The Scottish Government must enact “significant” public service reforms at pace if it is to balance the public finances, the country’s spending watchdog has warned.

In a new briefing today, Auditor General for Scotland Stephen Boyle said better workforce planning was needed as unforeseen wage hikes were rapidly eating into Holyrood’s budget.

He said the Government’s own projections already forecast a £1billion budget shortfall next year, rising to £1.9bn in 2027/28.

However the recent wave of large pay increases across the public sector driven by a 30-year high in inflation meant the problems could become more severe without reform.

The Government’s workforce costs grew by 28% between 2018/19 and 2021/22, and if that continues, wage bills alone will be more than £1.7bn above what is planned by 2027/28.

The Tories called it a “stark warning” about the “widening black hole” in Holyrood’s finances.

The size of the devolved public-sector workforce has increased substantially, going from 150,000 full-time equivalent staff in 1999 to more than 245,000 in the current financial year.

The report said: “Pay costs for NHS, central government, police and fire services, and further education were £13.4bn in 2021/22. 

“Recent pay deals exceed the Scottish Government’s public sector pay policy. 

“£1.7 bn more than initially planned was agreed in pay deals for 2022/23 and 2023/24.

“These rises are locked into future budgets and are making it harder for the Scottish Government to manage pay costs over time.”

It warned the Scottish Government approach to the size of its workforce - assuming slower growth rather than cuts - was not up to the task.

It said focusing primarily “on controlling workforce numbers and pay costs” would “not address current and future capacity challenges and is unlikely to balance public finances”. Better strategic workforce planning and “wider changes to how staff work within and across organisations” was needed 

“The scale of public sector workforce reform that will be required to deliver sustainable public services in coming years is greater than that seen in recent years. 

“Long-term reform plans are at an early stage, and will need to deliver change quickly given the scale of the challenge ahead.”

Mr Boyle said: “Significant reform of the public sector – including its workforce – is needed to protect services over the long term.

“That means better workforce planning and wider changes to how staff work within and across organisations.

“An approach to reform purely focused on controlling workforce numbers will not address workforce pressures and is unlikely to balance the public finances.”

Tory MSP Liz Smith said: “This is a stark warning from the Auditor General to the SNP government that our essential public services risk becoming unaffordable due to the widening black hole in their finances.

“The large growth in the size of the Scottish government workforce means that the higher pay deals agreed will be a major component of the Scottish budget.

“The SNP, which has received record funding from the UK Government, needs to be honest and transparent about how it intends to fund these. Scotland is already the highest taxed part of the UK, so Humza Yousaf must rule out widening that tax gap further to plug the black hole his government has created.”

Colin Poolman, director of the Royal College of Nursing Scotland, said: “We have been calling for some time for much improved workforce planning based on population need. 

“We need to get the right number of nursing staff in the right place, at the right time, and in the right mix. At the same time, the nursing workforce deserves fair pay. 

“Long-term, sustainable reform is needed for our health and care services."

SNP Finance Secretary Shona Robison is due to set out the draft Scottish budget for 2024/25 on December 19.