Report: Strategic risks and issues

September 2, 2021 by Audit Scotland

Strategic risks and issues affecting the Scottish public sector

Constitutional

  • The outcome of the Scottish Parliament elections in May 2021 means that there is the potential for an independence referendum to be held during current parliamentary session.
  • Following the UK’s exit from the European Union, it remains unclear how the UK internal market (across England, Scotland, Wales and Northern Ireland) will operate and how some aspects of the existing devolution structures will operate.
  • The process of implementing the Scotland Act 2016 remains incomplete (VAT assignment and full adoption of social security powers). The fiscal framework is due for review in 2021.

Economic

  • The pandemic has resulted in an economic downturn. Some sectors of the economy may be permanently affected. The nature and timing of economic recovery remains unclear. Establishing a more digital, more inclusive economy will require time and significant investment in skills. The economy will have to reshape to enable climate change objectives to be met. Economic pressure on household incomes may drive greater demand for public services.
  • 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.
  • The short and long-term economic effects of exit from the European Union (due to changes in access to markets and migration patterns) remain to be seen.

Financial

  • A significant proportion of the Scottish public sector budget is spent on the NHS and social care. Along with the effects of the pandemic, demographic change and medical advances mean that the pressure on these budgets is already acute. Some NHS boards have already seen overspends, despite the NHS budget having grown in real terms.
  • The public sector already has many long-term financial commitments (pensions, PFI/PPP/NPD payments) that extend decades into the future. This constrains its financial flexibility.
  • Prior to the pandemic, there were already concerns about the financial sustainability of certain parts of the public sector in their current form including local government and policing. The pandemic has focused the public sector’s attention on short-term priorities. The need for medium and long-term financial planning remains.

Inequalities and human rights

  • There is still a significant amount of progress to be made to reduce inequalities and protect human rights. Areas affected include wealth, health and wellbeing and education. These inequalities affect different groups (including women and girls, BAME people, older people, disabled people) in complex and interacting ways.
  • 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 greater scope to capture users’ perspectives and enable communities to have greater power and influence over what matters to them.

Performance and innovation

  • Ten years since the Christie report, there is still limited evidence of a shift towards preventive spending.
  • Mounting financial pressures are starting to have an impact on how well some public services are performing. This may affect delivery of the outcomes in the National Performance Framework, such as reducing educational inequalities. The pandemic has exacerbated this, created backlogs and reduced access to some public services and affected systems to monitor performance.
  • The integration of health and social care remains a work in progress with considerable cultural, organisational and financial challenges.
  • The pandemic has greatly accelerated the shift to greater digital delivery of public services but this generates risks around digital exclusion, cybersecurity and fraud.

Leadership and governance

  • Leadership roles are increasingly difficult to fill in parts of the public sector with vacancies at senior (chief executive, director) levels.
  • To secure long-term outcomes, collaborative leadership across multiple organisations and sectors is essential. Achieving this remains challenging when existing public sector structures and systems of incentives and accountability remain siloised.
  • The shift to digital technology and the expansion in the use of data and artificial intelligence demands greater attention to digital governance to ensure that ethical, privacy and equalities and human rights perspectives are properly taken into account.