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13 September 2016, 10:14
Some public services in Scotland could face budget cuts of almost a fifth over the next four years, according to independent forecasters.
The cuts could come under the "worst case scenario'' for Scottish Government funding over this parliamentary term, a report from the University of Strathclyde's Fraser of Allander Institute has said.
It has warned the Government may see its budget fall by up to £1.6 billion by 2020/21.
With major commitments on health and childcare, other areas such as local government could bear the brunt of the shortfall, the report states.
Unprotected budgets could face an average cut of up to 17% over the next four years, with funding for councils slashed by as much as £1 billion by 2020/21, according to the institute.
The report sets out a range of scenarios for Scotland's budget over the next four years, and the options available to the Finance Secretary Derek Mackay ahead of his first budget.
It found that even before the uncertainty caused by Brexit, the Scottish Government's budget was forecast to fall by just over 3% in real terms by 2020/21 as result of the UK Government's ongoing fiscal consolidation.
Under a "worst case scenario'' for the block grant and revenues from Scotland's new tax powers, the Scottish Government may have to prepare for cuts of up to 6% - or up to £1.6 billion - over the course of the parliamentary term.
Even under more optimistic scenarios, the Scottish budget is still projected to fall in real terms over the course of the parliament, it found.
Professor Graeme Roy, director of the Fraser of Allander Institute, said: "The Scottish Government has set out plans to deliver ambitious new policy priorities, including real terms increases in the health budget, a doubling of childcare provision, and protection of the police budget.
"Delivering on these will, however, require a tough re-prioritisation in other areas.
"As an area of unprotected spend, the grant to local government could be cut by around £1 billion on a like-for-like basis by 2020/21.
"Without radical reform, cuts to services are likely to become increasingly apparent in the years ahead, providing a controversial backdrop for next year's local elections.''
The report comes as the Scottish Parliament gains further revenue-raising powers, including control over income tax and assignment of half of VAT revenues.
It means Scotland's economic performance will have a much greater bearing on the spending plans of Holyrood than ever before.
Professor Roy added: "Brexit uncertainty, a weakening UK fiscal position, ongoing UK welfare reform, and a fragile Scottish economy, means that the devolution of powers over tax and social security could not have come at a more challenging time.
"The combination of a weakening in the outlook for the UK public finances impacting on Scotland's block grant, a challenging outlook for devolved revenues, and a series of significant spending priorities - particularly in health and the planned transformation in childcare - will require a substantial re-prioritisation of spend and reform of public services in Scotland.
"While the challenge falls on the Finance Secretary, critics of the forecast cuts in unprotected public services will have to point out where - with a highly constrained overall funding settlement - their priorities for cuts would be and what taxes they would increase.''