Free university tuition and more generous benefits in Scotland may have to be cut as the country loses its funding advantage relative to England, a think tank has suggested.<\/p>\n
The Institute for Fiscal Studies<\/a> (IFS) warned the Scottish Government<\/a> will struggle to pay for its flagship policies amid an increasingly strained budget unless it finds ways to collect more tax.<\/p>\n The economists said that in 2024-25 the Scottish Government<\/a> received 26% more per resident for devolved public services than compatible services in England.<\/p>\n They said this was the main factor that allowed Scotland to have more generous public services, including smaller class sizes and free personal care.<\/p>\n Read More:<\/strong><\/p>\n However, the funding has already decreased from 32% in 2019-20 and by 2028-29 will drop to 23%.<\/p>\n The IFS said the fall was a result of the normal operation of the Barnett formula \u2013 the devolved funding mechanism \u2013 and not active policy decisions.<\/p>\n The Barnett formula sets out how much money Scotland gets when English spending \u2013 in areas devolved to Scotland \u2013 goes up or down.<\/p>\n The IFS said the \u201cBarnett squeeze\u201d came as funding for Holyrood<\/a> has been rising by about 2% a year in real terms since 2019-20 \u2013 something it said was \u201cnot inconsiderable\u201d but a slower amount than in England.<\/p>\n Looking ahead, it said the squeeze will be accompanied by a \u201csharp slowdown\u201d in funding growth and that on current plans, funding for Scottish public services may be no higher in real terms in 2028\u201329 than it is now.<\/p>\n The report said the challenging state of the country\u2019s finances means the Scottish Government would find it hard to continue to fund its more generous social policies including free university tuition.<\/p>\n It warned these will increasingly need a combination of bigger devolved tax intake \u2013 whether through higher economic growth or higher taxes \u2013 and more efficient public services.<\/p>\n Without this, the IFS warned, cuts to public services or benefits will likely be necessary.<\/p>\n Among the key findings from its Scottish election briefing, funded by the Nuffield Foundation and the Robertson Trust, the think tank said the Scottish Government\u2019s budget was currently 14.3% higher in real terms compared to 2019.<\/p>\n It said tax rises for higher-income Scots was the biggest factor to the growing contribution of devolved funding, but added that slower wage growth since tax devolution and behavioural changes in response to the rises are estimated to have cut this number by half.<\/p>\n Capital funding \u2013 the type of cash that funds long-term projects such as hospitals and roads \u2013 rose by 17% in real terms since 2019, it found.<\/p>\n Day-to-day spending is expected to slow down to 1% a year in the three years to 2028-29, with that decreasing further to 0.3% once welfare is removed.<\/p>\n The IFS said the Scottish Government will face tough trade-offs as funding slows.<\/p>\n David Phillips, head of devolved and local government finance at the IFS and co-author of the report, said: \u201cAfter falling during the 2010s, the last six years have seen real-terms increases in Scottish Government funding, mostly as a result of increases in UK Government<\/a> funding. Yet UK Government decisions now mean that growth in funding is set to slow over the next few years.<\/p>\n