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The Scottish Government's Chief Economic Adviser, Dr Andrew Goudie, has published an assessment of the medium to long term outlook for public expenditure in Scotland in the light of the 2010 UK Budget.

To assist the work of the Independent Budget Review of public expenditure in Scotland, Scottish Ministers commissioned Dr Goudie to undertake an assessment of the outlook for public spending. It passes no judgement on the wisdom or otherwise of the UK Government's plans. It, rather, details under a number of scenarios the implications for Departmental Expenditure Limits and in particular the Scottish budget.

That report has now been submitted to the Independent Budget Review and published.

To date, the UK Government has yet to provide detailed information for the composition of spending across the UK, including for Scotland, beyond 2010-11. However, it is clear that public spending will be under considerable pressure over the next few years.

The report provides an initial outlook for Scottish Government spending in the medium to long term. The analysis suggests that Scottish Government spending may experience five consecutive years of real-terms cuts and it may take a further two years before growth returns to trend. The report concludes:

• Reductions averaging approximately three per cent a year in real terms between 2011-12 and 2014-15 are likely within the UK plans
• By 2014-15, the part of the Scottish Budget which the Scottish Government controls (DEL) could be between £3.5 and £4 billion lower in real terms than in 2009-10
• It will take a period of sustained adjustment lasting up to 12 to 15 years before 2009-10 levels of expenditure are reached once again
• Over this period, Scottish expenditure could cumulatively forego between £25 and £35 billion in real terms compared to a situation whereby the 2009-10 peak level of expenditure remained unchanged. The upper end of this scale would be more likely if the UK economic recovery were to be slower than forecast in Budget 2010

The financial crisis and subsequent recession have put significant strain on the public sector balance sheets of a number of countries. The UK has been particularly affected, with net borrowing amongst the highest in the OECD.

While the Fiscal Responsibility Act establishes the overarching framework for consolidation in the UK, the exact implications for taxation and public spending have yet to be fully set out. However, it is clear that public spending will be under considerable pressure over the next few years. This makes forward planning vitally important.

Given the lack of clarity that currently exists over future public spending in the UK, and to assist the work of the Independent Budget Review of public expenditure in Scotland, Scottish Ministers commissioned Dr Andrew Goudie (DG Economy and Chief Economic Adviser) to undertake an assessment of the outlook for public spending in Scotland.

The Independent Budget Review was commissioned in February 2010 to conduct a review of public expenditure in Scotland. It will report by the end of July 2010.

The purpose of the Review is to inform public and Parliamentary debate in advance of the next UK Comprehensive Spending Review (which will cover the three years 2011-12, 2012-13 and 2013-14) about the challenges and choices which will exist in a significantly constrained public spending environment.

The Review panel consists of Crawford Beveridge CBE (Chair), Sir Neil McIntosh and Robert Wilson.

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