Strategic risks and issues affecting the Scottish public sector

(updated January 2025)

Constitutional

There is increasing interplay of devolved and reserved powers with blurring of boundaries and responsibilities, alongside the need for closer working in key policy areas such as climate change and poverty. In areas such as levelling up support, gender recognition and Deposit return scheme increasing strain on inter-governmental relations.
Change of UK government and timeline for Scottish Parliament elections creates uncertainty about future policy and relationships, increasing political positioning / differentiation.
Pressures on trust in government and public institutions: questions raised on transparency of decision-making (covid inquiry / post office) and corporate behaviour.
The Scottish Government and COSLA agreed a partnership agreement – budget issues are nonetheless placing a strain on relationships. A fiscal framework between local government and Scottish Government remains under development.

Inflation has dropped back to within target. However, the financial situation of households, businesses and public sector will take time to recover from elevated inflation rates in the last 12-18 months. Interest rates (cost of borrowing) remains high when compared to recent years.
Scotland’s long term economic performance remains weak, and the long-term economic effects of exit from the European Union (due to changes in access to markets and migration patterns) are still embedding.
Scotland’s fiscal framework means that public sector budgets are now more closely tied to economic performance (and Scotland’s performance relative to the rest of the UK) than at any time since devolution in 1999.
Global political instability and increasing areas of conflict present risk to the wider economy and across the public sector, in areas including policy, investments, procurement and supply chains.

There are growing concerns about the fiscal sustainability of public services in their current form, with a requirement for large scale reform and prioritisation. The need for a strong focus on value for money and effective longer-term financial planning remains and now needs to account for the impact of the cost-of-living crisis and the need to meet climate change objectives.
Since the UK Chancellor of the Exchequer accepted the recommendations from the pay review bodies, the Scottish pay offers have exceeded the public sector pay policy. There is a need to consider all available options to address the size and overall cost of the public sector workforce.
A significant proportion of the Scottish public sector budget is spent on the NHS and social care and social security. Along with the effects of the pandemic, demographic change and medical advances mean that the pressure on these budgets is acute.
The public sector has many long-term financial commitments (pensions, PFI/PPP/NPD payments, infrastructure projects) that extend far into the future, and is facing increasing backlogs in maintenance. This constrains its financial flexibility and comes alongside severe constraints on capital funding.

There is still much progress to be made to reduce inequalities and protect human rights. Child poverty and increasing homelessness are major issues with significant long-term effects if not addressed.
Changes to service delivery due to financial constraints could be felt unequally across the population, with the impact greater amongst those with protected characteristics and on lower incomes.
There are profound geographical inequalities both across Scotland and within small areas. Demographic changes (the aging population and movement of population from some parts of Scotland to others) may alter these patterns.
There is scope to better capture users’ perspectives and enable communities to have greater power and influence over what matters to them.

Public-sector reform is not happening at sufficient pace to ensure the shift to greater preventative spending, a focus on priority outcomes and the sustainability of public services.
There remains a lack of clarity about plans for a National Care Service while acute short-term pressures on social care remain. This presents both risks and opportunities for delivery.
Continuing financial pressures are affecting how well some public services are performing. Rising prices have exacerbated this. This may affect delivery of the outcomes in the National Performance Framework.
Gaps in data to support evidence-based decision making and effective performance monitoring.

Vacancies at senior (Chief Executive, director) levels at a time when difficult decisions need to be made. There are also challenges in recruiting some specialist skills.
To secure long-term outcomes, collective leadership across organisations is essential. Achieving this remains challenging when existing public sector structures and accountability remain segmented, alongside weaknesses in Scottish Government sponsorship arrangements. Collaboration with third sector and local communities is not being maximised.
The expansion in the use of digital technology and growth of artificial intelligence demands increased attention to digital governance to ensure that ethical, privacy and equalities and human rights perspectives are properly reflected. There are also heightened risks around cybersecurity, fraud and digital exclusion.