This is the headline message of the Scotland’s Budget Report 2024, published today by the Fraser of Allander Institute at the University of Strathclyde.

Significant Barnett Formula consequentials have been generated by UK Chancellor Rachel Reeves’ announcements last month – £1.5 billion in 2024-25 (of which £1.4bn is resource) and £3.4bn in 2025-26 (of which £2.8bn is resource).

However, the Scottish Government has said the funding provided in the 2024-25 year is already largely committed. If this is the case, the uplift for 2025-26 is under more pressure than it would appear. On the resource side, this would mean an uplift of £1.4bn in 2024-25 being followed by an uplift of £1.4bn in 2025-26.

Public sector pay makes up over half of the Scottish Government’s resource budget, and therefore the decisions made on pay will have significant bearing on the overall budget position. Wage bills recur every year, thus current and future 2024-25 pay decisions will have a big impact on the overall budgetary decisions.

The fact that public sector workers are, on average, paid more in Scotland, will mean that the challenges are even more acute, given the country’s much larger public sector. The decisions on this, and on areas like social security, have put additional pressure on the Scottish Government’s budget.

Dr João Sousa, deputy director of the Fraser of Allander Institute, said: “As part of our report today, we have published where we think the Scottish Government are in terms of their funding position for 2024-25.

“Figuring out the funding position for 2025-26 has been much more challenging. The lack of a Medium Term Financial Strategy this year has made calculating this near impossible, but we have set out the various pressures that the budget is likely to be under.

“Health spending, all other pay, social security and grants to local government make up £7 in every £8 the Scottish Government spends. This seriously limits their room for manoeuvre in changing the overall shape of the Budget.”

The report includes significant analysis of how Scotland spends its money to understand more about the discretionary power the Government has to prioritise its budgetary decisions.

Also included is analysis of the impact of employer National Insurance Contribution rises on the Scottish Government’s Budget, and analysis of the cost to the Scottish Government of replicating the 40% retail, hospitality and leisure relief (RHL) announced by Rachel Reeves in Scotland.

The Institute’s analysis finds that although spending on reducing child poverty – stated by successive Scottish First Ministers as one of the main, if not the utmost priority – has grown significantly since 2018-19, it would not be fair to say that it has become a large part of the Scottish Budget.

It remains under 3% of all discretionary resource funding, and capital spending on child poverty reduction through the provision of affordable housing and urban regeneration has actually fallen by 13% in real terms since 2019-20.