Draft Spending and Tax Plans 2018-19

– in the Scottish Parliament on 14th December 2017.

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Photo of Kenneth Macintosh Kenneth Macintosh Labour

Good afternoon. The first item of business this afternoon is a statement by Derek Mackay on the Scottish Government’s draft spending and tax plans for 2018-19. The cabinet secretary will take questions at the end of his statement, so there should be no interventions or interruptions.

Photo of Derek Mackay Derek Mackay Scottish National Party

I am delighted to set out the Scottish Government’s comprehensive budget proposals for 2018-19, which will use the powers of the Parliament to build a fairer Scotland and put the progressive values of the Government into action. The budget will invest in our public services and support businesses to develop and thrive.

The budget is, of course, being delivered in the most challenging of circumstances. We must support our economy to keep pace with changing technology, access new markets and deal with United Kingdom Government austerity and the damaging uncertainty caused by Brexit. Austerity and uncertainty are damaging the UK economy, and there is a knock-on effect on public finances. The pound has fallen, inflation has risen, and growth forecasts have been downgraded. As a result, we face the most challenging economic and fiscal environment for any budget in the devolution era.

The Presiding Officer:

Will Mr Findlay wait until the end of the statement to make his point of order?

The Presiding Officer:

Mr Findlay can make a genuine point of order. If I find that it is a political interruption, I will not be happy.

Photo of Neil Findlay Neil Findlay Labour

It is a genuine point of order.

We usually receive a copy of the statement when the cabinet secretary starts to read it. Apparently, this time, we will not get that until he finishes. Is that a change in procedure?

The Presiding Officer:

I get the point, Mr Findlay, but that is not a point of order.

Photo of Derek Mackay Derek Mackay Scottish National Party

T he fundamentals of the Scottish economy remain strong. Since 2007, Scotland has largely closed the productivity gap with the rest of the UK and, in 2017, our economy continued to grow, the number of people in work has reached a record high, and unemployment is close to its lowest-ever level.

Today, the Scottish Fiscal Commission has published its first comprehensive report on Scotland’s economic and fiscal forecasts. I thank the commission for its work. Its report underlines those fundamental strengths in our economy. It predicts continued growth and that employment will rise further and earnings growth will match that in the UK. However, the commission has also highlighted the negative impact that Brexit will have and the challenges that we will face from a declining working-age population. It forecasts that productivity growth will be subdued, that the labour market will tighten as a result of reduced migration and that that will impact on gross domestic product.

The commission’s forecasts for growth are more cautious than those of other forecasters, but it is clear that, to grow faster, we must boost productivity and grow our working-age population. That is why the budget sets out immediate measures to stimulate economic activity and improve productivity.

For Scotland’s future prosperity, the Parliament must reach a consensus on the powers that we need to increase the number of working-age people in Scotland, and we must continue to make the case for a commonsense solution to Brexit that keeps Scotland and the UK in the single market and the customs union. However, even as we do that, we will redouble our efforts to ensure that our economy will flourish, no matter the outcome of the negotiations.

Equally as important as the budget’s economic context is the fiscal context. Over the 10 years to 2019-20, Tory austerity will mean that the Scottish Government’s fiscal block grant allocation will have been reduced in real terms by £2.6 billion. Despite the chancellor’s claims,

“By 2019-20 the resource block grant will be around £500 million lower than in 17-18”, as the independent Fraser of Allander institute recently stated.

We welcome the additional capital funding that will transfer to Scotland and we will make good use of the financial transactions that are available. However, we cannot spend financial transactions on teachers, nurses or the police. Instead, we will use Scotland’s own resources to invest in our public services, and we will provide the support and infrastructure that our economy needs to flourish in a low-carbon, high-technology world.

We believe that strong public services and a vibrant economy go hand in hand. Undoubtedly, our public services require a strong economy to generate investment; equally, the most successful economies in Europe are built on the firm foundation of strong public services.

At the heart of this budget is immediate action to support the economy, and there will be a series of key investments and programmes that deliver for business now and build the right environment for the future. The global economy is changing at an unprecedented rate, but Scotland already has competitive advantages in many industries of the future, such as life sciences and renewable energy. Therefore, the budget delivers an increase of £270 million, which is an increase of 64 per cent, in the economy, jobs and fair work portfolio. That additional funding contributes to investment of almost £2.4 billion in enterprise and skills through our enterprise agencies and our skills bodies. The increased investment includes a 70 per cent uplift in our funding for business research and investment, which takes our investment in the coming year from £22 million to £37 million. The budget also contains an initial £10 million to support the new south of Scotland enterprise agency, and it doubles, to £122 million, the funding that is allocated to city region deals.

Through the Scottish Further and Higher Education Funding Council, the budget invests around £1.8 billion in our colleges and universities, providing a real-terms increase in their funding. That investment funds the teaching, research and innovation that will provide opportunities for our young people, train the workforce of the future and drive our productivity. Further, the budget allocates an initial £18 million for the new national manufacturing institute that was announced by the First Minister on Monday. Construction of that new centre of excellence will begin next year.

Scotland has a world-leading reputation for our efforts to tackle climate change. To support our transition to a low-carbon economy, the budget allocates £60 million to a low-carbon innovation fund.

We will invest £1.2 billion in our transport infrastructure, including support for new and improved road and rail developments. We will not only dual the A9, but turn it into an electric highway, and we will deliver new railway investments like the electric trains that now run between Edinburgh and Glasgow. In addition, we will make a £20 million investment in the coming year to support the transition to electric vehicles and the delivery of more green buses and, as promised in the programme for government, the budget doubles investment in active and sustainable travel.

In total, the budget invests more than £4 billion in infrastructure, which is part of our £20 billion infrastructure investment plan over this parliamentary session.

I can confirm today that the budget also includes the first steps towards one of the most significant infrastructure projects of this parliamentary session: superfast broadband for the whole of Scotland. At the end of this year, we will achieve our target of delivering fibre internet access to at least 95 per cent of premises.

As a result of our actions to date, Scotland has experienced the fastest rate of progress of any part of the UK. However, we want that progress to continue. Our new reaching 100 per cent programme is an ambitious plan to make superfast broadband available to every home and to every business premise in every part of Scotland by 2021. That commitment, which will position Scotland at the forefront of the digital revolution, is unmatched anywhere in the UK. I am therefore delighted to confirm to Parliament that the initial procurement for the R100 programme begins today, and that over the next four financial years, it will be supported by investment of £600 million.

The investment in skills and innovation, new technologies, manufacturing, infrastructure and broadband is all part of a package of measures to improve our productivity, boost our trade and make Scotland the most attractive place in which to do business. We will support the internationalisation of our businesses and help boost exports through the work of Scottish Development International. We will also support our culture sector with a £10 million investment in a new screen unit and funding to protect the arts and culture.

On business rates, I confirmed following the Barclay review that I would go beyond what it recommended with a set of new reliefs to incentivise investment. Our growth accelerator means that no business rates increases will be payable for new or improved properties for a period of one year, and a separate, additional measure will ensure that no new-build property will enter the valuation roll until it is first occupied.

The budget also protects our small business bonus scheme, which lifts 100,000 properties out of business rates altogether. The scheme is part of the most competitive package of rates relief anywhere in the UK, and in the coming year, it will be worth around £720 million—a record high.

I can also confirm that we will accept the remaining Barclay recommendations almost entirely, except those on charity relief, which we do not intend to curtail for universities or council arm’s-length external organisations. An implementation plan providing fuller details on how and when the reforms will be implemented is being published today.

The Barclay review also favoured a switch from the retail prices index to the consumer prices index for the application of the inflationary uplift to the poundage rate, but it was unable to make that a recommendation, given its revenue-neutral remit. However, for many Scottish businesses, that was the number 1 ask of the budget, and I can therefore announce that the inflationary uplift for the poundage next year will be capped at CPI, not RPI. Our package of business rates measures provides a boost of almost £100 million and helps keep Scotland the most attractive place in the UK in which to do business.

Nowhere is the interaction between investment in public services and a successful economy more evident than in education. Raising the bar for all and closing the attainment gap is the key priority for this Government. Since my last budget, more than 2,300 schools have benefited from targeted investment and 506 extra teachers are teaching in Scotland’s schools because of our attainment Scotland fund.

I am therefore delighted to announce today that I am increasing the attainment Scotland fund to £179 million, which means that £120 million will again be allocated directly to headteachers through the pupil equity fund, and a further £59 million will provide targeted support for the children and young people in greatest need.

I am also allocating £10 million to provide support to children and young people with complex additional support needs.

We recognise that a strong education system relies on a strong teaching profession. That is why I am committing an overall funding package of £88 million in the local government finance settlement to maintain the national pupil to teacher ratio, and to ensure that places are provided for all probationer teachers. The budget also protects our continued commitment to university education that is free of tuition fees.

The Government is committed to getting it right for every child. We want Scotland to be the best place in the world to grow up. Since their introduction in August, more than 20,000 baby boxes have been delivered, and the budget funds that important part of our social contract.

A child’s early years are critical to determining outcomes in later life. Since 2014, we have increased high-quality early learning and childcare by almost 50 per cent, to 600 hours per year. By 2020, we will increase publicly funded entitlement to 1,140 hours per year, which will benefit thousands of children and parents across Scotland. That requires us to invest now for the long term. In 2017-18, we provided £60 million to support expansion. Now, for 2018-19, we are allocating £93 million in resource funding and £150 million of capital funding, which is a total investment of £243 million next year.

That will support expansion by upskilling the early years workforce, refurbishing and expanding existing premises, and constructing new settings. It will also provide funding for graduate-level early learning and childcare courses. That means that, in the coming year, we will invest almost a quarter of a billion pounds to build more nurseries, support childcare professionals, create jobs and graduate opportunities, and provide support for parents. Ours is the best publicly funded childcare package in the UK, and is an investment that will pay dividends throughout the lives of our young people.

Local authorities are our partners in delivering vital services, and I welcome the constructive engagement that I have had from the Convention of Scottish Local Authorities. Throughout our discussions, I have made clear my desire to treat local government fairly. I believe that the budget does that. I know that local authorities have been concerned about a possible cut of about £300 million to their budgets. However, as a result of decisions that underpin the budget, I have been able to avoid that. I can announce today that the local government resource budget will be protected in cash terms and that the capital budget will be increased in real terms, which will result in a total increase in local authority core funding of £94 million.

In addition, local authorities have the option to increase the council tax by up to 3 per cent. If they choose to do so, they will raise an additional £77 million, which would secure a real-terms increase in local government funding. Local government will also be the beneficiary of the doubling of investment in the city deals.

Our police and fire services also make a huge contribution to our communities. We will deliver more than £20 million of additional investment to protect the police revenue budget and an additional £5.5 million for continued transformation of the fire service. Scotland’s police and fire services will also retain the full benefit of—at long last—having the ability to recover VAT, which will boost their spending power by £35 million in 2018-19. The budget also secures investment in key measures to make our communities safer, including tackling domestic abuse, reducing reoffending, protecting witnesses and modernising the justice system.

Ensuring that everyone in Scotland has access to good-quality secure affordable housing is a key part of making Scotland fairer. New figures out this week show that, since 2007, the Government has delivered nearly 71,000 affordable homes, and that we are building social rented housing at twice the rate of the Government in England. Our commitment to deliver 50,000 affordable homes over the five years of this session of Parliament is a significant challenge, but it is one that we are determined to meet. The benefits of the investment will be felt throughout our society for generations to come. I am therefore delighted to announce investment of £756 million in 2018-19, as part of our commitment to invest more than £3 billion in affordable housing over this session of Parliament.

We will also take steps to make home ownership a reality for more of our young people. To help to achieve that, I am introducing a new relief on land and buildings transaction tax for first-time buyers of houses up to £175,000. All first-time buyers will benefit from that and, as a result, 80 per cent of first-time buyers will be taken out of LBTT altogether.

Alongside that record investment in housing, we will invest £137 million in 2018-19 in energy efficiency and heat decarbonisation. Good-quality affordable housing is one way in which we can help to drive down poverty.

One of the most devastating results of Tory austerity has been a rise in rough sleeping and homelessness. Our programme for government set out a national commitment to eradicate rough sleeping and to transform the use of temporary accommodation. In 2018-19, we will invest £10 million in an ending homelessness together fund—a fund that will invest £50 million over the next five years. That will drive change and improvement in line with the recommendations of the homelessness and rough sleeping action group.

We will also tackle child poverty in all its forms. This budget supports the first investment in a new £50 million tackling child poverty fund, which will help to address the underlying social and economic causes of poverty.

We will continue to mitigate UK welfare reform by investing more than £100 million on interventions, including the Scottish welfare fund and reversal of the bedroom tax. Parliament is currently considering our Social Security (Scotland) Bill. Although I cannot allocate funding for specific benefits until the bill is passed, I can confirm that I will allocate additional in-year funding to support the landmark step of increasing the carers allowance. The increase will be delivered by summer 2018, and backdated to April.

The staff in our schools, hospitals and other public services do an outstanding job and we have always sought to offer a fair deal, particularly for those who are lowest paid, by ensuring that all public sector workers earn the living wage, and that those who are on low pay receive guaranteed increases. However, now is the time to lift the 1 per cent pay cap. We are determined to provide a pay package that is affordable and reflects the increasing cost of living. I am grateful for the constructive engagement of the trade unions on this matter, including the joint letter from me and the Scottish Trades Union Congress to the Chancellor of the Exchequer ahead of the autumn budget. Unfortunately, our calls were ignored by the chancellor, which limits how far we can go on pay. However, unlike other Governments across the UK, we committed to lifting the pay cap—so lift it we will.

Today, I have published a progressive pay policy. I confirm that we will deliver a guaranteed minimum pay increase of 3 per cent for all public sector workers who earn £30,000 or less. For those who earn above £30,000, we will limit the increase to 2 per cent and apply a cash cap of £1,600 to people who earn £80,000 or more. That demonstrates our commitment to closing the gap between the lowest paid and highest paid. That is the framework that will apply to public sector pay negotiations.

However, let me make clear three additional points. First, notwithstanding the policy that I am setting out today, we will respect the recommendations of independent pay review bodies. Secondly, we will be mindful of any developments for national health service staff elsewhere in the UK in order to ensure that our health service staff are treated at least as fairly as those in any of the other UK nations. Thirdly, we will retain flexibility to enable us to address particular recruitment challenges.

Once again, the Scottish Government is leading by example, delivering on our promises and putting fairness at the heart of what we do. Our decision to lift the pay cap will benefit thousands of nurses and other healthcare staff. I know that I speak for everyone in the chamber when I thank our NHS staff for the work that they do in caring for the people of Scotland.

Our approach to health and care is one of reform and investment. In the coming year, we will invest £110 million in reform of primary care, thereby supporting our general practitioners and health centres to meet the changing needs of our people. We will increase our direct investment in mental health services—child and adolescent mental health services, in particular—by a further £17 million. That is the third annual increase in a row, which will help to deliver an additional 800 mental health workers over this session of Parliament.

The budget will also deliver more than £550 million in 2018-19 in direct support of social care and integration through Scottish Government and NHS investment. We will also continue to support free personal care and the roll out of Frank’s law by April 2019.

Underpinning all that is increasing investment in the NHS. This year, an additional £200 million would be required to increase health resource spending in line with inflation. That is equal to the amount that is being cut from Scotland’s resource block grant in real terms this year by the UK Government. However, we have been clear that, over this session of Parliament, we will increase health resource spending by a total of £2 billion, which is considerably more than the rate of inflation.

Today, I confirm that our increase in health resource funding in 2018-19 will not be £200 million but will be more than £400 million, which will take our total front-line investment to more than £13 billion in the coming year.

In this budget, we are investing in the NHS, increasing social care investment, protecting local services, delivering a growth package for business and supporting the low-carbon transition. We are providing real-terms increases for our universities and colleges, expanding childcare, directing more resources to headteachers to close the attainment gap and protecting our police and fire services. We are safeguarding culture and the arts, taking action to alleviate poverty and lifting the public sector pay cap. However, in the face of real-terms cuts to our block grant, it has been possible to deliver for the NHS and to support those other investments only because of the decisions that I have taken on tax.

We do not take tax decisions lightly. In November, we set out four key tests that any change to income tax would have to meet. It must protect low earners, make tax fairer, generate additional revenues for public services and protect our economy.

We also commissioned advice, informed by the Council of Economic Advisers, on options for the additional rate of tax. Having carefully considered contributions from the public, civic society and the business community, I have decided to reform Scotland’s income tax system.

Using the limited powers available to us, the decisions that I have reached will make our income tax system fairer. They will safeguard those on low incomes and, overall, when coupled with our spending decisions, will protect and grow the economy. They will also provide essential revenue to enable us to invest in our NHS without imposing cuts on vital services such as social care, business support, police or education.

Our proposals have been modelled by the Scottish Fiscal Commission, and its revenue forecasts underpin this budget. Where forecasts suggest that a tax change would result in a significant behavioural impact, I do not have the luxury of simply ignoring it. As a result, I have set income tax policy at levels that the analysis says will generate additional revenue.

The changes that I am proposing are as follows. First, I will increase the higher and top rates of tax by 1 percentage point to 41p and 46p respectively. That sets the top rate of tax at a level that will generate the most income with the least risk of losing revenues next year and damaging the economy. Our modelling indicates that, had we gone further, once behavioural effects and forestalling are considered, a higher rate could reduce income tax revenues next year. That is not a decision that any sensible Government would take.

Secondly, I will freeze the basic rate at 20p, but to make the system more progressive, I will introduce a new intermediate rate of 21p. The intermediate rate will apply to income between £24,000 and the higher-rate threshold of £44,273, which will increase in line with inflation only. To make Scotland’s income tax system even fairer and more progressive, I have chosen to make one further change. I can announce today that I will introduce a new Scottish starter rate of income tax of 19p. That new rate will apply to the first £2,000 of taxable income between £11,850 and £13,850. That new starter rate, combined with the increase in the personal allowance, will ensure that no one earning less than £33,000, which is 70 per cent of all taxpayers, will pay any more in tax than they do now for given incomes; on the contrary, anyone earning less than £33,000 will pay slightly less in tax in the coming year than they do this year. The introduction of the new starter rate will also mean that those earning up to £26,000, which is 55 per cent of taxpayers in Scotland, will pay marginally less tax than they would if they lived elsewhere in the UK.

The specific tax reforms that I have announced today will raise an additional £164 million for investment in our public services and our economy. However, taken together with our tax decisions last year, the projected growth of our tax revenues relative to the UK as a whole and relative economic growth, our income tax receipts in 2018-19 are forecast to generate £366 million more than the corresponding block grant adjustment under the fiscal framework. Those decisions have therefore enabled me to reverse the real-terms cut that Westminster has imposed on our resource budget next year, while ensuring that Scotland is not just the fairest-taxed part of the UK but, for the majority of taxpayers, the lowest-taxed part of the UK.

In all these decisions, the interests of our economy have been at the forefront of my mind. I have already outlined a range of economic investments and I want to briefly mention two more.

One of the touchstone pledges from our programme for government was the creation of a Scottish national investment bank to provide long-term, patient capital to support innovation and drive productivity growth. Today, we signal our ambition for the bank with a commitment to an initial £340 million capitalisation between 2019 and 2021. However, while the bank is being established, I intend to create a dedicated building Scotland fund. That fund will be worth £150 million over the next two financial years and its purpose will be to support innovation in house building, help deliver modern, low-carbon industrial and commercial facilities and provide further support for business-led research and development. We will set out further details shortly.

That new fund, together with an additional £96 million of investment in maintaining the most attractive system of business rates in the UK, a 70 per cent increase in funding for business R and D, £60 million of investment in delivering low-carbon technology, more than £4 billion of investment in new infrastructure, doubling our investment in city deals, a £600 million package to deliver 100 per cent superfast broadband to all and almost £2.4 billion of funding for enterprise and skills, demonstrates beyond doubt that this budget backs Scotland’s businesses and will help to grow Scotland’s economy.

This budget is a comprehensive package of measures designed to protect all that we hold dear. It provides the investments that we need to meet the challenges of today and seize the opportunities of tomorrow. It uses the powers of this Parliament sensibly and in the interests of the country as a whole. It overturns the Tory cuts to our block grant. It delivers an additional £400 million to the health service without damaging other vital services. It protects the vast majority of taxpayers. It is a budget for fairness and a budget for growth. It is a budget for all of Scotland and I commend it to the chamber.

The Presiding Officer:

The cabinet secretary will now take questions for just under 60 minutes.

Photo of Murdo Fraser Murdo Fraser Conservative

I thank the cabinet secretary for advance sight of his statement. Heavily redacted as it was, it looks just like the Scottish National Party’s plans to grow the Scottish economy. [

Interruption

.]

Photo of Murdo Fraser Murdo Fraser Conservative

One thing that is absolutely clear from the Scottish Government’s budget today is that we cannot trust a word that the First Minister or the Scottish Government says. The wording in last year’s Scottish National Party manifesto was perfectly clear. It promised:

“We will freeze the Basic Rate of Income Tax throughout the next Parliament to protect those on low and middle incomes.”

Lest there be any doubt about what that meant, it was helpfully clarified by the First Minister in the chamber as recently as May 2017, when she said:

“When inflation is rising and living standards are under a lot of pressure, it is not right to increase income tax for those who are on the basic rate.”—[

Official Report

, 3 May 2017; c 9.]

Today, the SNP and every member of the Cabinet have broken their promise to the Scottish people. Despite pledging not to increase taxes for those on the basic rate—a pledge that was repeated 53 times—and despite 65 per cent of the Scottish population voting in May last year to endorse that position, they are today proposing to do the opposite and increase taxes for those on the basic rate. No one will believe a word that they say ever again.

Can the finance secretary tell me exactly how many people who are currently paying tax at the basic rate will see an increase in the tax that they pay as a result of the new nat tax that has been announced today?

Let me be clear: there is absolutely no justification for the tax rises that are being proposed. According to the Scottish Parliament information centre, the Scottish Government’s block grant from Westminster is going up, in real terms, from this year to next year. Further, the analysis that was published on Tuesday by the Fraser of Allander institute says:

“the Scottish Government’s total block grant (resource and capital but excluding financial transactions) is on track to increase by around 1% between 2016-17 and 2019-20.”

If the finance secretary had done his homework properly before he came to the chamber this afternoon, he would know that financial transactions are not included in that figure.

There we have it—no hundreds of millions of pounds in cuts, no Westminster austerity and a budget that is increasing in real terms over the next three years. Therefore, the tax rises for basic-rate payers that have been announced today are the result of policy choices that have been made by the SNP and no one else.

When we see the Scottish Fiscal Commission’s projections for economic growth, we will know exactly where the problem lies. They will show that the Scottish economy is projected to rise at a fraction of the rate at which the United Kingdom economy as a whole will rise. It is that failure to grow the Scottish economy and expand the tax base that has led the SNP to put its hands into the pockets of hard-working Scottish families and businesses to bail it out of the mess that it is making of the Scottish public finances.

Not only will we see taxes rise; once again, we are seeing cuts to local government. The front-line services that millions of families depend on—not least in our schools—will be slashed back at the same time as taxes are going up. Under the SNP, we all pay more but get less in return. The message of this budget is: in the SNP’s Scotland, do not be ambitious, do not be hard working and do not be successful, because we will penalise you for our failure to grow the Scottish economy.

Will the finance secretary take this opportunity to apologise on behalf of the Scottish Government for breaking its manifesto promise?

Photo of Derek Mackay Derek Mackay Scottish National Party

I would have thought that, following First Minister’s questions, Murdo Fraser would have had two hours to change his script, but he has failed to do so.

The biggest threat to Scotland’s economy—and to the UK’s economy—is the Tory party, with its economic mismanagement and mishandling. If Murdo Fraser wants to talk about the philosophy and economics of the Tories, it remains the case that, once again, they want to raise less and spend more, and that is just not possible.

We have provided a balanced budget. Murdo Fraser asks whether I will apologise. I am very proud of the budget, because it invests in the things that we hold dear and speaks to the kind of Scotland that we want to build. Murdo Fraser spoke about basic-rate taxpayers, but he should check the document: the basic rate has been frozen. As a matter of fact, 80 per cent of our basic-rate taxpayers will pay less next year, not more, and 55 per cent of taxpayers earning up to £26,000 will pay less tax than they would elsewhere in the UK. Therefore, for the majority of taxpayers, Scotland is the lowest-taxed part of the UK. Even more important, our using the tax system in a progressive fashion makes Scotland the fairest part of the United Kingdom, which is something to be proud of.

Members have quoted the Fraser of Allander institute, and I will happily do that as well. Murdo Fraser has mentioned capital spending—particularly financial transactions. The FAI has said that Scottish ministers are constrained in how those financial transactions can be used, so it remains the case that resource spending next year and for the next two years will go down, just it has over the past period, which will amount to a £2.6 billion reduction in Scotland’s resource budget.

I have done my homework, and I have another figure for Mr Fraser. I have established what would have been taken from Scotland’s front-line public services if I had followed Tory tax policies. I costed what the Tories told me to do on income tax, LBTT, council tax reform and the large business supplement, and I discovered that, in addition to the block grant reduction, following Tory tax policies would have reduced the resources available to front-line services by a further £501 million. Raising less and spending more cannot be done.

In the next hour, if I hear any Conservative member ask for more money for anything, I will point to the £0.5 billion reduction there would have been if I had followed their tax policies. I will not follow their tax policies; I will follow our policies, which will deliver fairness, social justice and a stronger economy.

Photo of Richard Leonard Richard Leonard Labour

This Parliament was designed to be a power for change, to take Scotland to a better place and to bring decision making closer to the people. While the Tories force austerity on the UK, we in Scotland should be using the powers of our Parliament to deliver an alternative.

The truth is that Scotland needs real and radical change, not tinkering around the edges. That change should be based on the principle of “from each according to their means, to each according to their need”. A penny on the top rate just does not do it. This Tory-lite draft budget fails on all those tests.

As the cabinet secretary would know had he taken the time to speak with the councillors, the council workers and the trade unionists who lobbied this Parliament today, and with those in communities and workplaces across Scotland, there is a growing mood of frustration and discontent, which is increasingly directed towards an SNP Government that has simply presided over Tory austerity and has added to it.

We know that tens of thousands of local government jobs have been lost, that there are 3,500 fewer teachers, and that £1.5 billion has already been stripped from our councils since 2011. How many local jobs will be cut this year by this budget? When the cabinet secretary says that he knows that councils were worried about a potential £300 million cut, that is true, but what he is doing today is cutting day-to-day spending in real terms by £134 million. When councils have already told him that they need £545 million just to stand still, that is an effective cut of almost £700 million to our lifeline local services.

Why will the cabinet secretary not stand up for properly funded local services? Why will he not stand up for properly funded lifeline services? Why will he not stand up for the people and communities of Scotland?

Photo of Derek Mackay Derek Mackay Scottish National Party

I make a gentle point to Richard Leonard. The microphone amplifies what he is saying to the chamber.

I was told during the course of yesterday’s debate that James Kelly was the finance spokesperson. I know that the term of office for a Labour leader is pretty short these days, but one day for the finance spokesperson is setting a new timescale.

Seriously, though, I heard Richard Leonard talking about housing at First Minister’s questions and I listened closely to what he said, because what was being said about housing was important. That is exactly why we are putting more funds in to support house building in Scotland. As to the specific question why we do not use the powers of the Scottish Parliament—we are using the powers of the Scottish Parliament. We are using them to the full to protect the people of Scotland from Tory cuts. If only the Labour party had helped to give us more powers, we would have been able to do even more to protect the people of Scotland in the face of Tory austerity and Brexit mismanagement.

Some members are still shouting about the powers. The Tories say that we should not use the powers that we do have and Richard Leonard wants us to use powers that we do not have. We are putting forward a credible budget with real investment in our social priorities, setting out the kind of country that we want to build and using our tax system in a way that is progressive and fairer.

I have set out priorities in education, economy, environment and health, but, if I stuck to what the Labour party is proposing today, I would give it all to local government—a view that Labour is entitled to have. What has the NHS done to upset the Labour party that means no new resources for the NHS or anyone else? When Labour members get up in the next 48 minutes, let us see whether they ask for resources elsewhere, when their proposition is to give only to local government.

In relation to local government, there was a projection of a 3 per cent reduction. That is about £300 million to the local government budget. That is not what I am proposing. I am proposing flat cash plus a capital increase, and what that means is that we are using our powers and that, if councils use their powers, they will have a real-terms increase for front-line services.

Richard Leonard is still shaking his head. I will make one final point to him. He explained recently why the eight Labour local authorities did not increase the council tax. He said that, because the Scottish Government did not give councils enough money, Labour councils would raise even less. What a ridiculous proposition from the Labour party. We have supported local government and a range of other priorities, and we will be very proud of the job creation and services that it supports, and the interventions that it will deliver to create a fairer society.

Photo of Patrick Harvie Patrick Harvie Green

For nearly two years, the Scottish Greens have been leading the argument for reform of our income tax, now that we have the power to do that. We showed that by adding new rates and bands we can raise additional revenue for our public services, while reducing tax at the bottom end of the income scale—not at the top end, as the Conservatives in the UK Government seem to continue to want to do.

I am delighted that the basic argument for a more progressive income tax structure appears to have won the day, and that we will be seeing changes. It is not as soon as I wished—we should have been here last year—and does not go as far as I would have wished, but the basic argument has won the day.

We have also made the case for an uplift in public sector pay. Given the rising level of inflation, it is unacceptable for people who have continued to see reductions in their real-terms pay to face even more cuts. I recognise that the UK Government budget does not make that easy, and the Scottish Government is now proposing a CPI inflation uplift for those earning less than £30,000, but not for everybody else. I will wait to hear the response of the unions who represent those workers before taking a final view, but those who are at the bottom end of the income scale absolutely deserve the pay increase that we have argued for and which the Scottish Government is today applying—at least to its own workers.

The downside of what we have heard today is that the cost of that pay increase in local government will not be met by the Scottish Government grant to local councils. The Scottish Government is right to use its powers to increase the total revenue budget in real terms, but it is not acceptable for it to pass on a real-terms cut to our local councils. If we include the additional costs that our councils will face if they are going to apply the same 3 per cent uplift for their public sector workers, who are delivering vital services that every one of us depends on, it is clear that the Scottish Government will have to make changes to its local government settlement.

What will the consequence be, other than real-terms pay cuts, service cuts or job losses in our councils, if the cabinet secretary does not change what he has proposed today for local government?

Photo of Derek Mackay Derek Mackay Scottish National Party

I remind members of what I have already said about the local government settlement, which is that what I am proposing is far better than they were forecasting or expecting. On the specific point about using powers, I say again that, if councils used their powers to increase council tax by up to 3 per cent, that would put local authorities into real-terms growth.

Patrick Harvie covered the point on tax structure. He is right to say that, being a minority Government, we had to engage, consult and listen. I have certainly been doing that, as is evidenced in our proposition; however, I also want to give stability to the country. We all have to compromise in a Parliament of minorities. I have embarked on engaging in an open and inclusive style, to ensure that we can come to some sort of consensus on tax—and that should continue.

We set out four key tests on what we would do with income tax, which were to raise revenues for public services; to use the tax system in a way that protects lower-income earners; to have a system that delivers progressivity; and to support our economy. That relates to how we choose to spend those resources, too. I specifically mentioned the top rate of tax earlier, and Richard Leonard and Patrick Harvie have both touched on it. The Government has decided to set the top rate of tax at the level that raises the greatest amount of money. That is a sensible and progressive thing to do, so that those resources can be invested without deterring investment to Scotland.

We do not set the pay policy for local government, but we have set out what I think is a very fair public sector pay policy for those areas under our control, which is using the pay policy in a progressive fashion, just as we have done with the tax policy. There are sufficient resources within the settlements proposed to support a fair pay settlement.

My final point is one that Patrick Harvie made. The chancellor gave us no extra money for pay and said very little on the subject in a UK context. There is the independent pay review specifically for health, which we will look at very closely; I have set out our position in that regard. Given that we have had no new resources—in fact, we have had a real-terms reduction in the resources that fund pay—we have had to make decisions that are necessary to support our public services and properly remunerate our public sector workers, and I have tried to do that in the fairest way possible.

Photo of Willie Rennie Willie Rennie Liberal Democrat

We will scrutinise the tax announcement, because the devil is often in the detail. However, it seems that what the cabinet secretary has announced is a modest increase in taxation, which is an approach that we argued for at the election and one that he opposed at the election.

The budget does not do enough to meet the long-term needs of the economy. It does not include the transformational investment in education that we argued for. We are far behind—many years behind—England on the attainment funds, and the small increase that the cabinet secretary has announced will not close that gap.

Colleges have got only half the money that they asked for just to stand still. That will not reverse the cuts to college places, which have been reduced by 150,000 over the past few years, or fund the training of the mature students and women who desperately need extra support.

If Mr Mackay thinks that a paltry £17 million will solve the problems in our mental health services, he needs to think again.

The settlement for local government is harsh. It passes on the buck for cuts to councils. The pay increase is welcome, but can the finance secretary explain who will pay for it? Will councils and colleges be given extra funds to pay for it?

I think that the budget pays lip service to many of the challenges that this country faces. Does the cabinet secretary not accept that?

Photo of Derek Mackay Derek Mackay Scottish National Party

On a wee point of accuracy, I am pretty sure that Willie Rennie said previously that the Liberal Democrats would ring fence all extra resources for education. As the Labour Party is, his party is entitled to take that position, but that would mean no new money for anything else, including the national health service and mental health.

When it comes to delivering a budget, the detail on such matters is really important.

Colleges have had a very fair and reasonable settlement—the budget provides a real-terms increase for higher and further education. In addition, we have come to a settlement on the pay award for college lecturers. Higher and further education are adequately resourced, and local government has received a fair settlement, too.

Mr Rennie cannot escape the fact that he wanted to ring fence all resources for one part of the public sector. That means that he cannot demand more in every other area. That is a basic principle in how Mr Rennie’s policies apply to this and future budgets.

The Presiding Officer:

I have given the front-bench speakers a lot of latitude to make clear their parties’ positions and to ask questions at length. We have just over 30 minutes left and just under 30 members wish to ask questions, so I think that members can work it out for themselves: we need short questions and short answers.

Photo of Kate Forbes Kate Forbes Scottish National Party

I am the parliamentary liaison officer to the cabinet secretary.

Fast internet connectivity is vital to the economic and social wellbeing of our rural communities, so I welcome today’s announcement that an incredible £600 million is to be provided over the next four years to expand fast broadband. As digital connectivity is a reserved matter, has the UK Government made a financial contribution?

Photo of Derek Mackay Derek Mackay Scottish National Party

To be fair, it has—and so it should have, because digital connectivity is a reserved matter, and it should have been getting on with the work. We are surpassing what the UK Government is delivering in terms of quality, speed and reach. Every part of the country will be covered. The UK Government is contributing £21 million to the £600 million.

Photo of Dean Lockhart Dean Lockhart Conservative

The Scottish Fiscal Commission forecasts for the next five years have just been released. They show that Scotland’s economy will grow at less than 1 per cent for the next five years and that it will continue to underperform the economy of the rest of the UK for the next five years. By then, we will have had 14 years of SNP underperformance.

Given that dire outlook, why has the finance secretary completely ignored the advice of large and small businesses throughout Scotland, which said that any increase in tax would cause long-term damage to the Scottish economy?

Photo of Derek Mackay Derek Mackay Scottish National Party

The same organisations did not ask us to cut tax by £0.5 billion, which is what the Tories’ tax policies propose.

The number 1 request from many businesses was to base the poundage for business rates on CPI not RPI, and I have announced that the business rates poundage will be based on CPI not RPI.

On a range of investment, whether in higher education, innovation hubs, internationalising our produce, supporting business to grow or the most generous package of business rates relief in any part of the United Kingdom, this is also a good budget for business.

In relation to the forecast, does the UK Government take no responsibility for the economy, including the economy in Scotland? We know that the UK economic model does not work for Scotland. In the analysis that it published today, and in its forecast, the SFC said that the greatest threats to Scotland’s economy are Brexit, downward migration, inflation and all those other pressures that have been created by the economic geniuses in the Tory party.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

I welcome the finance secretary’s statement. Will he remind members how many people in Scotland will enjoy a reduction in their income tax from April? Will he confirm that many thousands more could have shared in that had the UK Tory Government not cut £500 million from Scotland’s resource budget over the next two years?

The Tories want simultaneously to cut tax and increase spending. Will the cabinet secretary tell us how much less we would have to spend on services such as the NHS under the Tories’ plans to cut taxes only for the better-off in society?

Photo of Derek Mackay Derek Mackay Scottish National Party

To be fair, I do not think that the Tories understand their tax and economic policies at the moment. It seems to have come as a surprise to them that I have costed what their tax policies would mean for public services: a £501 million reduction in front-line public services, to be precise.

I remind members that more than 70 per cent of taxpayers will pay less tax next year. Those who are earning under £33,000 will pay less tax. The 55 per cent of taxpayers in Scotland who earn up to £26,000 will pay less tax than they would pay elsewhere in the United Kingdom. That is a good proposition. It also represents the best deal—in terms of what people pay and what people get—anywhere in the United Kingdom.

Photo of James Kelly James Kelly Labour

However Derek Mackay spins it, this budget represents a cut of at least £134 million to local councils. Why are top-rate taxpayers earning more than £150,000 being asked to pay only an additional 1p in tax, while local people in local communities face the prospect of job losses and the loss of vital public services?

Photo of Derek Mackay Derek Mackay Scottish National Party

I can see why James Kelly was reshuffled after 24 hours in the post of finance spokesperson. Kezia Dugdale might be back from the jungle, but I understand that James Kelly is auditioning for “Pointless”. [

Interruption.

] See what I mean, Presiding Officer?

In the proposition that I set out, income tax will be made more progressive. That is an important shift. The more money someone earns, the more they will pay towards public services in Scotland. Why did I not go further with the top rate of tax? All the advice that I was given by the Scottish Fiscal Commission, the Council of Economic Advisers and others was that that was the optimal point at which to raise the most money. Surely the objective of the exercise is to raise more money to invest in our public services in a fair and progressive way. The Labour Party is saying that we should set a higher rate for whatever reason, but that would raise less, which would mean less money for things such as local government.

I am trying to raise more money in a fair and progressive way. Do we get it yet? Are we there yet? To be helpful, I will share the workings of the SFC and the Council of Economic Advisers to show how the rate that I have set is absolutely meeting the commitment on raising the optimum amount of money for Scotland’s public services.

Photo of John Mason John Mason Scottish National Party

The Barclay review recommended the removal of rates relief for independent schools. Can the cabinet secretary clarify the position on that?

Photo of Derek Mackay Derek Mackay Scottish National Party

The member is right that that was a recommendation of the Barclay review. I am accepting it in part. I want to be clear about the issue. All the details are in the implementation plan that is published today, but I want to make an important distinction to do with special schools. I think that their support should be continued, as should the support for schools with exceptional circumstances. Full details are available in the chamber. As I said I would do, I have responded, having engaged with the sector, listened and looked at all the evidence to ensure that we make the right and balanced decision. In essence, independent schools, other than those that I have mentioned, should be treated in the same way as council schools.

Photo of Maurice Golden Maurice Golden Conservative

How much extra tax will a primary school teacher earning £35,000 per year pay as a result of the nat tax?

Photo of Derek Mackay Derek Mackay Scottish National Party

That is just pathetic. It depends on how much that teacher happens to earn. Of course, like others, teachers will welcome the public sector pay policy. I will say it again, because everybody will be interested, that those earning under £33,000 will pay less tax.

Photo of Alex Neil Alex Neil Scottish National Party

I congratulate the finance secretary on the additional measures that he has taken in relation to child poverty. I fully understand that he cannot do anything on benefits until the Social Security (Scotland) Bill is enacted and the appropriate administrative arrangements are put in place. However, in the meantime, between now and the finalisation of the budget, if he can identify any additional spare cash, will he give priority to giving more money to projects such as the tackling child poverty fund? I know that he agrees that, given the increase in and scale of child poverty, it is clearly an urgent issue that requires further action by the Scottish Government.

Photo of Derek Mackay Derek Mackay Scottish National Party

Alex Neil raises a very fair point in looking at how the budget spend impacts on the most vulnerable people in our society. He will agree that many of the measures in the budget support the most vulnerable and protect people from the Conservatives’ so-called welfare reforms. I am talking about things such as reversing the bedroom tax, the Scottish welfare fund and our new measures to give children and young people the best start in life. Yesterday, the big idea from the Tories was that we should not go ahead with the baby box. I do not know what they have against giving children the best start in life. I will consider very closely what Alex Neil said about tackling child poverty and I will consider what other measures we might be able to take. That is why I will also appreciate the work of the poverty and inequality commission as it works with us to address that significant issue.

Photo of Jackie Baillie Jackie Baillie Labour

I welcome the recognition that economic growth matters because, after all, it affects our future budget allocation under the terms of the fiscal framework. However, growth has been downgraded by the OBR, by the Fraser of Allander institute and now by the Scottish Fiscal Commission. It predicts weak growth of less than 1 per cent over the next five years. We have not seen such a downward trend in decades. Given that the Scottish economy underperforms that of the rest of the UK and that the Scottish Fiscal Commission forecasts much slower growth in Scotland—it is predicted to be half that of the UK—has the cabinet secretary quantified the impact on the Scottish budget if we do not match growth in the rest of the UK?

Photo of Derek Mackay Derek Mackay Scottish National Party

I do not think that Jackie Baillie is properly representing the SFC report. The SFC suggests that it is the impact of Brexit uncertainty that is subduing the growth forecast on which we have to rely. I do not have the luxury of ignoring the SFC’s forecasts, but what the SFC says—[

Interruption

.] If Jackie Baillie wants to hear it, the SFC says that what our budget does will be favourable, given the decisions that this Government has taken. The good governance and tax decisions that this Government has taken have ensured that we will have more resources to spend on Scotland’s public services and will continue to have more resources through the commercial, business and enterprise interventions that we will make.

Photo of Jackie Baillie Jackie Baillie Labour

You do not understand the report.

Photo of Derek Mackay Derek Mackay Scottish National Party

Jackie Baillie has missed every positive industrial, economic and tax intervention that has been announced in this budget. That is why she does not understand that we will grow the Scottish economy through the interventions that we will make. Either Jackie Baillie knows that to be the case and does not want to admit it or it is she who does not understand the SFC report. I have had the luxury of being briefed by the SFC and I am convinced that the policies that we are setting out today will deliver economic growth.

Photo of Ivan McKee Ivan McKee Scottish National Party

Will the cabinet secretary say how the Scottish Government will capitalise on the Scottish national investment bank to drive growth in the Scottish economy?

Photo of Derek Mackay Derek Mackay Scottish National Party

I have said that we will set aside resources to put into the Scottish national investment bank—I am sure that that will be warmly welcomed—as part of our massive infrastructure programme, which will support housing and the infrastructure of our country. I think that that will be warmly received by the business community.

Photo of Adam Tomkins Adam Tomkins Conservative

The nat tax budget, in effect, splits the basic rate of income tax into three. How much will the additional bureaucracy cost to administer? Who will pay for it, and what are its implications for pensions relief?

Photo of Derek Mackay Derek Mackay Scottish National Party

I thought that Adam Tomkins was pro-devolution. Now he is saying that we should not use our powers because it might cost money.

Let me tell him something. When we have delivered devolved taxes and used our powers, Revenue Scotland has performed far more efficiently than HM Revenue and Customs or any UK Government agency.

Of course, we engage with HMRC and give it sight of our tax policy. In turn, HMRC costs the delivery of our policies—but what that delivery costs is a fraction of what we will raise for Scotland’s public services. That is why an early decision on such matters is so important in giving stability to the people of Scotland.

Photo of Clare Adamson Clare Adamson Scottish National Party

The provision for local government to vary council tax by up to 3 per cent will bring vital funding. Will the cabinet secretary explain to my constituents the long-term consequences of the continuing failure of the Labour administration in North Lanarkshire, which was put into power by Tory councillors, to maximise its revenue?

Photo of Derek Mackay Derek Mackay Scottish National Party

As I said, if local authorities choose to use their powers to vary council tax by up to 3 per cent, that can raise £77 million for local government services.

Photo of Iain Gray Iain Gray Labour

The independent review of student support in Scotland reported last month. Among other things, the review group recommended parity of support for further and higher education students. Can the cabinet secretary explain how the £5 million that has been allocated in his budget will provide parity for FE students? Are they to be betrayed, just like the university students who were promised that their debt would be paid off?

Photo of Derek Mackay Derek Mackay Scottish National Party

We have increased resources in real terms for higher and further education, and we are considering the report in full. We have taken steps to support people and will give the issue further consideration.

Photo of Ben Macpherson Ben Macpherson Scottish National Party

How will the cabinet secretary’s innovative and progressive budget proposals—[

Interruption

.] How will the cabinet secretary’s budget benefit Edinburgh, considering the capital’s needs, opportunities and population growth? [

Interruption

.]

Photo of Derek Mackay Derek Mackay Scottish National Party

I must apologise to Ben Macpherson. I could not hear his question because the Tories were shouting at him, so it must have been good.

We will make Scotland an attractive place to live, work and invest in, and the package of support is the best for business, people and society compared with the support anywhere else in the United Kingdom. There are a range of interventions for the economy, education and the environment to ensure that Scotland is a very attractive place.

I am sure that Ben Macpherson—as opposed to the Tories, who wanted to shout him down—will sell Scotland positively. All that the Tories know is that they want to talk Scotland down. They are the total opposite of an economic development agency: they are the drag on Scotland’s economy.

Photo of Miles Briggs Miles Briggs Conservative

Meanwhile, back in the real world, Scotland faces a recruitment crisis in our NHS. There is a lack of nurses, general practitioners, radiologists and consultants—[

Interruption

.]

The Presiding Officer:

Order, please. Let us hear the question, please.

Photo of Miles Briggs Miles Briggs Conservative

Just 50 per cent of the students that our Scottish medical schools are attracting are domiciled in Scotland. What message does hiking taxes for vital NHS staff send to people who are deciding whether to come and work in our NHS?

Photo of Derek Mackay Derek Mackay Scottish National Party

When I was looking at the Tory requests for more spending, I saw that one of the main culprits was Miles Briggs. That does not surprise me. His question is about more spending on health. The Government’s decisions on tax mean that we will be able to spend more—record sums—on the NHS. Just one difference between us and the UK Government is that we support our nurses with bursaries, whereas the Tories do not do so adequately.

Yet again, the Tories want to raise less and spend more. Only the SNP can be trusted to invest in our national health service.

Photo of Graeme Dey Graeme Dey Scottish National Party

The programme for government was lauded as the greenest ever. Can the cabinet secretary encapsulate for members how the budget facilitates the transition to a low-carbon economy?

Photo of Derek Mackay Derek Mackay Scottish National Party

There are a range of interventions that relate to the transition to a low-carbon economy in transport, housing, innovation, digital services and energy efficiency. A range of measures will show that the budget proposals are true to the word of the programme for government, which many environmental campaigners have described as the greenest programme of any Government in Scotland under devolution. The budget puts our money where our mouth is.

Photo of Anas Sarwar Anas Sarwar Labour

After seven years of pay restraint imposed by the Government, which has meant a real-terms pay cut for nurses and teachers, a commitment to finally break the pay cap is welcome, but we still do not have a firm commitment on a real-terms pay increase for public sector staff. Following Patrick Harvie’s and Willie Rennie’s questions, which the finance secretary failed to answer, will he confirm whether he will provide specific and additional Scottish Government money to fully fund the pay increase or whether health boards, local authorities and others will have to find that money from their existing budgets, which will mean further cuts to services or job losses?

Photo of Derek Mackay Derek Mackay Scottish National Party

We are increasing the budgets in all the budget settlements that I propose including those that Anas Sarwar mentions. There is an increase of over £400 million in the settlement just for the NHS.

Incidentally, we have said that, if the UK Government acts positively on the independent pay review of the NHS and that results in a more generous proposition than the one that I have put forward, we will at least match that proposition.

The resources that we have put into portfolio budgets have created the capacity to fund the public sector pay award that I have announced.

Whatever the Labour Party says in the chamber, it has not lifted the public sector pay cap where it is in power.

Photo of Richard Lochhead Richard Lochhead Scottish National Party

I thank the cabinet secretary for a transformational budget, which is extraordinary given the financial constraints that have been imposed by a Conservative UK Government that would rather blow £1 billion on bribing the Democratic Unionist Party or spend tens of billions of pounds on exiting the European Union than support Scotland’s public services. Will the cabinet secretary confirm that there is now no reason for the right-wing, Conservative-led Moray Council to propose cuts in the support for vulnerable children and their schools, given today’s announcements?

Photo of Derek Mackay Derek Mackay Scottish National Party

I appreciate Richard Lochhead’s comments, which touched on some other issues, such as that, if we got our share of the bung money that was provided to the DUP by the right-wing Tory UK Government, that would massively support our public services. Further, because of VAT for our police and fire services, we have given more resources to those services and, now that we have the ability to reclaim VAT, they will be better off. I am looking forward to the backdated money from the Tory Government of some £148 million.

Richard Lochhead is right that, in the face of a reduced budget resource in real terms and Brexit uncertainty, we have provided more support for schools around the country and a fair settlement for local government. There is targeted support through the attainment and pupil equity funds to address the attainment gap, which is a key and defining mission of this Government.

Photo of Elizabeth Smith Elizabeth Smith Conservative

The cabinet secretary seems to be indicating that he will make exemptions for special schools and music schools when it comes to their retaining eligibility for charitable relief. What reaction has he had from the Office of the Scottish Charity Regulator about how those exemptions will meet the terms of current charity law?

Photo of Derek Mackay Derek Mackay Scottish National Party

There has been no reaction because I have only just delivered the budget. I am busy engaging with members in the chamber, so I have not yet had the chance to engage with others on the consequences of the budget.

I know that Barclay did not say that we should make a special case for special independent schools. However, we are listening to the sector and we see the case for relief to continue for those special schools and for others, where that is appropriate. We have taken the right, sensitive decisions in that regard and, as I understand it, they will have no negative effect on the schools’ charitable status. What we choose to do with regard to non-domestic rates is absolutely fair and consistent.

Photo of Clare Haughey Clare Haughey Scottish National Party

I refer members to my entry in the register of interests, in that I am a registered mental health nurse with an honorary contract with NHS Greater Glasgow and Clyde.

How much money will be spent on innovation and reform of GP services and primary healthcare? Is primary healthcare receiving an increased share of NHS front-line investment in this budget?

Photo of Derek Mackay Derek Mackay Scottish National Party

The amount is approximately £110 million.

Photo of Daniel Johnson Daniel Johnson Labour

Investment of £93 million for early years is welcome. However, is it not correct that that money is ring-fenced for local government and is contained in, not on top of, local government budget lines, which the cabinet secretary’s own level 2 figures show are declining in real terms this year? Surely new nursery places should be an addition to, not instead of, core council services?

Photo of Derek Mackay Derek Mackay Scottish National Party

I would have thought that Daniel Johnson would be happier about the budget settlement, as he has mentioned in the past that childcare and teaching is really important. Is some of the resource ring-fenced? Yes, it is, because that is working. It has allowed local authorities to employ hundreds more teachers in our schools to target the attainment gap. The formula and the resources are working and, as schools, education and childcare are being delivered in partnership with local government, it is fair that it is part of the local government settlement.

Photo of Tom Arthur Tom Arthur Scottish National Party

Will the cabinet secretary outline what action the Scottish Government is taking to protect our diverse, world-leading culture sector in the light of major cuts to UK lottery receipts?

Photo of Derek Mackay Derek Mackay Scottish National Party

I know that many in the culture sector might have been worried about the budget, understanding that Scotland faces a resource reduction and that there is a downturn in lottery income. The UK Government has not lifted a finger to support the culture sector in these challenging times, which is why the Scottish Government not only has not cut the budget, but has increased resources for the sector. There are major events in Scotland next year and we have stepped in to provide an additional £6.6 million for Creative Scotland to ensure that it can maintain support for the regular funding programme, despite the cuts from the lottery.

Photo of Donald Cameron Donald Cameron Conservative

Will the cabinet secretary confirm whether he will be using some of the extra £1.1 billion of financial transactions funding from the UK to back the Scottish national investment bank?

Photo of Fulton MacGregor Fulton MacGregor Scottish National Party

I welcome today’s announcement that the Scottish police service and the Scottish Fire and Rescue Service will be keeping all of the funds that they would have been paying in VAT. Will the cabinet secretary confirm that the SNP Government will continue to pursue the UK Government to get it to pay back the £140 million of VAT that it has already taken?

Photo of Derek Mackay Derek Mackay Scottish National Party

Yes; we will, of course, pursue the UK Government for that sum. However, in this budget, I propose to increase the police resource budget; we had a manifesto commitment to protect our front-line police budget, and we are absolutely doing that as well as supporting fire service transformation. There are extra resources for police and fire; they will have the ability to reclaim VAT, and we look forward to the UK Government giving us back the £140 million that it has taken from Scotland.

Photo of Neil Bibby Neil Bibby Labour

Since 2011, Derek Mackay’s council in Renfrewshire has faced £172 million in cuts. This week, it was announced that funding for families first, a vital support service for vulnerable families in Johnstone, Foxbar and Gallowhill, is to be discontinued. He might not be the leader of Renfrewshire Council any more, but these are still Mr Mackay’s cuts. If local authorities such as Renfrewshire are being fully funded, how on earth is his own SNP council justified in making these and other cuts, and why has COSLA’s call for a truly fair settlement of at least £545 million been completely ignored?

Photo of Derek Mackay Derek Mackay Scottish National Party

We should wait and see what Renfrewshire Council’s administration actually has in its budget instead of scaremongering in the way that the Labour Party usually does every year.

I say to Neil Bibby that the local government settlement is fair; it protects local government resource and provides more capital. If local authorities use their council tax powers to raise council tax by up to 3 per cent, they will raise an additional £77 million, putting local government resources into real-terms growth.

Given the context in which we are setting this budget, that feels pretty fair to me.

Photo of Emma Harper Emma Harper Scottish National Party

As the cabinet secretary has highlighted, the Tories want to cut tax and increase spending, but will he reiterate how much less we would have for services such as the NHS under Ruth Davidson’s plans to cut taxes for the richest?

Photo of Derek Mackay Derek Mackay Scottish National Party

Understanding the Tories’ tax plans better than they do, I can tell members that following Tory tax policy would mean a £501 million cut in front-line services.

Photo of Rachael Hamilton Rachael Hamilton Conservative

I draw members’ attention to my entry in the register of members’ interests as a small hospitality business owner.

Given current concerns over forecast low economic growth in Scotland compared with the rest of the UK, does Derek Mackay not think that he should be doing more to stimulate business? Scottish firms operating from medium-sized and larger premises already pay more than they would in similar premises in England due to last year’s doubling of the large business rates supplement. Why does the Scottish Government continue to punish hard-working employers and family-owned businesses and make Scottish companies less competitive than their UK counterparts?

Photo of Derek Mackay Derek Mackay Scottish National Party

I am not sure whether Rachael Hamilton has just come into the chamber and therefore missed all my business announcements in the budget. However, it is important to reflect on last year’s announcements on these matters. Last year, we enhanced the small business bonus scheme thresholds, lifting 100,000 properties out of business rates; ensured that fewer businesses were paying the large business supplement by amending that threshold, too; and lowered the poundage. This year, the number 1 ask of businesses was to use CPI, not RPI for the poundage, and that is exactly what I am doing. Alongside that, there are the other interventions with regard to innovation, skills, attracting people to Scotland, investment in infrastructure and digital. We are preparing for the future to put Scotland ahead of the curve in technological interventions, skills and having the right environment to allow businesses to grow. That is why these key business decisions and interventions will matter so much, and I look forward to engaging with the business community on how they will support economic growth.

Photo of Tavish Scott Tavish Scott Liberal Democrat

The finance secretary said that today’s draft budget is one for all of Scotland, so why did he not accept his Government’s crystal-clear commitments—made not to me or to Liam McArthur, but to the northern islands’ councils—to support ferry services in Orkney and Shetland, given Parliament’s vote last week?

Photo of Derek Mackay Derek Mackay Scottish National Party

The Scottish Government is delivering on its commitments to the northern isles, just as it is for all parts of Scotland. One of the key items that are funded in the budget is delivery of the equivalent of road equivalent tariff to the northern isles. That was in our manifesto and in our “Empowering Scotland’s Island Communities” prospectus. We are absolutely investing in that in the budget.

The question for Tavish Scott and Liam McArthur will be whether they will vote against the investment that we are putting into the budget specifically in relation to interisland ferries that are currently run by the councils. I will continue to engage with both the councils’ leaders. However, both those leaders told me that the Liberal Democrat constituency members would be coming to see me this week with a proposal to put internal ferries funding in the budget. My door was open, but I did not get that visit from the northern isles’ constituency members. I simply say that this is a minority Government, so I will require consensus to get the budget through. I said to those Liberal Democrats that if they wanted me to put that in the budget they should come and engage with me. I asked them whether, if I did put it in the budget, they would vote for it. I did not get an answer to that. However, I am a fair and reasonable guy: my door is still open to engagement with other political parties. If they want me to support other items, then, by all means, they should engage with me positively and constructively.

Photo of Bruce Crawford Bruce Crawford Scottish National Party

I ask the “fair and reasonable” cabinet secretary to remind me just how much additional money he is putting into city region deals. He will know that that means so much to me because I represent Stirling.

Just for the fun of it—and to wind up the Tories—could he also remind me what percentage of Scottish taxpayers will pay less tax as a result of his announcement?

Photo of Derek Mackay Derek Mackay Scottish National Party

Seventy per cent of taxpayers will pay less tax. On Mr Crawford’s other point, we are doubling the funding for city deals to more than £120 million.

Photo of Claire Baker Claire Baker Labour

Outside the Scottish Parliament this morning, Denise Christie of the Fire Brigades Union said:

“We risk our lives every day. Fire appliances are sitting idle because staff have been cut.”

The Scottish Fire and Rescue Service is to get a real-terms flat settlement in the budget. Firefighters have told me that the VAT recovery is not enough to plug the gap in their service. There is £5.5 million for transformation, but it is feared that that will mean closure of stations and the loss of front-line firefighters. Can the cabinet secretary guarantee that the budget will not mean that?

Photo of Derek Mackay Derek Mackay Scottish National Party

Annabel Ewing is the relevant minister, and she will continue to engage with the FBU on the on-going transformation of the fire service. However, I see the extra money that we are allocating to the fire service as a good thing. Perhaps the Labour Party should welcome it, and the service’s extra spending power that will come from the ability to reclaim VAT, which it could not do before. By giving it greater spending power and more resources, I hope that we can deliver a transformation that keeps Scotland safe and, of course, that appropriately supports the firefighters, who do a fantastic job.

The Presiding Officer:

Last, but not least, I call John Scott.

Photo of John Scott John Scott Conservative

I declare my interest as a farmer. I note that, in the level 3 figures, in the “Rural Economy and Connectivity” chapter, the payments and inspections administration budget has risen from £62 million to £82 million, which is a rise of 30 per cent. Is that increased cost attributable to the failed common agricultural policy computer programme or to something else?

Photo of Derek Mackay Derek Mackay Scottish National Party

A final question from John Scott. I think that farmers will welcome my budget decisions, which followed from the Barclay recommendation to put agricultural land on the valuation roll. I chose not to do that, because there was no intention to tax that land. There is support for our farming communities and for the produce that comes from farms. As farmers will know, their interests are now most threatened by the UK Government’s mishandling of Brexit and what might come from the negotiations on it. We will continue to support our farmers, including through the scheme on which I have worked with Fergus Ewing that ensured that extra financial support could go to farmers earlier than they would otherwise have received their grants, which I know was very warmly welcomed by the NFU Scotland.

The Presiding Officer:

I thank all members and the cabinet secretary for getting through a lot of questions.