Reform of public sector now urgent in Scotland

17th November 2022

Faster reform of Scotland's public sector is needed to protect services in the long term and improve people's lives.

The Scottish Government is facing increased costs, including a higher public sector wage bill, while the cost-of-living crisis is driving greater demand for public services. Without careful management of public finances, there is a risk that the government could overspend in 2022/23, which could have implications for future budgets.

Most of this year's budget is already committed, leaving ministers little flexibility in the short term. The government also faces difficult choices in setting the 2023/24 budget, which will be impacted by the UK Government's spending and tax decisions. Ministers will need to balance short-term necessities and longer-term priorities, particularly around the government's reform agenda.

Significant financial pressures on public services existed before the current crisis. The government has outlined how it will tackle these challenges in its resource spending review, but it has struggled to deliver reforms as planned in the past. If services are to remain financially sustainable in the future, it is vital that these latest reforms are delivered effectively.

Stephen Boyle, Auditor General for Scotland, said, "The Scottish Government, like all governments, has to deal with the immediate challenges that external events bring.

But to improve lives and protect services in the long run, these challenges cannot distract from the need for broad reform of the public sector.

Balancing short and long-term demands is always a difficult task. But the significant financial pressures on Scotland's public bodies have been growing for several years, and there is now an urgent case for the reform of how services are delivered.

Key Messages
• Rising costs and increasing demands mean that the Scottish Government has to closely and carefully manage its position, to avoid the real risk that it will overspend on the 2022/23 budget. There have been significant financial pressures on public services for some time before the cost of living crisis. The current high level of inflation means that the Scottish Government faces higher public-sector pay and other costs, at the same time as it faces increasing demand for support from people impacted by the crisis. The budget was set when inflation was lower, and the Scottish Government is unlikely to receive additional funding to address this issue in the near future. If the Scottish Government were to overspend against its budget, this money could be clawed back from the following year's budget. This would be the first such occasion since the creation of the Scottish Parliament.

• The Scottish Government has limited room for manoeuvre to make changes to balance the 2022/23 budget, and will face difficult choices setting the 2023/24 budget. Within the year, much of the Scottish budget is committed, which means that there is limited flexibility available to the Scottish Government in the short term. Setting the 2023/24 budget will be challenging, and the UK Government's spending and tax decisions will impact on this. A balance must be struck between short-term necessities and longer-term priorities, and the Scottish Government will need to revisit its priorities if the economic and fiscal conditions worsen.

• The pace and scale of reform required across the public sector needs to increase. While the Scottish Government must continue to react to immediate events and financial pressures, this must not distract from the immediate need for broader reform. The Scottish Government's Resource Spending Review sets out its planned reforms and next steps. In the past, the Auditor General has highlighted an implementation gap between the Scottish Government's ambitions for reform and delivery on the ground. It is vital that these reforms are delivered effectively, and with public
engagement, to deliver sustainable services that improve people's outcomes.

Note
Read the full report HERE