Scottish Government's Medium Term Financial Strategy: May 2019

Foreword by the Cabinet Secretary for Finance, Economy and Fair Work

Strong financial management is vital for both the delivery of public services and for the economy. This Government has a strong track record and in this, our second Medium-Term Financial Strategy, we set out the key financial challenges and opportunities that lie ahead. We also set the context for the forthcoming Spending Review.

Our economy remains strong, with sustained growth and record low unemployment, but it is clear we face challenges ahead. Global growth remains weak, and for Scotland this weakness is compounded by the continuing uncertainty around Brexit. The Scottish Government is prepared to mitigate some of the negative impacts of Brexit, but it will not be possible to mitigate them all. Brexit is wrong for Scotland, and wrong for the rest of the UK. 

Over the medium term, the Scottish Government’s Economic Action Plan sets out how we promote inclusive growth and wellbeing in the context of this medium-term fiscal outlook. This includes unlocking investment in our regions, cities, towns and rural economy through City Region and Growth Deals; enhancing opportunities for upskilling and reskilling for those already in work; and maintaining a stable and competitive tax regime.

The medium-term funding outlook continues to be dominated by austerity at a UK level. The UK Government’s near-decade of austerity has cut funding for some of the most vulnerable people in our society and restricted the resources available for key public services. In Scotland, we have used the limited powers at our disposal to protect key services, despite the £2 billion real-terms reduction to our block grant since 2010. 

Austerity is a choice, and not one of Scotland’s making. We will continue to make the case to the UK Government that their policy of austerity is both unnecessary and counterproductive. Both the Prime Minister and the Chancellor have claimed that ‘austerity is over’. However, the funding outlook for non-Health budgets remains severely constrained.

To demonstrate our prudential approach to financial management, we set out in this Strategy the principles for how the Scottish Government will exercise its borrowing powers and the Scotland Reserve, within the constraints of the Fiscal Framework.

I am taking the opportunity of this publication to outline the framework for our Spending Review. This sets out the criteria that will govern the assessment of budgets, and the process and timetable for the review, reflecting the role of Parliament. It is not yet clear if there will be a UK Spending Review this year. Irrespective of the UK Government’s decision, the Scottish Government plans to undertake reviews of spending beyond 2020-21 for both resource and capital budgets.

This Strategy supports this Government’s ambitions for Scotland and our people. It will be important in informing how the Spending Review, the Scottish Budget and Programme for Government are developed and scrutinised over the coming year.

Derek Mackay MSP
Cabinet Secretary for Finance, Economy and Fair Work