Spending Review: Shaping Scotland's priorities for years to come

Increased spending for Scotland on defence, computing and the development of carbon-capture technology have been promised in the chancellor's Spending Review. Rachel Reeves has found £250m for the Royal Navy's nuclear submarine base on the Clyde, £750m to bring the most powerful supercomputer in the UK to Edinburgh, and funding for the Acorn Project in St Fergus. Acorn would take greenhouse gas emissions and store them under the North Sea, in a process known as carbon capture and storage (CCS). The news comes as Reeves announces the budgets for all UK government departments over the next few years. Getting the review right is a tricky balancing act. Anyone can see ways that public funds could be used more efficiently or even cut. Everyone has their top priority for spending more. So what happens if there's a root and branch review, with every spending line scrutinised, new priorities set and given more funds and others squeezed or cut? We should find out later. But it may not be as radical a review as sometimes presented as too much is already committed bycontract or by government manifestoto make really radical changes. The clue is in the name. This is not about taxation, and it's not about balancing the books. That's for the Budget, and one of them is expected in autumn, to cover 2026-27. The review takes the spending totals already set by the Office for Budget Responsibility (OBR), and chooses how to allocate the day-to-day spending (also known as current or revenue spending) for the next three financial years. It also plans capital spending for four years on projects with a lifespan beyond the year, such as buildings. That includes the spending in Scotland by Whitehall departments, such as work and pensions and defence. It does not include funds spent by Holyrood. We already know, at least roughly, the total numbers the chancellor has to allocate. The increase in day-to-day spending is an average 1.2% per year over the three years to 2028-29. Extra funds have been front-loaded by the Labour government. In other words, most of the extra spending it gets from big tax increases on business and the wealthy are being used to lift spending in its first two years. Then it gets tighter. If every department were to retain the same share (which would suggest the review effort has been wasted), it would get the average increase. But we already know thedefence budget is getting a significant lift, to confront growing challenges and new types of warfare. We also know the NHS requires more than a standstill budget to meet rising demands on it. And the Westminster government has committed to increasing the amount of childcare it provides. That implies an estimated cut of 1.3% in real terms for other items of expenditure. Local government and justice have taken the brunt of such cuts in the five spending reviews since they started 27 years ago, though not in the one-year spending review carried out last year. One big question about such cuts is whether they mean a reduced level of provision, or a challenge to get at least the current level of public service out of less money. Public sector productivity has gone backwards since the pandemic. There's a need and a big challenge to reverse that and it may need some spending to help the process happen, with perhaps more use of technology to replace civil servants. Capital spending looks in an easier position, not least because Rachel Reeves' spending constraints allow her to borrow for that. She aims to match day-to-day spending with tax revenue, so it should not be funded by borrowing. In recent days, we have seen announcements to fund capital projects for defence, transport in the north of England and a large nuclear power station in Suffolk. Carbon capture and storage projects, to trap greenhouse gases, includethe Acorn Project in Aberdeenshire. There's a promise to spend "an initial £250m" over three years on the Clyde submarine base, "supporting jobs, skills and growth across the west of Scotland". A lot of the allocations are being attached to the government's top priority of economic growth, with an emphasis on spreading funds around the UK. Some of this spending precedes the announcement of an industrial strategy, in which the UK government intends to give added backing to industries of strategic importance such as steel, or those with the most growth potential, so there's lots about science and IT. That's why Spending Review day starts with a further preview of the review: Edinburgh University is to get £750m allocated to a new super-computer, which is billed as the most powerful in the UK, and among the most powerful in the world. It will be available for research into numerous projects such as personalised medicine, sustainable air travel or climate change. It reinstatesa project that was cancelled last summer by Rachel Reeves, because it had not been funded by the outgoing Conservative government. Much of the state pensions and welfare budget is distributed throughout the UK by the department for work and pensions. But that share has been falling as Holyrood takes on devolved powers. Changes to universal credit would be felt in Scotland. That includes changes to the two-child limit on benefits. The state pension's triple lock of at least the rate of average pay increase, of price inflation or 2.5%, is being retained and that also covers Scotland. Where there are cuts in civil service numbers, that could apply to those who work in Scotland for the Foreign, Commonwealth and Development Office, for HM Revenue and Customs and for the Department of Work and Pensions. But there is also a plan to push many more civil service jobs out of London, so there could be gains for Scotland from relocations. Many of the changes in day-to-day spending, or capital spending on transport for instance, directly affect other parts of the UK, and in some cases only England. The formula for spending should then apply a share of that change to the block grant passed from the Treasury to Holyrood – whether an increased share or a proportionate cut. If the health service gets a boost, above the rate of increase in other departments, that will be a positive for Holyrood as well. But if justice takes a hit, a proportionate share of that will be passed on to Scottish ministers. They will then be free to allocate the block grant as they wish, so they can pass on the health spending at the same rate as England, or apply that money to another priority. In recent years, more and more spending has gone into the new Holyrood welfare budget, so that £1.5bn is being spent each year on making welfare more generous than in the rest of the UK. Some of that has been to mitigate decisions taken on welfare by the Westminster government. And there could be relatively good news for Holyrood from two decisions in the spending review which have already been announced. Reversing the cut in pension-age Winter Fuel Allowance brings a share to Holyrood of the necessary funds to make that happen – somewhere around £125m. That eases the pressure on Shona Robison, Holyrood's finance secretary, as she decides how to use the resources she gets. And if Rachel Reeves follows through on the commitment to increase the level of state childcare support, that will also ease Holyrood's budget challenge, as it has already found funds to increase childcare. A share of that new-found money for England will be added to Holyrood's block grant, but need not be spent that way. Shona Robison has put off decisions about her medium-term plans until she sees Rachel Reeves' spending review and the impact it has on Holyrood's day-to-day and capital spending. The Scottish finance secretary is due to update MSPs by the end of June on how she uses it, including a priority list of capital projects. These include high-profile road upgrades in the Highlands and Aberdeenshire, and the stalled programme for building NHS National Treatment Centres. She faces competing demands to improve the buildings and IT in public services and, on the other hand, improving economic infrastructure such as roads and rail, with a more direct impact on economic growth. She also has the challenge of either cutting some public services or reforming them in such a way that they can be provided more efficiently. This spending review may be of major significance for public services for years to come. Or it may be replaced by annual budgets, as we've seen in the past, making different decisions depending on funds available and political pressure. The announcement in the Commons later is only the start of the process of putting those funds to work.