Scottish Government Draft Spending and Tax Plans 2019-20

Part of the debate – in the Scottish Parliament on 12th December 2018.

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Photo of Derek Mackay Derek Mackay Scottish National Party

This Scottish budget prepares our economy for the opportunities of the future, enables the transformation of essential public services and builds a more inclusive and just society. It does so in the context of continuing United Kingdom austerity and against a backdrop of a UK Government careering toward Brexit at any cost. In sharp contrast to the chaos and uncertainty of the UK Government, the Scottish Government will keep on delivering good governance for Scotland.

Just this week, we have had confirmation of 80,000 affordable houses built since 2007, record low unemployment, the numbers of teachers and teaching students increasing, school attainment improving and the new best start grant starting to provide help for low-income parents. For the benefit of the Tories in the chamber, that is strong government—some might even say strong and stable government—doing its job, delivering for the people. This budget builds on that strong base. It provides an economic stimulus and supports the sustainability of our public services. It is a budget that safeguards the people of Scotland as best we can from the risks that we face using all the powers and resources at our disposal.

We all know that, despite the UK Government’s promises, it has not ended austerity. The UK budget in October 2018 failed to provide much-needed direction and leadership for our longer-term finances and wider economy. On spending, the Office for Budget Responsibility confirmed in October that the UK Government could spend £15.4 billion more and still meet its fiscal rules in 2020-21. There can be no doubt that the Prime Minister did not keep her promise to end austerity. Instead we have austerity that is delivered by choice and not necessity and which has been condemned by the United Nations. The price that Scotland is paying as part of the UK is economic and social vandalism.

The facts are these: Scotland’s resource block grant will be almost £2 billion lower in real terms in 2019-20 than it was in 2010-11, which is a fall of 7 per cent. If this year’s budget consequentials for investment in the national health service are excluded—which is reasonable, given our commitments to pass all those consequentials on to health—our 2019-20 resource block grant is £340 million less in real terms than it was in 2018-19. That puts a huge strain on public spending, which this budget works hard to manage.

It is not just austerity that puts pressure on our budget; economic consensus warns us of the damage of Brexit. Two weeks ago, in a watershed moment, the UK Government admitted that it does not matter what kind of Brexit it secures; any kind of Brexit will make us poorer. The Scottish Government’s position is clear. The best option for the future wellbeing and prosperity of Scotland is to remain in the European Union. If Scotland is forced out of the EU as a result of the actions of the UK Government, it is vital that the UK Government ensures that there is no detriment to the Scottish budget.

The UK Government’s decision to take us out of the EU single market and the customs union—a market of more than 500 million people—is reckless and unnecessary and our growth forecasts are subdued as a consequence. Today, the Scottish Fiscal Commission has published its latest set of independent economic and fiscal forecasts for Scotland. The commission has revised up its forecasts for gross domestic product growth in every year. It now forecasts GDP in Scotland to grow by 1.4 per cent in 2018, which is faster than the growth expected in the UK as a whole. The commission then expects the Scottish economy to grow by 1.2 per cent in 2019, 1 per cent in 2020 and 2021, 1.1 per cent in 2022 and 1.2 per cent in 2023. However, the commission highlights that Brexit is a key factor that is expected to lead to slower growth in productivity, population and trade in future years. That means less money for public services and it risks making Scotland a less attractive place for businesses.

As a responsible Government, we are preparing, as far as possible, for all exit possibilities and we are intensifying preparations in order to protect the Scottish economy, our businesses and our workers. We have set up new teams in the Scottish Government to support preparations, including an international trade and investment policy team. We have doubled Scottish Development International’s presence in Europe and we are investing £20 million over the next three years to enhance and intensify support to businesses that are looking to export.

Significant resources have had to be diverted, not just in the Scottish Government but across the public sector to prepare for the impact of Brexit. A no-deal Brexit and continued chaos from the UK Government will only make that worse. It is disappointing but necessary for me to advise Parliament that, if the UK ends up in a no-deal Brexit, I may be required to revisit the priorities in this budget. However, stepping back from the brink and remaining in the EU would mean that resources could be returned to supporting front-line priorities. That is just one of many reasons why the Government believes that we should remain in the EU.

Unlike the UK Government, we have chosen to use the levers that are at our disposal to boost our economy and support our public services. In 2019-20, we will continue to deliver a public sector pay policy that lifts the 1 per cent cap on public sector pay. I confirm today that I have agreed a public sector pay policy for 2019-20 that will provide a 3 per cent pay rise for all those who earn £36,500 or less, which is higher than forecast inflation. It will cap the pay bill at 2 per cent for all those who earn between £36,500 and £80,000, and it will continue to contain pay rises at the higher end, capping any increase for those who earn more than £80,000 to £1,600. That is a reasonable and affordable public sector pay approach, which continues the journey of restoration of public sector pay. However, I must disappoint my colleagues by saying that ministerial pay will once again be frozen at 2009 levels. Our commitment to public sector workers is part of our commitment to high-quality public services.

The Government has made it clear that our priority is closing the attainment gap and improving education. We are determined to improve the life chances of children and young people in Scotland, and to change the lives of our future generations for the better. That is our defining mission, and it is why I announce today that the education portfolio will receive a real-terms increase in investment in 2019-20. We will provide almost £500 million to expand early learning and childcare, by supporting the recruitment and training of staff and investing in the building, refurbishment and extension of about 750 nurseries and family centres. We will invest more than £180 million to raise attainment in schools and close the attainment gap. That includes £120 million that will go directly to headteachers through the transformational pupil equity fund.

We will invest more than £600 million in Scotland’s colleges, and we will maintain investment in Scotland’s universities at more than £1 billion. To ensure that a range of avenues are open to young people, we will invest more than £214 million in apprenticeships and skills, in order to support the on-going expansion of apprenticeships in Scotland as we progress towards 30,000 starts per year.

The Government will continue our work to tackle poverty and mitigate the worst impacts of the UK Government’s welfare cuts. We are already using the newly devolved social security powers to create a social security system that is based on dignity and respect. In a recent report on the UK, the UN rapporteur on poverty and human rights condemned the UK Government’s

“punitive, mean-spirited and often callous” treatment of the country’s poorest and most vulnerable. I welcome the rapporteur’s references to the very different approach that is being taken by the Scottish Government. The report notes the establishment of a social security system that is guided by evidence and the principles of dignity, fairness and respect. It recognises that we are mitigating the worst of the UK Government’s welfare cuts and it describes our plans for tackling child poverty as “ambitious”.

The Government will continue our work to tackle poverty, support new families and ensure that every child has the best possible start in life. We will also continue to mitigate the worst impacts of the UK Government’s welfare cuts. The delivery of the new social security system and the safe and secure transition of the new powers will continue to be key priorities for the Government.

In 2019-20, we will deliver fair and dignified social security assistance, over and above what the UK Government provides, with a total forecast expenditure of £435 million. That will include a forecast spend of £37 million for the carers allowance supplement, which will provide vital support for our carers. It will include £12.4 million for the new best start grants, which will assist low-income families with essential expenses on the birth of a child and at key transitions in the early years. The grants will support families with young children who are feeling the impact of the UK Government’s welfare cuts. We will provide £6.2 million for our new funeral expense assistance, which will help those who are on lower incomes with funeral costs. We will provide nearly £100 million to continue our mitigation of the bedroom tax and the UK Government’s welfare cuts. We will increase the budget for our fair food fund from £1.5 million in 2018-19 to £3.5 million in 2019-20, with £2 million being provided specifically to tackle food insecurity during school holidays.

To safeguard Scotland, we will continue to protect the police resource budget in real terms, provide over £5 million of additional resources to the Scottish Fire and Rescue Service to support its transformation and increase Crown Office and Procurator Fiscal Service funding by £5 million for the recruitment of additional legal staff to manage increased case loads.

The Scottish economy is the powerhouse that fuels ambition for Scotland, and we are determined to unlock its potential. I want to see a country that is globally competitive, with innovation, sustainability and fairness at its heart. That is why this year I launched our new economic action plan with a number of decisive measures to improve the competitiveness of our business environment. We will support an advanced manufacturing challenge fund of up to £18 million to ensure that all parts of Scotland benefit from developments in advanced manufacturing; invest £5 million as part of our three-year £20 million plan to boost exports; and work with partners to enhance the digital skills that businesses require, including a new £1 million digital start fund to support people on lower incomes. We will also invest around £2.4 billion in our enterprise and skills bodies and develop the work of the enterprise and skills review and the Enterprise and Skills Strategic Board.

In addition, the Scottish Government has committed around £1.3 billion to support Scotland’s seven cities and their regions in maximising economic opportunity. In 2019-20, we will secure fully agreed city region deals for Stirling and Clackmannanshire and for the Tay cities region; progress growth deals for the Ayrshires, the borderlands and Moray; progress discussions on Argyll and Bute, Falkirk and the islands; and continue our financial commitment to the city region deals in Glasgow, Aberdeen, Inverness and Edinburgh. Those investments will benefit all of Scotland, creating thousands of jobs, upskilling local labour markets and building on the economic strengths and opportunities for each region.

As part of our clear commitment to fair work and employability, we will invest £5 million over three years to support around 2,000 women to return to work following a career break; support parents in addressing barriers to work and provide in-work support to help low-income parents remain in work; and develop our fair work first principle for public procurement to ensure that as much of our funding as possible supports a fair and inclusive economy.

Investment in people is crucial, and creating meaningful employment is the best social policy. We also know that greater investment in infrastructure improves quality of life, boosts productivity and makes our country a more attractive place to do business in. That is why this Government will increase capital investment by £1.56 billion per year by the end of the next Parliament, and the budget begins that journey by setting out capital investment of more than £5 billion over the coming year, including investment of £1.7 billion in our transport infrastructure; more than £180 million towards city region and growth deals; and £175 million of investment in nursery and childcare buildings.

Of course, it is vital that the right investments are made to generate inclusive growth and to deliver our low-carbon objectives. After all, we must act on climate change. Our investments in broadband, transport and utilities will provide the foundation for companies to invest and bring new economic opportunities across Scotland. As part of that vision, I will continue our groundbreaking work to establish a Scottish national investment bank, with the budget providing £130 million to establish the bank and precursor investments.

The next £50 million of the £150 million building Scotland fund announced last year will provide debt and equity support to the private sector, and organisations such as housing associations and universities, to support the development of housing across all tenures; to develop modern industrial and commercial space; and to support industry-led research and development. In 2019-20, we will invest a record £826 million as part of our total investment of over £3 billion to deliver 50,000 affordable homes over the course of the Parliament across the length and breadth of Scotland. We are building for Scotland, and building new homes, too.

As well as building more homes, with our progressive land and buildings transaction tax we are continuing to protect those who are buying their first home and those who are progressing through the property market. For those purchasing additional properties, I propose to increase the additional dwelling supplement from 3 to 4 per cent. Legislation will be laid before Parliament tomorrow and, if approved, the rate change will come into force on 25 January 2019.

I have listened carefully to the business community; it seeks investment in skills, people, innovation and infrastructure. This budget delivers such investment. We are committed to providing the best possible environment for businesses, supported by a competitive non-domestic rates regime. Last year, I limited the increase in business rates to consumer price index inflation. This year, I will go further—I announce today that we will cap the increases in the rates poundage in Scotland in 2019-20 at the below inflation level of 49 pence, limiting the increase to 2.1 per cent. That will ensure that over 90 per cent of properties in Scotland and all small and medium-sized businesses will pay a lower poundage than they would in other parts of the UK. I can also confirm that I will continue to uprate the poundage in line with the CPI for the remainder of this parliamentary session. Our package of business rates relief, including the small business bonus, is the most generous anywhere in the United Kingdom. It is worth an estimated £750 million in 2019-20, and continuing the growth accelerator will give us a further competitive advantage.

I also propose changes to non-residential land and buildings transaction tax that will mean that Scotland has the most competitive rates in the UK. Under those proposals, two thirds of all non-residential transactions will pay less tax in future than at present. Again, I will lay legislation on that change before Parliament tomorrow, and, if approved, the rate change will come into force on 25 January 2019. Those measures will help our businesses to grow, prosper and be successful.

We are proceeding with the Barclay review recommendations to reform non-domestic rates. Businesses have asked me to rule out the introduction of an out-of-town levy, which was a recommendation of the Barclay review. Although the Barclay review recommended that we explore that possibility as a means of supporting our town centres, in light of proposed UK taxes I do not believe that it would be right or fair to introduce such a tax at this time. We will, of course, keep that under review. However, I share the view that our town centres require support in a changing retail environment and I therefore announce that we will establish a new £50 million capital fund to support our town centres to diversify and develop, ensuring that they are thriving and sustainable places where people choose to spend their time.

Last year, we took the decision to introduce a new, progressive, fair and balanced income tax system that raises additional revenue from those who can most afford it, and to protect public spending. Those decisions help us to make Scotland the kind of country that we want it to be—they fund our public services and support our economic infrastructure and those most in need. Our income tax proposals will continue to follow the four key tests that the Scottish Government introduced last year: protecting the lowest-paid taxpayers, improving progressivity, raising additional revenue for public services and protecting the Scottish economy.

I have decided that, this year, I will not increase any of the rates of income tax: tax rates will remain the same. As a result, 99 per cent of all taxpayers will see no increase in the tax that they pay. However, in 2019-20, I will increase the starter and basic rate bands by inflation to protect our lowest and middle-earning taxpayers. The higher rate threshold will be frozen. That will ensure that 55 per cent of Scottish taxpayers continue to pay less than they would if they lived elsewhere in the UK, and that Scotland will continue to be the lowest-taxed part of the UK. For example, a pensioner who earns £15,000, with access to free personal care, free bus travel and cheaper council tax, will be better off by around £9,700 in 2019-20 relative to the rest of the UK. However, someone earning £62,149—the same as an MSP—will pay just over £30 a week more in income tax in Scotland than they would elsewhere in the UK. That is before we consider any of the benefits of Scotland’s social entitlements, such as state-funded university tuition, which we will continue to protect.

At a time of constrained growth, prolonged austerity and growing economic uncertainty, all as a result of a failing UK Government, it is not the time to cut tax for the highest earners at the expense of our public services. Instead, I will use the additional resources that are raised through my tax decisions in this budget to support our public services and ensure that our health service gets all the additional money that was promised. The UK Government failed to deliver in full the resources that it promised our health service, leaving us £55 million short. My decisions will ensure that we can restore that amount, which is the right decision for Scotland.

Our tax policy supports our public services and investment in our economy, while Scotland continues to be the fairest-taxed part of the UK. Our economy has grown faster than the rest of the UK in the first six months of this year, and there is no evidence in the Scottish Fiscal Commission’s report that our income tax policy is slowing growth in Scotland. However, I always want my decisions to be based on the best evidence, so I will ask our council of economic advisors to expand its analysis of the potential impact of behavioural effects on future revenues.

Providing the necessary investment for health in a fair and balanced way is equipping our front-line services to take forward the measures that are set out in the health and social care financial framework and waiting times improvement plan. We recognise that our NHS and wider health and social care system must continue to adapt to the changing needs of our population and, in 2019-20, we will continue our improvement of those vital services.

I announce today that I am increasing the health portfolio resource budget by almost £730 million, which is an increase of almost £500 million in real terms. That decision confirms that health is a top priority for the Government and will take spending levels to £754 million above inflation since 2016-17, which is the equivalent of 19,000 nurses.

We will also deliver a further shift in the balance of spend towards mental health and primary, community and social care. As part of that, we are increasing our package of investment in social care and integration to more than £700 million in 2019-20. We will increase our direct investment in mental health services by £27 million, taking the overall funding for mental health to £1.1 billion in 2019-20, which includes our work to improve mental health services support in schools.

The decisions that I have taken in this year’s budget will also allow me to increase funding for local government in 2019-20, providing total support of £11.1 billion. That provides a real-terms increase in revenue and capital funding, and an overall real-terms increase in the total local government settlement of more than £210 million.

This budget safeguards Scotland, using all the powers, resources and tools that are available to do so. If Opposition parties choose to argue for additional spending in any area above what I have set out in the budget, to have any credibility they need to indicate where the money should come from. Should it come from a rise in the basic rate of income tax and hit those on lower incomes, or should it come from a cut to public services? If the latter, which public services would they cut: the NHS, education or local government?

The Scottish Government cannot completely protect Scotland from the recklessness of the UK Government, but the decisions that we have taken in this budget ensure that we protect what matters most. We have chosen to transform our early learning and childcare; protect funding for education and improve attainment; invest record sums in our health services; provide a real-terms increase in total funding for local government; expand free personal care; and deliver a fair and just new social security system that will support those who are most in need.

We are doing all that while the UK Government implodes on its journey of economic self-harm. That is why the people of Scotland have entrusted us to focus on the delivery of our public services and the economy. This budget delivers for the Scotland of today and invests for the Scotland of tomorrow. I commend it to the chamber.