28th February 2026
The Scottish Government has deferred a looming crisis on public sector pay until after the 7 May election, according to a major new report published today by the Fraser of Allander Institute at the University of Strathclyde.
The report, part of a collaboration with Cardiff University and supported by the Nuffield Foundation, finds pay settlements have exceeded the Scottish Government's own published pay policy every year since 2022. The three-year pay policy set out 12 months ago has been nearly exhausted in two years, with no acknowledgement of the issue in last month's Budget.
Pay growth ahead of the amount set aside by the Scottish Government has been a major factor in successive in-year emergency reviews, and the lack of an integrated and sustainable approach seems set to create a crunch point after the election. The settlements for areas such as health look much too small to pay for deals already agreed with workers.
Dr João Sousa, Deputy Director of the Institute, said: "The Scottish Government's approach to pay is symptomatic of a broader can-kicking strategy. Its budget has only been financed in recent years on the back of windfalls, be they from better-than-expected tax forecasts or Barnett consequentials.
"But with a tight Block Grant settlement for the next few years, relying solely on non-recurring funding sources is not an option. The reckoning has already happened on capital, and whoever is in power after May will have to seriously grapple with implausible settlements in areas such as health and justice."
The report also looks at the performance and funding of health, adult social care, colleges and universities. Health spending adjusted for the population's age was 10% in Scotland than the UK average 20 years ago; it is now below that average. Meanwhile, the health service's performance continues to struggle against its targets, with only modest progress recently.
Adult social care remains a challenging policy area. The Scottish Government attempted to introduce a National Care Service during the last Parliament, but this was eventually scrapped in the face of local authority opposition. Funding has increased, but it is extremely opaque still and that rise must be seen in the context of higher wages and increases in employer National Insurance Contributions. The amount of social care delivered may have actually decreased over the Parliament, even in the face of increasing demand on services.
Post-school education has seen a 15% real-terms cut in funding over the last Parliament, with university funding falling by 17% and colleges by 8%. This squeeze looks likely to continue, with a further 10% cut in the Spending Review plans.
Professor Mairi Spowage, Director of the Fraser of Allander, said: "The health service and the adult social care system will be front and centre of the spending pressures faced by the incoming administration, and the post-school education system will be key to delivering the economy necessary to fund the public services that Scotland expects and needs.
"But the health settlement is tight and the NHS is already some way off meeting its performance targets. Adult social care funding has increased, but not as much as costs, and post-school education funding is falling in real terms.
"The next Scottish Parliament will need to make hard choices, and the electorate needs parties to be honest about the scale of the challenges and how they plan to tackle them."
This report is the first output of a wider programme of work. It will be followed by a scene-setting report for Wales, led by the Wales Governance Centre at Cardiff University. There will be manifesto coverage on the Fraser of Allander Institute’s website, regular podcasts throughout the campaign period, and events in Scotland, Wales and London.
The full report is available here
Setting the scene: Scotland on the eve of the 2026 Election
20 February 2026
Foreword by Professor Mairi Spowage, Director of the Fraser of Allander Institute
Scotland goes to the polls on 7 May amid a challenging climate for public finances. After a turbulent five years which have included recovering from the Covid pandemic, a high-inflation period with a cost-of-living crisis, the next Scottish Government will inherit a tight fiscal settlement, with an underlying deficit, low productivity growth, a net zero transition to deliver and spending pressures that are only increasing as the population ages. Independent, rigorous analysis of the challenges facing Scotland’s finances - and the choices it faces – has rarely mattered more.
This report, part of a broader project in collaboration with the Wales Governance Centre at Cardiff University, has been prepared by the Fraser of Allander Institute at the University of Strathclyde with generous support from the Nuffield Foundation. Our aim is straightforward: to cut through the complexity and to lay out the context in which all parties will need to present their proposals. On top of the budget numbers, we have looked in detail at critical sectors and areas of expenditure. The health service and the adult social care system will be front and centre of the spending pressures faced by the incoming administration, and the post-school education system will be key to delivering the economy necessary to fund the public services that Scotland expects and needs.
The picture that emerges is a set of critical challenges that must be faced head on. Scottish Government funding is tight throughout the Spending Review period, while health service performance remains some way off its targets. Meanwhile, public sector pay pressures are a source of concern, as is the muddied picture on adult social care and the falling funding of post-school education in real terms. The next Scottish Parliament will need to make hard choices, and the electorate needs parties to be honest about the scale of the challenges and how they plan to tackle them.
Over the coming months, we will update our analysis on our website, including looking at other sectors of interest. I invite you to check back regularly: we will have blog posts covering manifestos, regular podcasts during the campaign period, as well as events in Scotland, Wales and London. I do hope you can join us for some of those.
We hope this report contributes to the public’s understanding of where Scotland stands on the eve of the election. As always, the analysis and conclusions are our own, and our views are not necessarily those of the Nuffield Foundation.
The Nuffield Foundation is an independent charitable trust with a mission to advance social well-being. It funds and undertakes rigorous research, encourages innovation and supports the use of sound evidence to inform social and economic policy, and improve people’s lives. The Nuffield Foundation is the founder and co-funder of the Nuffield Council on Bioethics, the Ada Lovelace Institute and the Nuffield Family Justice Observatory. Find out more at: nuffieldfoundation.org.
Authors
João Sousa
João is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute. Previously, he was a Senior Fiscal Analyst at the Office for Budget Responsibility, where he led on analysis of long-term sustainability of the UK's public finances and on the effect of economic developments and fiscal policy on the UK's medium-term outlook.
Mairi Spowage
Mairi is the Director of the Fraser of Allander Institute. Previously, she was the Deputy Chief Executive of the Scottish Fiscal Commission and the Head of National Accounts at the Scottish Government and has over a decade of experience working in different areas of statistics and analysis.
Emma Congreve
Emma Congreve is Principal Knowledge Exchange Fellow and Deputy Director at the Fraser of Allander Institute. Emma's work at the Institute is focussed on policy analysis, covering a wide range of areas of social and economic policy. Emma is an experienced economist and has previously held roles as a senior economist at the Joseph Rowntree Foundation and as an economic adviser within the Scottish Government.
Ciara Crummey
Ciara is a Knowledge Exchange Associate at the Fraser of Allander Institute. Her main area of focus is macroeconomic and fiscal analysis. She has recently completed a secondment to the Scottish Fiscal Commission, where she worked as an Economic and Fiscal Analyst in the economy team forecasting macroeconomic conditions.
The full report is available here