the big black money hole

When the Budget looks grim, how do you ask for more?

By Jamie Greene, Founder and Director, Kempock Advisory

Much has been written these past few days about how difficult the next Scottish Budget will be. I do not dispute the expert analysis, the commentariat's musings, or the premise beneath all of it that the outlook is rather grim. The Fiscal Commission's numbers are what they are, and I will come to them. But most of that coverage stopped at the diagnosis, raising the what-ifs and the known-unknowns, and asking who the likely losers might be if Ministers have to cull departmental budgets.

As someone who sat in the room and negotiated a budget deal last year, let me add the part that tends to get left out of the analysis. In a parliamentary chamber where no party holds an outright majority, the politics of a Budget matters every bit as much as the forecasts, and it is the politics, not the arithmetic, that decides who actually walks away with something.

Let's start with those forecasts, because they set the terms of the negotiation to come.

This week's Fiscal Update poses a depressingly striking figure. The reconciliation applying to the 2027-28 Budget, the annual correction between forecast and actual income tax, is £720 million, the largest since income tax was devolved. What makes it remarkable is that it followed the most accurate income tax forecast the Commission has ever produced, with Scottish revenues just £209 million below prediction. A record clawback from a record-good forecast is a quirk of the fiscal framework. Scotland's funding rests on both the Commission's forecast and the OBR's forecast for the rest of the UK, and for the first time the small errors on each side pushed the same way rather than offsetting. The government may borrow to cushion it, but only to around £670 million, so the full sum cannot be covered.

The more cheerful number is less cheerful than it first looks. There is roughly £859 million more to spend this year than January assumed, but the bulk of it is one-off funding flowing from Westminster's decisions, for example on special educational needs in England, and almost none of it recurs in 2027-28. Spend it now and next year's hole deepens. Day-to-day funding grows by 3.5 per cent in real terms this year and is then forecast to fall by 1.2 per cent, the first real-terms fall in the resource block grant since 2022-23.

Then there is the conundrum that makes Scottish budgeting uniquely awkward. The size of the pot is not entirely settled in Edinburgh at all. It depends on what the Chancellor does at Westminster in the first Budget of Andy Burnham's government. Through the fiscal framework, several ordinary decisions in London might reduce Scotland's funding automatically. Cuts to devolved departmental budgets lower the block grant. Cuts to welfare lower the adjustments that fund devolved social security. Certain UK tax rises increase the adjustments deducted from the Scottish Budget, pulling funding down rather than up. None of it needs a vote at Holyrood, and none of it is intended as a cut to Scotland. The clearest live example is defence. Higher UK defence spending is being funded partly by trimming departmental capital, which, some argue, quietly reduces Scotland's capital block grant. Around £7 billion of that plan is still unfunded, and how it is paid for will be decided on 28 October. Whatever the answer, it matters to the Scottish Budget.

It is not all doom and gloom for Scottish Government advisers. In almost every Budget there is the expectation that consequentials from Westminster will at some point save the day, or at least part of it, at the last minute, plugging some of those fiscal holes. Stealth taxation and other traditional tricks of the Treasury might claw back money which passes on to devolved governments. None of this surprises the commentators, the IFS, or expedient political journalists. Neither is it particularly easy to explain to the public, the taxpayer, and those at the sharp end of any future cuts.

So yes, money is remarkably tight, and the Scottish Finance Secretary is setting a Budget on ground that will not stop moving until the autumn. On that, the consensus is there.

Here is where I part company with most of what has been written. A tight forecast is not a settled outcome. It is the opening position in a negotiation, and in a minority parliament the government cannot impose its way to a majority or a budget pass. It has to find the votes, from a chamber where the largest party sits a handful of seats short, and that single fact changes everything about how the year plays out compared to previous years.

Every Budget in this session will require another party, or parties, to vote for it or to stand aside, and that requirement is precisely what gives everyone else in the building something to trade with. Scarcity does not remove the leverage of the opposition and the committees. It sharpens it, because in a lean year each vote the government needs is dearer, and each protected line has to be argued for rather than assumed.

This is not a comment on the current administration. It is simply the mechanics of a minority parliament, and it would be true whoever was in government.

Which brings me to the question that should matter most to the sectors now watching this Budget with alarm, the ones who need funding protected or money found. How, in a year this constrained, do you actually get to a deal.

The instinct in tight times is to shout louder, to marshal the strongest possible case for why your cause deserves more than anyone else. In some budgetary years that absolutely is your go-to strategy. This year I am less sure. When there is little to go round, the asks that succeed are not the loudest but the most precise. They are specific, they are affordable, and crucially they give the government something it can present as its own achievement, or that a swing party in opposition can carry as a win of its own. A grand demand on a shrinking pot invites a no. A targeted, costed, deliverable ask that solves a real problem for a modest sum invites a conversation.

The licensed hospitality rates relief that I helped secure in last year's settlement is the clearest illustration I can offer, and I offer it because I helped negotiate it. The sector made its own case powerfully, and it is a fine exemplar for others. But at the end of the day, someone had to make a political calculation, to go in there with a series of asks of ministers, and to ultimately decide whether or not to support the Budget. Money talks, but so do votes.

That is the anatomy of a deal in a hung parliament. Not a bigger argument, a sharper one.

So here is my honest advice:

For any organisation with something at stake, that points to a way of working, and it starts now rather than in December. Understand where your funding sits and whether it is genuinely exposed, because in a tight year defending what you have is as much of the task as asking for more. Follow the money at Westminster as closely as the money at Holyrood, because the 28 October Budget will size the pot before the real contest begins. Get into the pre-Budget committee scrutiny opening this month, because that is the formal moment the parliament asks what should be protected, and it closes long before any final vote is cast. And above all, work out whose vote this Budget will actually need, and shape your ask around what that party can say yes to. Do your research. Talk to everyone. Be compelling but not pushy. Offer solutions not problems.

The prevailing story of this Budget is that the money is tight, and it is. But tight money is the beginning of the conversation, not the end of it. The Budget will be presented as a set of choices made in Edinburgh, yet also born out of choices made elsewhere. The organisations that come knocking with the right ask at the right moment will still find room to do a deal while everyone else is reading the gloomy headline about the £720 million black hole.

Jamie Greene is Founder and Director of Kempock Advisory. He served as a Member of the Scottish Parliament from 2016 to 2026, and negotiated and secured support for many sectors through the 2026-27 Scottish Budget process.