The Institute of Fiscal Studies (IFS) has today published a new analysis of the Scottish Budget and Spending Review in partnership with Scottish Financial Enterprise (SFE).

The analysis shows that the Budget relies on ambitious efficiency savings to shift health spending and reshape capital investment.

Martin Brogaard, a research economist at the IFS and a co-author of the report, said the government “faces a difficult funding outlook, which necessitates tricky trade-offs between different areas of both day-to-day spending and investment spending”.

“For day-to-day spending, it is banking on big improvements in hospital and ambulance service productivity and a shift in resources to some combination of primary and social care to refocus on preventing ill health, enable health funding to stretch further and avoid a deterioration in service quality,” he said.

“Even then, many other areas such as local government and justice will see cuts in their funding from 2027–28.”

The IFS says the government’s health and social care plans imply a substantial reduction in the share of funding going towards hospitals and the ambulance service, and a big increase in the share going to other services, such as primary care and social care.

enable this without adverse effects on hospital performance, the Scottish Government is banking on Scotland’s territorial and national health boards delivering 3% efficiency savings per year – far in excess of historical trends.

Without big improvements in efficiency, the IFS warns that hospital and ambulance performance would start deteriorating again unless other budgets were cut back to bolster core NHS funding.

On capital investment, the IFS analysis says the news is “less bad than the headline figures suggest”.

After increasing in 2026-27, overall capital investment is set to fall by 5% in real terms over the following three years.

However, the winding up and completion of the HMP Highland and HMP Glasgow prison construction programmes mean investment outside the justice and home affairs portfolio is set to increase by 1% in real terms over the same period.

Investment in housing is set to increase by 23% in real terms between 2026–27 and 2029–30, while investment in transport is set to increase by 3% in real terms. 

Mr Brogaard said: “For investment, the trade-offs will be eased somewhat by the winding up of the prisons construction programme.

“The Scottish Government is understandably exploring how private capital can help it deliver public investments more quickly – but it should avoid locking itself or councils into too many potentially costly long-term commitments.”

The Scottish Government’s own appraisal of its new “Mutual Investment Model” of public-private partnership says that investments funded this way can cost up to 60% more in the long term than if funded via traditional borrowing (which is subject to limits in Scotland).

The IFS says this approach is therefore only appropriate if there are enough high-impact investments to justify incurring these higher costs.

Sandy Begbie, chief executive of Scottish Financial Enterprise, said: “The IFS analysis highlights the challenges that exist in the public finances, as well as the long-term problems the next government will face.

“Against this backdrop, it is vital to focus on tackling public sector inefficiency and increasing underling tax bases, which can generate revenue without increasing tax rates. The only way to do that is by delivering sustainable and significant economic growth.

“The last year has seen a range of government reviews and strategies for both efficiency and growth. It is critical that whoever is in power after the upcoming elections adopts a laser-like focus on turning warm words into concrete action and progress.”