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The Herald Scotland
4 days ago
- Business
- The Herald Scotland
The SNP's welfare spending rise outpaces revenue growth
The difficulty for the SNP, with the Scottish Fiscal Commission warning of a £5 billion black hole in the finances, is whether we can afford it. READ MORE Wednesday's GERS figures show total public spending for Scotland rose 5.5% to £117.6 billion in 2024/25, but within that the biggest line item — social protection — grew 7.9%, faster than the UK's 5.3%, and now accounts for roughly 30% of all spending. Officials explicitly link that faster growth to programmes such as the Scottish Child Payment and the replacement disability benefits. The Adult Disability Payment is due to rise to £3.13 billion from £2.63 billion, the Child Disability Payment to £514 million, and the Scottish Child Payment to £454 million. This is reflected in the increased spending per head in Scotland, now £2,669 more per person than the UK average, up from £2,311. Revenues are not keeping up with that growth. Overall Scottish revenue edged up to £91.4 billion, while spending rose to £117.6 billion, taking the net fiscal balance to -11.7% of GDP. How will the SNP bridge that gap? They are putting a lot of stock in their efficiency programme. Ministers believe a Public Service Reform drive can make £1 billion of savings over five years, largely through corporate functions and shared services. Speaking to journalists in St Andrew's House, Public Finance Minister Ivan McKee, who is charged with delivering these efficiencies, said he was confident the government would meet its promises. 'We are absolutely clear-eyed about what that challenge is, but also about what the solutions are, and we have been very explicit in laying those out.' The welfare spending, he added, was an investment. 'It's about getting young people, giving them the best start in life, so they end up being contributing members to society, rather than the opposite. And that's really, really important.' The tables accompanying the GERS report show devolved social security payments rising by hundreds of millions. Aggregate social security spending in Scotland rose from £25.29 billion to £27.60 billion in a single year, before adding social care and pensions-related items within social protection. The government argues that devolved revenues cover devolved spending. But GERS shows that total spending growth is being driven by social protection faster than revenue growth, which is why the overall balance deteriorated despite onshore tax gains. Even if Mr McKee meets his £1 billion target, the annual increases in social security and wider social protection are already outpacing it. The question then is: what next? If social protection is ,er, protected in the budget, and if health spending is, as per usual, protected, then what needs to give for the government to keep its social contract? The obvious choices are higher taxation or further cuts. There are tough choices ahead.
New Statesman
04-07-2025
- Business
- New Statesman
The welfare crisis no one is talking about
Photo byConversations about welfare spending in Scottish politics are – contra Westminster – rarely about how it might be reduced. No, up here we are always looking for new ways to shovel more money out the door. If you belong to a vulnerable group, you should be reassured that someone somewhere is working on a plan to lob some taxpayer cash your way. This might speak well of the Caledonian heart, but it doesn't say much for the brain. As the frankly terrifying projections around future spending and demand pile up, one is left wondering whether the nation's policymakers are ignorant, irresponsible or just plain daft. Whatever upset Rachel Reeves this week – bad personal news, rows with colleagues, a weakening PM, the hole blown in her fiscal plans – it was possible to feel a tightening of the throat at the likely consequences for Scotland's future. The welfare story north of the border has for years been one of steady expansion, even as economic growth has remained insipid and public services have become an ever-greater burden on the finances. Universal benefits wherever you look, top-ups to 'stingy' Westminster handouts, the Child Payment, the Baby Box, and on it goes. If something twitches in Scotland, the state is waiting to write it a cheque. This week, as all hell was breaking loose in the UK Government, Holyrood's public audit committee was warning that the welfare bill in Scotland is set to increase from £6.8 billion in 2025/26 to £9.4 billion in 2030/31. With considerable understatement, the committee said that this presents 'a risk to the Scottish Government's financial position'. This is hardly the first alarm of its kind to be rung: by now we should be deafened by the clanging. Both the Scottish Fiscal Commission and Audit Scotland have repeatedly produced reports stating that the trajectory of the SNP's spending plans is unsustainable. Its own civil service has said the same. But the governing party has barely wavered. There is an intention to cut the public sector workforce by 0.5 per cent every year, to trim back the cost of quangos, and to reduce the state's property footprint, all of which will barely touch the sides of the problem. It was only last year that Shona Robison, the Scottish Finance Secretary, announced emergency spending controls due to her government's commitment to inflation-busting public sector pay deals and other expensive outlays. Any extra spending would only be allowed if it was 'truly essential or unavoidable'. The strictures included a ban on ministers expensing biscuits for meetings. Look after the pennies and the pounds will take care of themselves? That's not how government works, and certainly not in the current straitened climate. The scale of the rethink required is too large, too complete. Yet there is no chance this SNP administration – or, arguably, one of any stripe – is going to grasp that particular thistle. And so, on we go, up and up, more and more. The Personal Independence Payment (PIP) which has caused so much trouble at Westminster is administered as the Adult Disability Payment (ADP) in Scotland. Around 10 per cent of the adult population currently claims it – 475,000 people. That figure is soaring (as it has been in the south), rising by 50 per cent in three years. Subscribe to The New Statesman today from only £8.99 per month Subscribe It is obvious that PIP and ADP need fixed, that a fair number of recipients could be in work of some kind, which would be good for them and good for the economy. Unfortunately, Rachel Reeves's decision to use a chainsaw rather than a smart, busy scalpel has surely killed, for the foreseeable future, the argument around reform. The SNP will breathe a sigh of relief: never mind the horrible data. If they're not doing it, why should we? And yet the scary numbers keep coming. The Nats already spend a billion pounds more on welfare than the block grant received from London. That figure will be £2bn by the end of the 2020s. Scotland's population is aging fast, and over the coming decades will face the twin problem of a rising number of pensioners and a shrinking workforce able to pay for them. The NHS is going to eat up ever more of the devolved government's budget – it's projected to take up half of the total by 2075. Social care, wholly unaddressed, threatens to be ruinously expensive. Holyrood taxes are as high as they can reasonably go – and will anyway have to be reworked if Reeves bumps them up at a UK level in her Budget. Economic growth continues to be elusive, and this soft-left SNP crew are hardly chasing it. How, then, will the books be balanced? Where will the extra funds required for Scotland's heroic commitments to welfare and the NHS come from? Do we need to crash the national economy before we are willing to get real about this stuff? The prospect of a serious conversation about welfare reform north of the border – serious reform of anything, really – about hard choices and winners and losers, was perhaps always unlikely. But after this week, even that vanishingly small possibility has been swept away like tears in the rain – or, indeed, on the frontbench. [See also: The bond market has rescued Rachel Reeves from Keir Starmer] Related
The Herald Scotland
04-07-2025
- Business
- The Herald Scotland
Scottish economy growth forecasts cut by think tank
It notes the growth forecasts have been 'revised down to reflect economic conditions in both the UK and the world economy, particularly given the weakening growth that we have seen in March and April'. Fraser of Allander is now forecasting the Scottish economy will grow by 0.8% this year and expand by 1% in 2026. In its previous commentary, published in April, it had predicted growth of 0.9% in 2025 and expansion of 1.1% next year in Scotland. The research institute said: 'Our latest forecasts reflect greater uncertainty and difficult economic circumstances.' It noted other forecasters had increased gross domestic product growth projections for Scotland and the UK next year, while cutting expectations for 2025. Fraser of Allander said of the reductions in its predictions for the Scottish economy for both years: 'This comes despite more upbeat projections from both the Scottish Fiscal Commission and the Office for Budget Responsibility, which have recently upgraded their expectations for 2026 whilst similarly revising down their GDP forecasts for 2025.' The research institute has held its Scottish growth forecast for 2027 at 1.1%. Read more Fraser of Allander noted the Scottish Fiscal Commission in May forecast the economy in Scotland would grow by 1.1% this year, before expanding by 1.8% and 1.7% respectively in 2026 and 2027. The Scottish Fiscal Commission had in December forecast 1.5% growth this year, with expansion of 1.6% and 1.4% respectively in 2026 and 2027. The OBR in March halved its forecast for UK growth in 2025 to 1%, having last October projected expansion of 2% for this year. It raised its prediction of UK growth in 2026 from 1.8% to 1.9% in March, while increasing its forecast of expansion in 2027 from 1.5% to 1.8%. Fraser of Allander 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. 'The business environment is also showing signs of strain, with companies reporting cutting back on activities in the first quarter compared to last year, plagued by rises in national insurance contributions, which took effect in April, alongside uncertainty surrounding President Trump's trade tariffs. Indeed, pay growth and employee numbers are down, signalling potential weaknesses in the labour market.' Mairi Spowage, director of Fraser of Allander, said: 'After a strong start to the year, the Scottish economy has faltered in March and April and is essentially the same size in real terms as it was six months ago. 'Unfortunately, the wider business environment and global events are still taking a toll on businesses and consumers, which is having a dampening effect on spending and business investment.' João Sousa, deputy director of Fraser of Allander, 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.' Fraser of Allander said: 'Our forecasts demonstrate the continuing challenge for policymakers of combined slow growth and spending pressures. Through the second half of the year, we'll be watching the Scottish and UK budget processes closely to see how policymakers are balancing short-term pressures with long-term considerations.'
The Herald Scotland
03-07-2025
- Business
- The Herald Scotland
MSPs alarm over welfare costs as bill to soar to £9 billion
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.' READ MORE: 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."
North Wales Chronicle
17-06-2025
- Business
- North Wales Chronicle
Scottish Government sets date for end of two-child cap in Scotland
The Social Justice Secretary said the Westminster policy will be mitigated from March 2 next year – just weeks before the Holyrood election. Shirley-Anne Somerville said the move will lift 20,000 children out of relative poverty, according to Scottish Government estimates. The decision was first announced last year but First Minister John Swinney said his Government needed time to set up a system to mitigate the cap. Introduced by the last Conservative UK government, the two-child cap limits benefits in most cases to the first two children born after April 2017. Labour has been reluctant to end the cap, citing economic reasons, but in May the Prime Minister said he will be 'looking at all options' to tackle child poverty, when asked about his intentions on the policy. Ms Somerville said Scotland cannot wait for a decision at Westminster. She said: 'The Scottish Government has consistently called on the UK Government to end the two-child cap. 'Reports suggest that they are looking at the impact it is having. 'But the evidence is clear and families and Scotland can't wait any longer for the UK Government to make up its mind to do the right thing and scrap the cap once and for all. 'The two child limit payment will begin accepting applications in March next year.' She said the policy will begin 15 months after the initial announcement, which she said is the fastest a social security benefit in Scotland has ever been delivered. She added: 'This builds upon the considerable action we have taken in Scotland, including delivering unparalleled financial support through our Scottish child payment, investing to clear school meal debts, and continuing to support almost 10,000 children by mitigating the UK Government's benefit cap as fully as possible. 'However, austerity decisions taken by the UK Government are holding back Scotland's progress. 'Modelling published in March makes clear that if the UK Government act decisively on child poverty, they could help to take an estimated 100,000 children out of poverty this year.' The Scottish Fiscal Commission said the mitigation will cost around £150 million next year, before rising to nearly £200 million by the end of the decade. In March, the Institute for Fiscal Studies warned the policy could harm incentives to work because some of the lowest-paid workers could earn more on welfare than in employment. The move has been welcomed by anti-poverty charities, who have urged the UK Government to scrap the cap, with the Child Poverty Action Group saying the move would lift 350,000 children across the UK out of poverty.
