26th April 2026
Scotland is entering a period of profound fiscal constraint, and few analysts have articulated the scale and structure of this challenge as clearly as David Phillips, Associate Director at the Institute for Fiscal Studies (IFS).
His recent commentary paints a picture of a government facing slower funding growth, rising structural pressures, and increasingly difficult trade‑offs.
When placed alongside the assessments of the Scottish Fiscal Commission (SFC) and the Fraser of Allander Institute (FAI), a consistent narrative emerges: Scotland’s next government will inherit a budget that is tight, fragile, and heavily shaped by health, social care, and tax policy choices.
Slower Funding Growth and Tough Choices
Phillips’ most recent analysis, responding to updated SFC forecasts, highlights that funding for day‑to‑day public services is now expected to grow by only 0.8% per year in real terms between now and 2028–29, down from 1.5% in earlier forecasts. This downward revision, he argues, will almost certainly mean cuts to many non‑NHS services, given the political priority afforded to health spending.
He stresses that while forecasts are uncertain, the direction of travel is clear: a more challenging funding outlook, compounded by UK‑wide fiscal tightening and Scotland’s own commitments on social security and pay.
Phillips also warns that the upcoming Medium‑Term Financial Strategy must confront these realities head‑on. With devolved elections approaching, he cautions against delaying difficult decisions, noting that postponement “shortens the time to address the challenges facing any future Scottish Government.”
Tax Policy View
Phillips’ work consistently emphasises that Scotland’s tax system is not generating enough buoyancy to offset rising spending pressures. He notes that devolved tax revenues are growing more slowly than previously forecast, contributing to the squeeze.
He also highlights the structural challenge of Scotland’s demographic profile: slower population growth and lower earnings growth relative to the UK reduce the tax base over time. This aligns with the SFC’s own long‑term projections, which show that Scotland’s tax revenues will increasingly struggle to keep pace with demand‑driven spending, especially on disability benefits and social care.
Health and Social Care: The Central Pressure Point
Phillips’ analysis repeatedly identifies health and social care as the dominant driver of fiscal pressure. With limited real‑terms growth in overall funding, prioritising the NHS inevitably means cuts elsewhere. He argues that without credible productivity improvements—something historically difficult to achieve—health budgets will require in‑year top‑ups, further squeezing other departments.
This mirrors the SFC’s warnings that health and social care demand is rising faster than available resources, and that public sector pay settlements are adding substantial pressure. The SFC notes that Scotland’s public sector workforce is “relatively larger and better paid” than the rest of the UK, with median pay £1,500 higher, and that pay deals will need to be significantly lower in coming years to remain affordable.
Phillips’ Analysis Aligns with the Scottish Fiscal Commission
The SFC’s latest forecasts—those Phillips was responding to—also point to slower funding growth and a widening gap between spending commitments and available resources. The SFC projects that spending is on track to exceed funding by £4.8bn by 2029–30, driven largely by social security and health.
Both Phillips and the SFC emphasise:
Sluggish tax revenue growth
Rising social security costs
Health and social care as the main fiscal pressure
The need for difficult trade‑offs in the next parliament
Their analyses are mutually reinforcing.
Phillips’ Analysis Compares with the Fraser of Allander Institute
The FAI’s annual Scotland’s Budget Report similarly concludes that Scotland faces a tight fiscal environment requiring prioritisation and reform. Their work highlights:
The need to reassess unaffordable investment plans
Structural pressures from demographics and pay
The importance of preventative budgeting to reduce long‑term costs
FAI analysts, including João Sousa (who has appeared alongside Phillips in parliamentary evidence), also stress the interaction between UK and Scottish fiscal frameworks and the limits of Scotland’s current tax powers.
Where Phillips focuses heavily on forecast revisions and tax‑benefit interactions, the FAI places more emphasis on policy design, economic strategy, and long‑term sustainability. But the conclusion is the same: Scotland must confront a period of sustained fiscal constraint.
A Shared Warning Across Institutions
Taken together, the analyses of David Phillips, the SFC, and the FAI form a coherent and sobering picture:
Funding growth is slowing.
Health and social care will dominate spending.
Tax revenues are not keeping pace with demand.
The next Scottish Government must make difficult, politically costly decisions.
Phillips’ work stands out for its clarity and precision, but it is part of a broader consensus: Scotland is entering a decade where fiscal realism—not optimism must guide policy.
David Phillips, said the next Scottish Government will face a budget squeeze.