Robison is braced for fallout from Reeves’s budget

As the United Kingdom’s devolved political landscape adjusts to the arrival of a dominant Labour government at Westminster, the fiscal strains are nearing breaking point and the race is on to ensure the blame for the resultant painful retrenchment sticks to someone else.
When Labour’s new chancellor, Rachel Reeves, revealed at the end of July that she had uncovered a £22 billion black hole in the fiscal legacy her Tory predecessor, Jeremy Hunt, had left her, that didn’t stop his accuser sanctioning more billions in pay settlements for junior doctors and other public sector workers.
Last Wednesday, Reeves was in Scotland to visit the National Manufacturing Institute Scotland (NMIS) in Renfrew. However, she also used her presence north of the border to accuse the incumbent SNP government at Holyrood of making strategic decisions that were not sustainable. It was, she said, “as guilty as the Conservative government of spending more than they were bringing in”. Now, she added, it was “having to make difficult decisions”. Had her Treasury officials paid a bit more attention to what was being said at Holyrood about emerging fiscal challenges, Reeves might well have been cautioned against turning this into a party political charge sheet.
Five days before she arrived, the Scottish government’s finance secretary, Shona Robison, emailed fellow SNP MSP Kenneth Gibson, the convenor of the Scottish parliament’s finance and public administration committee. “The Scottish government,” she told Gibson, “with government and public sector bodies across the UK, faces a very challenging environment as we manage our finances through the current financial year and set our budget for 2025-26.
“I am working with my cabinet colleagues,” Robison went on, “to agree the necessary actions to reduce expenditure and ensure our finances are on a sustainable footing. Further to this, additional measures are now necessary following the UK Treasury’s recent audit of public spending and lack of clarity over whether their decision to deliver pay review body recommendations will be fully funded”. The Scottish government, she added, “had no choice but to replicate the UK government’s decision to restrict eligibility for the winter fuel payment to older people”.
Instead of squabbling among themselves about which of them is the most fiscally irresponsible, wouldn’t all those who seek our backing at election after election better serve the health of our democracy by addressing why they so often end up overpromising and underdelivering what they can do to enhance our collective economic destiny? It’s not as if they have to look very far for sound guidance.
In devolved Scotland we have the Scottish Fiscal Commission (SFC), a group of independent economists chaired by Professor Graeme Roy. SFC published its latest fiscal update on Tuesday. What it has to say about the sheer scale of public sector pay in determining the overall Scottish budget may well come as a complete surprise to those of you new to the SFC’s work.
“Public sector pay is an important part of the Scottish budget,” its update acknowledges. “The total public sector pay bill for 2023-24 was around £25 billion, or over half of Scottish government resource funding”.
The commission’s latest analysis contains other potential surprises. “The public sector in Scotland has higher average pay than in the rest of the UK,” it notes. “Figure 2.1 also shows that, before taxes, the median pay for a full-time public sector employee in Scotland was £2,400 higher than in the UK in 2023, which was up from £700 in 2019. After taxes, the average full-time public sector employee in Scotland was still earning more than the UK average, around £1,500 in 2023, which was up from around £400 in 2019.”
It goes on to warn: “If a budget is set based on pay assumptions, which are lower than those that materialise, this creates challenges with in-year management of the budget requiring the government to reduce its planned spending on services. The recent emergency spending controls the Scottish government has put in place for 2024-25 are the result of those challenges”.
Reeves will deliver her first budget on October 30. Scottish finance secretary Shona Robison is already braced for some challenging consequentials. But will they result in even more pressure to buttress pay across the public sector or deliver a more thriving economy across both the public and private sector? I’m yet to be convinced.
Alf Young is a visiting professor at Strathclyde University