Some Scottish Government departments could see their budgets slashed by over a tenth by the end of the next spending review period, a leading think tank has warned.
IPPR Scotland forecast the overall Scottish budget will be reduced by 2.6% in real terms by 2019-20, with an income tax rise of about 3p required to fully make up the shortfall in spending.
With the Scottish Government already having made a number of key spending commitments – to protect NHS spending, build 50,000 affordable homes and increase free childcare to 30 hours a week – the think tank fears other non-protected departments could see their spending cut by 11.3% over the period.
Director Russell Gunson said with the Scottish budget facing an overall fall in the coming years, there could be “significant cuts to unprotected departments”.
With Holyrood getting new powers over tax, he added: “It will now be down to the Scottish Parliament as to which spending areas will be hardest hit, how much of these cuts are passed on or whether tax revenue can be increased to lessen the blow.”
The IPPR published its analysis ahead of Chancellor George Osborne’s spending review on Wednesday, which will set out the grant Scotland receives from the UK Government over the period 2016-17 to 2019-20.
While it says capital spending could increase by 11.7% in real terms over the period, day-to-day spending could be 4.3% lower in real terms by 2019-20.
Departments not protected from the cuts – such as local government, justice and the environment – could see their overall budget cut from £14.08 billion in 2015-16 to £12.483 billion in 2019-20.
But non-protected departments in the UK Government could be facing up to average spending cuts of 26.5% by 2019-20 – with IPPR Scotland basing their research on the impact cuts of this scale would have on the overall Scottish block grant, and the effect thereafter on non-protected departments.
Mr Gunson said: “These figures set out the scale of the cuts we could see in Scotland from next year, and in turn the choices Holyrood will have to make. We estimate that the Scottish budget as a whole is likely to drop in real terms.
“However, with announced increases in NHS funding and for affordable housing and childcare, we see that spending in unprotected departments in Scotland could drop significantly, seeing billions of pounds of spending cuts.
“Budget cuts are likely to be lower in Scotland overall than in the rest of the UK. However, the challenge is still an enormous one. Decisions will need to be made, either to find ways to raise revenue to lessen the cuts or as to where the axe falls.
“The new powers from the Smith Commission may offer hope for later in the next parliament, as tax raising and borrowing powers come into effect, decoupling more of the budget in Scotland from the spending decisions of the UK Government.
“However, much depends on how these changes are implemented and how the ongoing Scottish block grant is calculated, which is still very much up in the air.”
A Scottish Government spokesman said: “The later-than-expected 2015 UK Spending Review publication means we will not know what Scotland’s block grant is until later this week, although it is clear from the Chancellor’s plans that we face significant further austerity over the coming years.
“This is austerity through choice, not necessity, and the Scottish Government has consistently demonstrated that the UK’s deficit and debt can be brought down without the need for huge public spending cuts as set out by the UK Government.”
A UK Government spokesman said: “On Wednesday the Government will set out its plan to deliver economic security for the whole of the UK so that we can enhance our national security and extend opportunity to all.
“Key to this is delivering sustainable public finances and getting the deficit under control to prepare the country for any economic shocks that lie ahead.
“The UK Government is committed to implementing the Smith agreement and delivering more powers for the Scottish Parliament. As the IPPR rightly says it will be down to the Scottish Government to decide how it uses those powers to manage to its own priorities.”
Scottish Labour public services spokeswoman Jackie Baillie said: “George Osborne is making the wrong choices, it is wrong to try and balance the books on the backs of the poor and on working families. The question for the SNP government is now what they will do about it.
“Scottish politics is changing and we will have the powers to make different choices in Scotland, it’s no longer good enough to simply blame someone else when we have the opportunity to do something about it.”