Ageing population could put strain on Scottish Budget, MSPs warn

MSPs have warned demographic factors pose could a risk to the future size of Scottish budget.

Holyrood's Finance and Constitution Committee's pre-budget scrutiny report highlights Scotland's population is forecast to age faster than the rest of the UK, meaning the proportion of working age people available to support pensioners will be comparatively smaller in Scotland.

Scotland's working age population is expected to fall from this year, which the Scottish Fiscal Commission (SFC) predicts will place a drag on the country's economic growth.

The Scottish Government's Fiscal Outlook says Scotland's ageing population is expected to accelerate from 2021 onwards and is happening at a faster rate than in the rest of the UK, due to increasing numbers of people aged 75 and over and an ageing working population.

In its report ahead of the 2019-20 budget, the committee questions if the Scottish Government has enough policy levers to handle this risk and whether the fiscal framework, which sets out how Scotland is funded, sufficiently recognises this demographic difference.

It recommends both these questions are taken into account in the review of the fiscal framework.

The committee also wants the review to consider the impact of immigration policy following Brexit, raising concerns of a “real risk to the size of the Scottish budget if there is a fall in Scotland's working age population due to a disproportionate decline in immigration relative to the rest of the UK''.

The report also notes concerns over an “emerging pattern of a high degree of volatility'' in how the fiscal framework operates, citing revisions to forecasts by both the SFC and the Office of Budget Responsibility, and asks for the review to address this.

A further issue identified as having a potentially significant impact on the size of the Scottish budget is any differential in wage growth rates.

The committee asks if either government has carried out any risk analysis of the potential impact of differential economic growth rates between Scotland and the rest of the UK.

Committee convener Bruce Crawford said: “The demographic risk identified in our report raises two fundamental questions: whether the Scottish Government has sufficient policy levers to address the risk and whether the fiscal framework sufficiently recognises demographic divergence.

“Our committee recommends it is essential that both of these fundamental questions are fully considered as part of the review of the fiscal framework.''

He added: “The bad news is that while our ageing population is not new, it is set to accelerate from 2021, and this is happening faster than rest of the UK.

“In the longer term, all future Scottish Governments will need to respond to the pressures this creates.'