Why Scotland's £5 billion black hole will just keep getting bigger under John Swinney – Murdo Fraser

Unsurprisingly, the new PfG has a focus on independence, with John Swinney throwing some red meat to SNP supporters with the publication of a draft bill on another independence referendum. It is a purely performative move, as no one reasonably expects, even within the SNP, another referendum to happen any time soon. But it demonstrates, once again, that the real priority of this administration is breaking up the United Kingdom, rather than focussing on making Scotland a better place to live and work in the here and now.

The issues that really matter to people have been piling up problems on ministers’ desks for years now. The NHS continues to be in crisis, with the SNP’s target of 95 per cent of A&E patients being seen within four hours not having been met since July 2020. There are over 770,000 patients on NHS waiting lists, while the target that 95 per cent of cancer patients should begin treatment within 62 days has not been met in over a decade.

Recorded crime is up while police numbers are down, performance in Scotland’s secondary schools is at a record low, whilst progress on improving infrastructure such as the A9, the A96, and ferry services, remains painfully slow.

READ MORE: Programme for government: Follow LIVE as John Swinney sets out his priorities for the year ahead

A growing fiscal problem

Perhaps the biggest challenge facing the Scottish Government is around finances, with the predicted £5 billion black hole in the Scottish Government’s budget by the end of the current decade, representing the gap between anticipated revenues and spending commitments. If that were not bad enough, there are real fears that the £5bn figure may be an underestimate.

There are a number of public sector pay deals set to expire over the next few years, where new agreements will need to be negotiated. If the government agrees to above-inflation pay demands, then the fiscal gap will increase yet further, and despite the fiscal challenges, the SNP continue to announce new initiatives which will add to the overall bill. Gimmicks such as giving primary one children free school bags may make for a nice headline, but they all add to the cost of government and one which is increasingly unaffordable.

In their latest report last month, the Scottish Fiscal Commission highlighted that the Scottish budget for the coming year will be reduced by £720 million due to a negative income tax reconciliation – a consequence of relatively slower growth in Scottish income tax receipts compared to the UK as a whole.

The failure to grow the Scottish economy continues to have real effects on the spending power available to Holyrood. As the SFC pointed out, at this level, current borrowing powers for the Scottish Government will not be adequate to address the gap, therefore reducing the funding available for public services in 2027-28.

READ MORE: John Swinney to merge Scotland's environmental agencies

Why taxes can’t rise even higher

The key question, therefore, for the Scottish Government is how the circle can be squared. There is precious little in the new Programme for Government to indicate its direction of travel. Indeed, fiscal challenges are barely mentioned.

Some will argue that the fiscal gap demands increases in taxation, but as we learned recently, increases in income tax for higher earners are now at the point where they are becoming counter-productive, actually reducing revenue due to behaviour change. Making Scotland less attractive for people to live and work isn’t ever going to be the way to raise the additional revenues that the Scottish Government needs. Measures such as a new tax on private jets might please the Greens, but the sums raised will be minuscule, and likely to result in lower economic activity, and a reduced tax take, overall.

Without the scope to substantially increase tax revenues, that leaves the SNP having to make cuts in spending, which will always lead to politically difficult choices. The new Public Service Reform Secretary, Ivan McKee, has already been tasked with finding £500m in savings in each of the next three years, but even if that is achieved, it will not go anywhere close to addressing the overall size of the fiscal challenge.

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SNP set to fail again

Nor is there much sign, so far, that those in government are prepared to take hard choices to reduce spending overall. Last year the Scottish Government announced plans to reduce the size of the public sector workforce, with a target to decrease it by 0.5 per cent a year on average from 2025-26 to 2029-30. And yet, as the Fiscal Commission have pointed out, there is little sign of progress towards this target in the latest public figures, with the workforce actually growing over the past year. This means that significant reductions will be required from 2026-27 onwards if this target can be met.

The Programme for Government proposes a significant rationalisation in NHS health boards, but we wait to see how many savings will be delivered. Removing the roles of handful of highly paid chief executives will not amount to a great saving, particularly when the SNP's prohibition on compulsory redundancies simply means these individuals will need to redeployed elsewhere.

This week's announcement was an opportunity for the SNP to set out how they will address the significant challenges we face – how they will drive economic growth, improve living standards, and pay for an ever-expanding public sector and an increasingly unaffordable benefits bill. On the evidence of what was said to Holyrood yesterday, they have failed on all three counts.

Murdo Fraser is a Scottish Conservative MSP for Mid-Scotland and Fife