared to last year, hit by rises in national insurance contributions, which took effect in April, alongside uncertainty surrounding US President Donal Trump's trade tariffs.
Dr Joao Sousa, Deputy Director of the Fraser of Allander Institute, said: 'The fiscal announcements by both governments suggest that there are significant economic challenges in the years and months to come for the UK and Scottish governments.
'Particularly from 2027-28 onwards, the choices of government look to become more difficult. Of course, this is the role of the government in power: but the difficulties of the UK government this week show that events can quickly derail its plans.'
Speaking to journalists in Edinburgh on Wednesday the First Minister vowed he would not replicate the Pip changes in adult disability payment, which is the equivalent benefit north of the border.
John Swinney said: "We will not make the changes or to make the cuts that the UK Government was proposing, we've made that crystal clear."
A Scottish Government spokesperson said: 'Social Security is a vital safety net for families across Scotland and any one of us could need to depend on it at any time.
"Our compassionate approach is based on the values of dignity and respect, and seeks to ensure as many people as possible get the help they are entitled to.
'This approach allows for support that is not available anywhere else in the UK, including the Scottish Child Payment which is keeping 40,000 children out of relative poverty this year. As of 31 March 2025, 326,225 children aged 15 and under were actively benefiting from Scottish Child Payment."