How the Scottish Government closes the looming fiscal gap is a
political choice. Miriam Brett argues that climate breakdown
dramatically increases spending needs and actively steering
the economy towards a just transition is not only necessary, but
Scotland’s greatest opportunity.

Scotland sits at the precipice of a challenging fiscal landscape, necessitating an urgent array of difficult decisions for the Scottish Government. Without action, the resource fiscal gap is expected to grow from a balanced budget in 2025-26, to £2.6 billion in 2029 30. To try and mitigate this, the Scottish Government has set out a “managed downward trajectory” for the devolved public sector workforce, aiming to cut the workforce by 0.5 per cent per annum on average over the next five years.

The widening gap between planned expenditure and funding has called into question the Scottish Government’s ability to deliver on its four core objectives: eradicating child poverty, growing the economy, tackling the climate emergency, and delivering high-quality and sustainable public services.

At present, the government’s approach leaves more questions than answers. For example, how can it align with increased future spending needs, like social care? How can the government avoid a target-driven approach increasing spending further down the line? And how will trade unions, impacted workers and communities meaningfully shape decision-making?

As Scotland navigates the next steps, it must reflect on the past decade and a half, and ensure lessons have been learned. Over a decade of UK Government austerity corroded vital public services and infrastructures, aggravated gross imbalances in income and wealth, stifled demand, undercut productive capacity, and squeezed living standards. As Scotland tackles a challenging fiscal backdrop, attempts to balance the budget must learn from the pro found damage of austerity.

How the Scottish Government chooses to close the fiscal gap – and who benefits from those decisions – will lay the foundations for Scotland’s economic future. Importantly, the fiscal crunch coincides with unprecedented challenges, from the soaring cost of living and unacceptable levels of poverty, to escalating climate and environmental breakdown.

The causes and distributional consequences of climate and environmental breakdown are unevenly felt both between and within global regions and countries. Analysis by Future Economy Scotland shows that the richest 5% of households in Scotland have a carbon footprint four times that of the poorest 5%.

This summer alone witnessed prolonged droughts and successive heatwaves. In July, a wildfire in the Cairngorms burned its way through 25 sq km of moorland and forestry, requiring over 500 firefighters and necessitating evacuations. As Scotland’s chief fire officer states, “If we are serious about protecting lives, livelihoods, infrastructure, our natural environment and the resilience of our nation, we must act now – together, with purpose, and with a long term commitment to prevention, as well as response.”

Few aspects of Scotland’s economy require strategic direction like the labour market transition. Our research found that total employment in Scotland supported by oil and gas fell by 32% since 2014, despite hundreds of new oil and gas licenses being awarded during this period. With strong ambition and targeted policy, the transition can create up to 40,000 more energy jobs than will be lost. However, this will require a much more proactive industrial strategy and labour market planning.

As climate breakdown-related events escalate, there is an in escapable reality: public funding needs will exponentially rise to grapple with mitigation, adaptation, and damages costs. While the implications of climate breakdown are far-reaching, the need to bolster capacity and resilience in public services is clear.

The preparedness agenda required is extensive. It means a step change in funding for areas like the fire service coping with wild fires and the NHS preparing for more patients during heatwaves. It means accelerating retrofitting housing stock to offset poor health outcomes, afforestation to tackle flooding, and measures to cope with food supply chain disruption as crops fail.

Real-terms capital budget reductions and planned reductions to the public sector workforce coincide with increased need for a step-change in public spending and investment – all while operating in a constrained fiscal framework with limited borrowing powers. Addressing this mismatch through fiscal consolidation alone risks repeating mistakes of the past.

Strengthening public services while meeting the future spending and investment needs means confronting an uncomfortable truth: most Scots will need to pay a little more tax, and relying exclusively on increases at the top of the income distribution is neither sufficient nor sustainable. Future Economy Scotland has set out an ambitious yet credible package of reforms to raise an estimated £2.3 billion per year in revenue. These include income tax changes, re placing council tax with a recurring Progressive Property Tax based on up-to-date property values and replacing the existing system of Non-Domestic Rates with a Green Land Value Tax.

In addition, what measures can the Scottish Government take to maximise value for public money? The reliance on outsourcing to private consultancy firms hollows out public sector capabilities, of ten extracts value, and obfuscates democratic decision-making processes. While strengthening public sector capabilities in Scotland cannot happen overnight — particularly in a challenging fiscal con text — the Scottish Government should prioritise it going forward.

Finally, the Scottish Government must shift from one that intervenes in market failure to one that actively stewards the economy. This should involve the mobilisation of strategic public assets, with a focus on securing recurring revenues. The next round of Scot Wind, for example, offers an opportunity to ensure benefits don’t flow overseas. This includes strengthening local supply chain development and stronger conditions to guarantee workers fair pay and securing equity stakes in future leasing rounds to create an en during source of public revenue.

Going forward, as Scotland navigates a challenging fiscal landscape while the climate crisis rages on, one thing is abundantly clear: the cost of delayed action will far outweigh the costs of action today.

While inevitably challenging, delivering a just transition is also Scotland’s greatest economic opportunity. Delivered effectively, it has the potential to create a new generation of well-paid green jobs, raise living standards, reduce poverty, and tackle deep-rooted in equalities. There is, however, a narrow window of opportunity to achieve this, and it means tackling systemic problems embedded in the current economic model and hardwiring climate justice into every aspect of Scotland’s economy.