IFS analysis shows the Scottish Government's plans for health and social care imply a substantial reduction in the share of funding going towards hospitals and the ambulance service, and a big increase in the share going to other services, such as primary care and social care.

To enable this without adverse effects on hospital performance, the Scottish Government is banking on Scotland's territorial and national health boards delivering 3% efficiency savings per year, the analysis shows. Without big improvements in efficiency, hospital and ambulance performance would start deteriorating again unless other budgets were cut back to bolster core NHS funding.

IFS says overall health and social care budget for day-to-day spending is set to increase by just 0.2% in real terms in 2026–27. After accounting for increases in planned transfers to councils to help pay for the National Living Wage for social care workers, the amount for other health and social care services is currently set to fall by 0.6% in real terms.

In addition, the overall health and social care resource budget is to return to more substantial growth in 2027–28 and 2028–29, increasing by an average of 2.4% a year in real terms, but the budget for NHS territorial and national health boards is set to increase by just 0.4% a year in real terms over this period. The remaining parts of the health and social care budget - covering things, such as primary care and social care are set to increase by far more – almost 12% a year in real terms. No detail is provided on how spending would be divided between these other services. But IFS says it is clear that, if delivered, this would represent a major shift in health spending from hospitals to the community.

Underpinning the plans are efficiency savings targets for the NHS boards of 3% a year – significantly in excess of what the NHS has been able to deliver historically, and with little detail so far on how they are expected to be achieved. IFS says that without 'heroic improvements in efficiency or significant reductions in patient demand', NHS board budgets will need substantial top-ups to avoid deterioration in performance. This could stymie efforts to shift funding to community health and social care – or necessitate even steeper cuts to areas such as local government and justice funding. 

Planned health and social care investment spending is set to fall again in real terms, though, by 2% a year, on average. This could make it difficult to invest in the facilities, equipment and technology that could help deliver the aforementioned ambitious efficiency improvements that the Scottish NHS is targeting. The UK government is, instead, planning small real-terms increases in its health investment spending (just under 1% a year).

In addition, the Scottish Government is exploring public–private partnerships, which can help speed up investment in certain types of facilities, such as new community health centres.

Martin Brogaard, a research economist at IFS and a co-author of the report, said: ‘The Scottish Government faces a difficult funding outlook, which necessitates tricky trade-offs between different areas of both day-to-day spending and investment spending.

‘For day-to-day spending, it is banking on big improvements in hospital and ambulance service productivity and a shift in resources to some combination of primary and social care to refocus on preventing ill health, enable health funding to stretch further and avoid a deterioration in service quality. Even then, many other areas such as local government and justice will see cuts in their funding from 2027–28.'

Sandy Begbie, chief executive of Scottish Financial Enterprise, added: ‘The IFS analysis highlights the challenges that exist in the public finances, as well as the long-term problems the next government will face. Against this backdrop, it is vital to focus on tackling public sector inefficiency and increasing underling tax bases, which can generate revenue without increasing tax rates. The only way to do that is by delivering sustainable and significant economic growth.

‘The last year has seen a range of government reviews and strategies for both efficiency and growth. It is critical that whoever is in power after the upcoming elections adopts a laser-like focus on turning warm words into concrete action and progress.'