Tuesday February 17th 2026
Scottish Parliament
This View has been written by Martin Brogaard and David Phillips of the Institute of Fiscal Studies (IFS)
The Scottish Government received 26% more per resident for devolved public services from the UK government than is spent on comparable services in England in 2024–25. This is the main factor allowing more generous public service provision, including smaller school classes, free university tuition and free personal care services.
But this funding advantage has fallen over the last few years and will continue to do so in future. The Scottish Government received 32% more per resident than was spent in England in 2019–20. By 2028–29, it is set to receive 23% more. In other words, Scotland will continue to benefit from higher funding per person than in England, but to a lesser degree than in the past. This is simply the result of the operation of the Barnett formula rather than any active decision to reduce Scotland’s relative levels of funding.
The squeeze seen so far since 2019–20 has taken place during a period when Scottish Government funding has actually been increasing by around 2% a year in real terms – a not inconsiderable amount, albeit slower than in England.
Looking ahead though, the continued squeeze relative to England will be accompanied by a sharp slowdown in funding growth – and indeed, on current plans, funding for Scottish public services may even be no higher in real terms in 2028–29 than now.
This challenging fiscal outlook means it will be hard for the next Scottish Government to continue to provide more generous services and benefits than in England. Funding more generous provision will increasingly need some combination of higher devolved tax revenues – whether through higher economic growth or higher tax rates – and more efficient public service delivery. Without these, cutbacks in service provision or devolved benefits will likely be necessary.
These are among the key findings of first Scottish election briefing from the Institute for Fiscal Studies, funded by the Nuffield Foundation and the Robertson Trust.
The briefing examines how and why funding for day-to-day (resource) and investment (capital) spending has changed over time, and the outlook for the coming Scottish parliamentary term. Recent trends have shaped – and been shaped by – the current Scottish Government’s tax and spending choices. The future outlook will shape the tax and spending options available to the next Scottish Government.
Scottish Government funding over time
– After falling during the 2010s, Scottish Government funding has increased since 2019–20 – both for resource and capital spending. On as close to a like-for-like basis as possible, resource funding in the current financial year, 2025–26, is set to by 14.3% higher in real terms than in 2019–20, or 10.9% higher per person, after accounting for population growth.
– Higher funding since 2019 largely reflects an increase in UK government funding via the Barnett formula (£5.0 billion of the £5.7 billion overall real-terms increase). A series of freezes means the contribution of business rates revenues has fallen in real terms (by £0.5 billion), but the net contribution of devolved funding sources has also increased (by £1.2 billion). Income tax rises for higher-income taxpayers are the biggest contributor to the growing contribution of devolved funding sources – although slower earnings growth since tax devolution and behavioural responses to the higher tax rates are together estimated to offset almost half of the mechanical revenue increase from tax policy changes.
– On as close to a like-for-like basis as possible, capital funding has increased by 17% in real terms since 2019–20, again reflecting increases in UK government funding.
– The coming parliament is set to see a slowdown in funding growth for both resource and capital spending purposes. Overall resource funding is currently forecast to grow by 1.0% a year in real terms over the three years to 2028–29. Stripping out funding for and spending on devolved benefits, funding for public services is currently forecast to grow in real terms by just 0.3% a year. Overall capital funding is set to remain broadly flat, after accounting for the completion of a large prison building programme.
– This funding slowdown will necessitate tough trade-offs between different spending areas. Restrictions on Scottish Government borrowing prevent it from borrowing more to offset this.
Funding relative to England
– After increasing during the 2010s, the funding advantage of Scotland relative to England is now falling, with UK government funding for devolved Scottish services falling from 32% above English levels in 2019–20, to 23% above English levels by 2028–29 under current spending plans and population projections. This trend reflects the ‘Barnett squeeze’: the population-based increments in funding provided each year by the Barnett formula are smaller in percentage terms for Scotland than for England given the higher funding level Scotland starts with.
– Increases in funding from devolved sources since 2019–20 are offsetting some of the effects of the ‘Barnett squeeze’ on the Scottish Government’s budget. These additional devolved revenues have in part paid for an increase in devolved benefit spending to reduce income poverty. Their effect in offsetting the squeeze on public service spending has therefore been more limited.
– Scotland’s relative spending needs were estimated to be 5% higher per person than England’s by the 2010 Holtham Commission – the most recent comprehensive assessment. While indicative rather than definitive and now nearly two decades old, these estimates suggest Scotland is still set to be relatively generously funded for the foreseeable future – just less so than historically.
David Phillips, Head of Devolved and Local Government Finance at IFS and co-author of the report, said:
“After 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 funding. Yet UK government decisions now mean that growth in funding is set to slow over the next few years. Indeed, without top-ups to UK government spending plans, the outlook for Scottish Government funding will likely be even more challenging than official forecasts suggest – given these forecasts implicitly assume earnings and hence income tax revenues in Scotland will outpace those in the rest of the UK. If wages and hence tax revenues in Scotland instead grow in line with the rest of the UK, funding for day-to-day spending on public services may even be no higher in real terms in three years’ time than now.”
Martin Brogaard, Research Economist at IFS and co-author of the report, said:
“Scotland currently enjoys more generous public services than England, in large part because the Scottish Government receives around 26% more funding per person than is spent on comparable services in England. But after growing during the 2010s, this funding advantage is now shrinking as the so-called ‘Barnett squeeze’ bites. Without substantial increases in devolved revenues, improvements in public sector efficiency or cuts to other spending, it will be increasingly difficult for future Scottish Governments to continue to provide a wider range of free services – such as university tuition and personal care – than their counterparts elsewhere in the UK.”
Helen Miller, IFS Director, said:
“The tricky funding outlook facing the next Scottish Government has important implications for assessing the proposals the different Scottish parties will make in the upcoming election campaign. Cuts to some taxes or increases in spending on priority items are feasible but will require tough choices elsewhere in a Scottish budget which will already be under some strain.”
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