ICAS responds to the Scottish Parliament call for evidence on the affordability and sustainability of Scotland’s tax and spending plans

ICAS has called for a long-term, whole-of-government strategy to align economic growth, tax policy, fiscal sustainability and public service reform, following its response to the Scottish Parliament’s pre-budget scrutiny of Scotland’s 2027-28 tax and spending plans.

ICAS believes that a holistic and strategic approach is fundamental to closing the projected gap between Scotland’s spending plans and available funding of £4.7bn by 2029/30.  

While we support the combined approach to manage the public finances in the Scottish Spending Review and Medium-Term Financial Strategy, it lacks sufficient detail and a long-term strategy explaining how economic growth will be achieved, how sustainable tax revenues will be delivered and how they both contribute to closing the fiscal gap. It also needs to set out what public sector reform is needed and how it will translate into improved service delivery, efficiencies and outcomes. 

Long-term thinking

Planning and budget horizons also need to better align with the longer timescales of public service outcomes to demonstrate effectiveness and optimise decision-making. Otherwise, spending decisions may appear driven by immediate financial pressures, and short-term decisions are made rather than maintaining progress towards achieving long-term objectives. 

We believe that a long-term holistic strategy is the foundation to set a coherent direction and maintain focus on the big picture.  

ICAS emphasises the importance of transparent decision-making. Public spending choices should clearly demonstrate an evaluation of opportunity costs and how decisions support strategic priorities and long-term outcomes, as well as affordability and value for money criteria. In our view, this is important for maintaining public understanding, building support and strengthening business confidence. 

A stronger tax base

Since the devolution of additional tax powers, Scotland's budget is more dependent on the relative performance of the Scottish tax base compared with the rest of the UK, increasing exposure to revenue volatility and forecasting risk. A long-term outlook is critical to understand the scale of the challenges and to optimise decision-making. Scotland’s tax strategy needs to be robust enough to withstand unexpected global and domestic events and to keep pace with technological advancements that could disrupt tax revenues.  

Income tax is the largest contributor to Scottish tax revenues and is heavily influenced by earnings growth and labour market participation. For fiscal sustainability, it is crucial for Scotland to grow the tax base rather than simply increasing tax rates and avoid an over-reliance on a narrow cohort of (potentially mobile) taxpayers which could increase fiscal and behavioural risks. 

The most sustainable approach is to increase economic activity, earnings, productivity and participation while ensuring the Scottish tax system remains competitive, understandable and trusted.  

Public service reform

Overall, achieving financial sustainability needs a combined effort, communicated by a holistic long-term strategy to address the scale of the challenge. It is not just about savings or taxation. It is also about setting a sustained long-term approach to set the policy direction and making choices about where to spend less and deciding what will deliver the planned outcomes most efficiently and effectively. 

Increasing demand for public services will continue unless there is successful investment in prevention and early intervention measures. Without meaningful progress, demand pressures are likely to continue growing, making financial sustainability increasingly difficult to achieve. In practice, budgets and strategies remain largely short-term and sector based, while immediate operational pressures continue to consume resources that could otherwise support reform.   

Prevention and reform

Delivering preventative approaches requires long-term planning, sustained multi-year investment, whole-system thinking and reform. Currently strategic planning tends to focus on a sector-based view of public services rather than the public services as a whole. We believe a broader whole-of-government strategy is needed to clarify the ambition and priorities for public services in Scotland as a whole, to increase cohesion and accelerate reform.  

Decisions taken in isolation may improve the position of one sector while creating costs or pressures elsewhere. A holistic strategy enables greater understanding of the interactions between services and aims to: 

• Support transparent decision-making between competing service demands and priorities. 
• Expand opportunities for more impactful cross-sector reform and efficiencies. 

Sustainable finances

Our submission highlights that strong financial management remains fundamental to fiscal sustainability, regardless of constitutional arrangements. Public bodies must also demonstrate effective stewardship of public funds, affordability and value for money principles to support financial resilience and sustainable public services   

ICAS concludes that a coherent strategy, coupled with sustained reform and a stronger focus on economic growth, is essential to secure Scotland’s public finances and maintain sustainable public services for the future.  

Find out more in our submission to the Scottish Parliament:

ICAS prepared this response in conjunction with members from our Public Sector Panel and Tax Board.