Business is booming.

Warning that Scotland faces ‘four difficult years’ of weak growth

Scotland’s deputy first minister has warned that the country faces “four very difficult years” because weak economic growth could force the government of first minister Nicola Sturgeon to cut to public-sector jobs and spending, and put it on a collision course with unions demanding above inflation pay rises.

John Swinney, who is acting finance cabinet secretary, had to revise parts of the Scottish government’s spending plans twice last year, to accommodate higher than expected wage settlements with public sector workers.

While most accepted Holyrood’s revised pay offers, teaching unions rejected a proposal of 5 per cent and went out on strike, while members of the Royal College of Nursing union have voted to reject the 7.5 per cent in 2022/2023 that was agreed by the rest of the health service.

“We need to resolve these issues but there are limits [because] I can’t spend money I don’t have,” he said in an interview at the Scottish parliament.

He added that while the government sympathised with workers who wanted to be compensated for the high cost of living: “We have to live within our means because we are required to balance the budget.”

In December, the Scottish Fiscal Commission, Scotland’s spending watchdog, forecast that growth will be weak for the coming five years, predicting that it would be just 1.7 per cent in 2022/23 and just 1.5 per cent in 2027/28, which would further constrain the government’s ability to generate revenue.

Graeme Roy, chair of the commission, said long-term structural issues, such as an ageing population, would hold back’s Scotland economic prospects relative to the rest of the UK.

Under a combination of the Barnett formula — which is used by the UK Treasury to determine the annual block grants given to the devolved nations for spending on public services such as health and social security — and the taxation regime, the Scottish government was due to receive an extra £1.7bn for day-to-day spending in 2023-24. But this is set to be eroded by inflation to just £279mn in real terms, leaving the government with no option but to cut essential services if it wanted to fund bigger pay increases.

The devolved administration may have managed to avoid winter stoppages in the NHS, but members of the Royal College of Nursing are holding out for a higher pay offer — although they agreed to hold off strikes while talks are continuing.

Members of the Educational Institute of Scotland (EIS) union, meanwhile, are demanding a 10 per cent pay settlement. The union said it would “never” accept the government’s 5 per cent offer, which it said amounts to a 9 per cent reduction once inflation is taken into account and education has been disrupted by walkouts since late last year and are due to go on strike again on February 28.

Instead of spending more on wages, Swinney said the Scottish government needed to accelerate reforms to “redesign” its public services.

“There are constraints in public spending and there are reductions having to be made,” he said. “If I pay a 10 per cent pay increase, I just add to the scale of that problem.”

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