Is Scotland heading for an early election?

The parlous state of UK public finances and spillover impact of the October 30 Budget could mean Holyrood refuses to pass next year’s Scottish Budget, triggering the government's resignation

Two elections will be uppermost in delegates' minds when the SNP stages its annual conference in Edinburgh this weekend: the July 4 general election when the party suffered a crushing defeat and the May 2026 election for the Scottish Parliament when it fears it may suffer a similarly disastrous outcome, losing power after almost two decades.

Another key event, Tuesday's statement by Shona Robison, finance secretary, on new emergency spending controls, will also concentrate SNP minds in the run-up to the 2025-2026 Scottish Budget process. It should kick off in December and end early in the new year. That process threatens to be worse than tough: it could undo the party's grip on power prematurely.

There is a growing surmise, perhaps even the makings of a conviction, in and around Holyrood that the Scottish Government will be unable to secure approval for its  latest Budget and that, ultimately, the only way to resolve the impasse will be for it to resign and trigger an early election next year. Not because it's in its interests. Far from it. But because it could be forced to.

Tax and spend policies determine election results

The Conservatives lost on July 4 primarily because the state of public services in the UK, notably the NHS, is dire because of chronic underfunding. The Labour refrain, Britain's broke, cut through the campaign fog and noise. The current six Tory contenders to succeed Rishi Sunak don't recognise this, preferring to condemn Labour for supposedly inventing a £22bn "black hole" just seven weeks into office and implying they left an economy, including the public finances, in good shape. Utterly disingenuous bad faith.

Equally, the SNP lost 39 of its 48 MPs at Westminster because voters had lost confidence in its governing ability, were angry and/or fed up with a string of broken promises on health, schooling and other stressed services. They did not believe it could deliver improved services, better growth and sound public finances. The SNP acted as if it had simply run out of ideas, repeating  ad nauseam the same old blame game against both Tories and Labour and chanting that everything would, lo!, be better under independence. It had certainly run out of money despite presiding over the most heavily-taxed region of the UK.

Of course, Conservative fiscal policy has a lot to answer for when it comes to the state of the public finances and hence services though spending per capita remains relatively high in Scotland (15% higher than the UK average). Most fair-minded, non-political bodies now agree, however, that, when Robison announces her spending decisions next week, she has by and large herself and her cabinet colleagues, including First Minister John Swinney, to blame for the pain.

Public sector pay and pain

The Scottish Fiscal Commission says: "While UK Government policies contribute to the pressures on the Scottish budget, much of the pressure comes from the Scottish Government’s own decisions." Similar comments have been expressed by Audit Scotland, the IFS and the Fraser of Allander Institute. Public sector pay, now accounting for around half the Scottish Budget, is the biggest single case in point.

On 30 May Robison published Public Sector Pay Policy 2024-25 which set a 3% pay metric for the three years 2024-2027 - a cumulative impact, the document says, of 9.3% compared to forecast CPI inflation of 5.7%.  So, this was knowingly above inflation and, as we can see, the current outturn is even higher. Indeed, the finance secretary suggested this: " A multi-year, above inflation approach provides certainty for the public sector workforce and an opportunity for Scottish Government, employers and Trade Unions to plan for and transform our public services to improve outcomes for the people of Scotland."

Her document added: "Public bodies have the flexibility to draw up their own pay proposals which reflect their own situations such as recruitment and retention issues." It further encourages them to "consider a progressive pay approach which may include setting a cash underpin, a higher percentage uplift, or a non-consolidated cash payment."

This, like Rachel Reeves' decision to accept the recommendations of multiple independent pay review bodies, is laudable in that it makes up for years of pay stagnation or real-term cuts, may ease staff shortages and/or prevent strikes. It is a notably fair approach in the face of boardroom and shareholder excess. But it comes with consequences aka trade-offs or spillover effects. For Robison this means asking again for in-year savings.

She herself, like the external scrutiny bodies, has acknowledged that resource spending requirements outstrip funding - perhaps to the tune of £2bn by 2027 or an annual average of £1.5bn over the next 50 years according to the SFC. It's a given that stricter controls are required to keep the budget in balance as required constitutionally. Or we'll simply have more disastrous decisions like that to cut arts funding - for a sector that delivers billions to the Scottish economy. Or, on a grander scale, impose a semi-permanent council tax freeze that simply offloads central executive austerity onto local services.

Looming budget impasse

The UK Budget set out by Reeves on  October 30 will be of existential importance for the SNP minority government at Holyrood - and its own fiscal plans for 2025-2026 and thereafter. If it's as bleak as forecast then Robison will likely be forced to include savage spending controls/cuts and/or tax rises in her own budgetary proposals likely a month or so later. Will these be approved?

In 2009 or just two years into the first SNP (minority) administration, its Budget was rejected on the presiding officer's casting vote after a 64-64 deadlock among MSPs amid considerable rancour over proposals deemed inadequate to deal with the economic fall-out from the Great Financial Crisis. Swinney, the then finance secretary, had to make further concessions and present a new Budget Bill which eventually passed under emergency procedures, with only the two Greens voting against.

I've heard of fears that the SNP, which has 62 MSPs, will be unable to win over enough support from the other 67 (including the presiding officer) to secure budget approval in a similarly fraught period for the Scottish economy and it will fall. This comes with caveats, of course.

The Scottish Conservatives' 31 MSPs will obviously have no interest in stoking the fires of a political row at Holyrood that could lead to an early Scottish election in which they could face the same meltdown as their Westminster colleagues in July - and this time under a new, untested leader. But, equally, will they hold their noses and save the SNP as in 2009? Both Labour and the LibDems could expect a new election to swell their numbers in the Parliament. The Greens, as in the 2019 impasse, will be key but are quite unreliable.

That goes, too, for the outcome. If Robison's Budget Bill falls then she could present a new one but, again, it will be a fraught process given the imperative of being balanced and may fail again. "If the Budget Bill does not get through parliament then law mandates that public spend is capped at last year’s spend. This can have serious implications – if prices in the economy have risen over the year then this cap would mean a real term decrease in spend for the budgets of different services like the NHS and local government," a Fraser of Allander Institute guide tells us. 

But should deadlock occur an early election could be called -  either on a two-thirds majority of MSPs, or government resignation, or a lost confidence vote. It all makes for a fascinating backcloth to this weekend's SNP conference and the return of Holyrood next week...