Some Scottish Government departments could see funding fall by almost 10% over the lifetime this parliament, a think tank has warned.
While the Fraser of Allander Institute said it was “cautiously optimistic” about economic growth for this year, it raised concerns that spending outside of the key areas of health, education, early years and social security, could be facing cuts of about 8%.
In its latest economic commentary think tank said ministers had pledged “ambitious spending growth” in these areas in the period up to 2021-22.
But the Scottish Government’s five year financial strategy, published at the end of May, shows a real terms decline in the resource budget – leading to the warning that “other areas will have to bear the brunt”.
The report said: “Unprotected areas are on track to be cut by around 8% in real terms over the course of this Parliament (2016/17 to 2021/22).”
It added this was “unlikely to change significantly” despite a recent announcement of extra cash from the UK Govenrment.
With just nine months to go until the UK formally leaves the European Union, the think tank said the “near future remains challenging, with Brexit continuing to cast a shadow of uncertainty over the outlook”.
Despite that it said the agreement of post Brexit transition period until the end of 2020, had “helped shore up confidence” among businesses.
Experts at the think tank now forecast the Scottish economy will grow by around 1.2% in 2018 and by 1.3% in 2019 – describing these figures as “still well below trend but more positive than the forecasts of the Scottish Fiscal Commission” (SFC) which has predicted GDP growth of less than 1% each year until 2023.
With the SFC also having reduced its income tax forecasts for the next few years, the Fraser of Allander Insitute said this could result in a £389 million spending gap for the Scottish Government.
“This challenging outlook for the Scottish Budget will make the task of delivering on key policy priorities all that more challenging,” the think tank added.
As the report was published director Professor Graeme Roy, stressed the importance of Brexit to the economy.
He said: “With just nine months to go until the UK leaves the EU, the lack of a coherent plan from within Whitehall about the UK’s long-term economic relationship with our most important trading partner risks holding back Scotland’s recovery.
“Irrespective of whether you agree or disagree with the decision to leave the EU, the uncertainty caused by this lack of clarity is making it extremely difficult for businesses to develop contingencies or plan for the future.
“Two years on from the referendum outcome, simply kicking the can down the road is simply no longer a credible economic strategy for government to adopt.”
John Macintosh of the professional services firm Deloitte said: “There are some encouraging signs that Scotland’s economy is improving and will perform better this year than last year.
“Some of Scotland’s exports, particularly food and drink, are showing strong growth and sentiment in the oil and gas sector, which is emerging from a hugely challenging time, has returned to its highest level since spring 2013.”
But he added: “While there are grounds for cautious optimism, business and government need to make sure they remain focused. This is particularly important given the potential distraction of the constitutional challenges which lie ahead.”
Economy Secretary Keith Brown said: “As this analysis shows, the prospects for longer-term growth are threatened by Brexit uncertainty and the prospect of being taken out the European single market and customs union. This poses a serious risk to jobs, investment, prosperity and living standards.
“We remain focussed on growing the Scottish economy, which is why the 2018-19 Budget delivered an increase of 64% in the economy, jobs and fair work budget as part of our investment of almost £2.4 billion in enterprise and skills.
“We continue to have the most competitive business rates package in the UK, while investing in our National Manufacturing Institute and Scottish National Investment Bank.”