Submitted by Bill Fernie
24th August 2026
There is a growing debate about the future of Scotland's public finances, with warnings that the Scottish Government could face a substantial fiscal gap in the years ahead.
It is tempting to turn this into a political argument but let us ryto be neutral and take technical look at the possibilities.
Governments can be accused of spending too much, opposition parties can accuse them of failing to manage the economy, and taxpayers can wonder why, if money is supposedly so tight, there is sometimes money left over at the end of the financial year.
But there is a more useful way of looking at the issue.
The question is not whether the Scottish Government is financially responsible or irresponsible. The question is what the figures actually tell us about the choices facing Scotland.
The most recent provisional figures show that the Scottish Government finished 2025-26 with an underspend of around £358 million against a fiscal budget of approximately £56.3 billion. That money has been carried into the Scotland Reserve.
At first glance, this appears to be good news. The Government has not overspent its budget and has retained money for future use.
But an underspend is not quite the same thing as money sitting in a bank account waiting to be spent.
Government budgets are complicated. Money can remain unspent because projects have been delayed, because recruitment has taken longer than expected, because capital programmes have slipped or because expenditure has ultimately proved lower than forecast. Some money can also have restrictions attached to it.
That means an underspend can have several explanations.
It can represent genuine efficiency. It can represent delayed spending. It can reflect changing priorities. Or it can simply be the result of the difficulties governments face when attempting to forecast expenditure a year in advance.
The important question is therefore not simply how much was left over, but why was it left over and what happens to it next?
That becomes particularly relevant because Scotland faces a much bigger financial challenge over the medium term.
The Scottish Parliament's Finance and Public Administration Committee has highlighted an anticipated fiscal gap of around £4.77 billion by 2029-30. That does not mean that Scotland has suddenly discovered a £4.77 billion deficit. It means that, on current projections, the resources available are not expected to be sufficient to maintain existing spending pressures and planned commitments without further changes.
Those changes could involve taxation, spending reductions, efficiency savings, economic growth or the use of available financial reserves and borrowing powers.
The Scottish Government has already identified substantial efficiency savings as part of its spending plans, including a target of £1.5 billion of recurring savings over the spending-review period.
That illustrates the scale of the challenge.
Scotland can balance its annual budget, but balancing the budget does not necessarily mean that every service can continue operating at its current level.
This distinction is particularly important because the Scottish Government has limited borrowing powers. Unlike the UK Government at Westminster, it cannot simply decide to borrow billions more to maintain spending indefinitely.
If the money coming into government does not grow sufficiently quickly while the cost of services continues to increase, difficult choices eventually have to be made.
The Government can raise more money through taxation. It can reduce expenditure. It can seek efficiencies. It can postpone investment. It can change the way services are delivered.
Or it can combine all of these approaches.
There is also a political dimension, but it does not require us to assume political bad faith.
Any government naturally wants to have flexibility during a parliamentary term. Money carried forward into reserves can provide some flexibility when circumstances change.
It could be needed to deal with an unexpected economic shock. It could support a major investment programme. It could help cover a future budget shortfall. Or it could simply remain available until ministers have greater certainty about future finances.
And, inevitably, governments approaching elections also have an incentive to make spending announcements that voters will notice.
That is not unique to Scotland. It is a feature of democratic politics.
But it would be unfair to conclude that money carried forward is automatically being saved for election giveaways.
The better question is one of transparency.
How much of the money in the Scotland Reserve is already committed?
How much is genuinely available for new decisions?
What restrictions apply to it?
And when does the Government expect to use it?
Those are questions that can be answered without accusing anyone of political manipulation.
There is another reason why this matters.
An underspend can look very different depending upon where you are standing.
For the Scottish Government, finishing a financial year below budget can demonstrate financial discipline.
For a council struggling to balance its own budget, however, the existence of money elsewhere in the public sector may prompt a different question.
Could some of that money have been used to ease pressure on local government?
Again, that does not mean that the money could necessarily have been transferred. Scottish Government and local authority finances operate under different rules, and much of the money in government reserves may already have a purpose.
But it is a legitimate question to ask.
The same applies to health boards, transport authorities and other public bodies.
A balanced Scottish Government budget does not automatically mean that every part of the Scottish public sector is financially comfortable.
This is where the phrase "balanced budget" can become misleading to the public.
A household can balance its budget by spending less. But if it does so by postponing essential repairs, replacing a worn-out car later than planned or reducing heating, the accounts may look healthier while its underlying situation becomes worse.
Governments face similar choices, although on a vastly larger scale.
An underspend can therefore be positive, but it needs to be understood in context.
If the money was saved because services were delivered more efficiently, that is good financial management.
If it was saved because a major infrastructure project was delayed, the picture is different.
If it was saved because departments were unable to recruit staff, that may indicate another problem.
And if it simply reflects careful forecasting and timing, it may be neither particularly good nor particularly bad.
The figures themselves do not tell the whole story.
That is why the projected £4.77 billion fiscal gap deserves attention.
It is not a prediction that Scotland will suddenly become bankrupt. It is a warning that the present trajectory is unlikely to continue indefinitely without change.
The Scottish Government can still alter that trajectory.
A stronger Scottish economy would increase tax revenues. Successful reforms could reduce the cost of delivering services. Changes in taxation could increase revenue. Spending priorities could be reconsidered.
But none of those solutions is guaranteed.
The challenge therefore goes beyond party politics.
Whatever party forms the Scottish Government, it will face the same fundamental arithmetic.
An ageing population creates additional demand for health and social care. Public-sector pay and inflation increase costs. Infrastructure requires investment. Economic growth determines how quickly the tax base expands. And the ability to borrow is constrained.
The real question is therefore not whether the Scottish Government will technically balance its books.
It almost certainly will.
The more important question is what that balanced budget will actually provide for the people of Scotland.
And that is where the debate becomes particularly important for Highland and Caithness.
Financial pressure at Holyrood can eventually feed through to councils, health boards, transport services and infrastructure decisions. A national budget can be balanced while the organisations delivering services locally are still struggling.
There is no need to assume political manipulation to recognise this.
Nor is there any need to accept every Government claim at face value.
The sensible approach is to follow the money.
When a budget is underspent, ask why.
When money is carried forward, ask what it is earmarked for.
When savings are announced, ask whether they are genuine recurring savings or simply delayed expenditure.
When taxes are increased, ask how much additional revenue they actually produce.
And when a Government announces new spending before an election, ask where the money has come from and whether it was already available.
Those questions are not partisan.
They are simply the questions taxpayers should be asking.
Scotland's financial position is therefore neither the impending disaster sometimes suggested by political opponents nor necessarily the comfortable position that a balanced annual budget might imply.
It is something more complicated.
Scotland can balance its budget. The difficult question is whether it can continue to balance the books while maintaining the public services, investment and ambitions that people expect — and whether the choices required to do so will become increasingly visible in the communities that deliver those services.
That is the financial debate worth having.