Fiscal warnings, NHS pressures and weak growth to dominate new FM’s in‑tray |
The next first minister will enter Bute House facing a £4.7bn funding gap, slowing growth and mounting pressure on Scotland’s public services, warns Sara Thiam.
Imagine the scene facing whoever becomes first minister once the votes are counted in May’s Holyrood election. Walking up the steps to Bute House, the first minister could perhaps be forgiven for taking a few deep breaths before being confronted by their in-tray because the challenges facing Scotland’s new government will be very clear.
The first minister will face analysis from the Scottish Fiscal Commission, an independent body that produces Scotland’s official economic, tax and social‑security forecasts. It will highlight a projected £4.7 billion gap between spending commitments and expected revenue by 2030.
Senior NHS figures will inform the country’s leader of the strains facing a health service with 600,000 on waiting lists. A briefing by civil servants on the stretched finances facing local authorities, colleges and universities can be expected while expert advisors will add insight into how conflicts in Ukraine and the Gulf are pushing household finances to the limit.
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This is before the first minister considers how to fund the promises made in their election winning manifesto, or how to strike deals with their political rivals to pass legislation through what is expected to be a parliament of minorities. Already in this election campaign, all the parties have been making expensive pledges.
Examples include the SNP’s commitment to spend an additional £500 million on childcare or Reform’s pledge cut income tax rates and bands to be level and then lower with those in the rest of the UK. Some believe that Scotland will soon be a country living beyond its means. Professor David Bell, a Stirling University economist, has warned that there is ‘little prospect’ big spending promises can be met. In the first minister’s post-election in-tray, the recent data and forecasts for economic growth over the next few years should be the biggest concern.
The Fraser of Allander Institute economic research unit at Strathclyde University expects growth to be barely above one per cent in 2026 and 2027, which comes off the back of a decade where Scottish GDP has increased at roughly 60 per cent the rate of the UK average. If Scotland had matched the UK’s performance, Scottish GDP would be nine per cent larger than it is today in real terms – worth £4,300 for every citizen in current prices.
Under pressure to meet spending commitments, it may be tempting for the first minister to raise taxes in the post-election budget. However, there are two sides to every story. Successive finance secretaries have raised income tax north of the border in recent years, contributing a net £1bn to Holyrood’s coffers. But if Scottish earnings growth had matched returns south of the border, it has been calculated that revenues would have been £800m higher. Weak economic performance puts our public services under pressure and so we face the possibility of an emergency post-election budget to address the expected spending crunch.
Sara Thiam (Image: Prospect)
But no first minister should have to face the weight of office alone. This Scottish election, with around a third of MSPs having stood down, offers a chance for new members to confront the country’s seemingly intractable problems. Political leaders and their teams should look beyond the Holyrood bubble and work collaboratively with partners in industry, academia, charities and communities. That means listening to independent experts and being open to external scrutiny. A closed shop bunker mentality is not in anyone’s interest; no government has a monopoly on wisdom.
The next first minister needs to have a mission approach to government, with economic growth the number one goal. In practice, that requires a strategy which makes clear what will be delivered, when it will be delivered, who is responsible, why it is important and how it will be funded. Any sensible blueprint for growth needs to look at the inputs to the economy and how to combine them most effectively to generate the greatest value.
In Scotland, that means ensuring we make best use of all our energy resources to power our country and create good jobs. Recognising the need to prioritise oil and gas production over imports and continuing to push the upgrade of the electricity grid ensures both energy security and generates the tax revenue to fund a just transition.
The other key economic inputs are our people, our infrastructure and our innovations. To equip our workers for the opportunities of the future we need our skills system to offer far more flexible courses and training in colleges with a mix of in-work, part-time and informal provision alongside traditional university degrees. The next first minister should also back the findings of the future framework for sustainable and successful universities initiated by the Scottish Government and Universities Scotland and which is due to report after the election.
We must step up our ability to deliver major infrastructure projects beyond increasing the capacity of the electricity network. There is a pressing need to modernise our ports and harbours and upgrade our arterial and urban transport systems. This requires planning reform – and by unblocking the barriers to development, Scotland should be also confident in building 25,000 new homes each year.
Bringing together these essential economic inputs – human, physical and intellectual capital – requires coordination between government, industry and communities. The economy mission should be overseen by a delivery taskforce, led by the first minister and including senior civil servants plus external secondees from local public services, business and the third sector. This needn’t be the usual talking shop: hearing from different perspectives is crucial for navigating the trade-offs the new first minister faces. Taking forward a devolution agenda for Scotland’s regions will support growth in all our places and rejuvenate local authorities.
We should work with industries on growth plans for established and emerging sectors in which Scotland has competitive advantages, and strengthen our capabilities and resilience in industries, technologies and resources which are critical for economic security. Securing access to market demand gives confidence to businesses so the next Scottish Government should ensure that its domestic regulations allow our export industries like whisky and salmon to reach international consumers with relative ease.
The end results of Scotland’s blueprint for growth must be a stronger economy that delivers sustained higher living standards and confidence for the future. Whoever takes office in May will inherit tough choices but will also be faced with an opportunity to set Scotland’s economic direction. Scotland must avoid the dangers of drift: this is a time for clear priorities, strong partnerships and courage.
Sara Thiam is chief executive of Prosper, a cross-sector membership alliance that aims to strengthen Scotland's economy.