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Provisional Outturn 2019-20

– in the Scottish Parliament on 17th June 2020.

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Photo of Linda Fabiani Linda Fabiani Scottish National Party

The next item of business is a statement by the Cabinet Secretary for Finance, Kate Forbes, on the provisional outturn for 2019-20. The cabinet secretary will take questions at the end of her statement, so there should be no interventions or interruptions, please.

Photo of Kate Forbes Kate Forbes Scottish National Party

I welcome the opportunity to update the Parliament on the provisional budget outturn for the financial year 2019-20. The provisional outturn demonstrates, once again, that the Scottish Government has prudently and competently managed Scotland’s finances in challenging and uncertain times, taking into account Covid-19 expenditure up to 31 March.

We are, of course, still in the midst of a global pandemic, and I take the opportunity to thank everybody across Scotland for following the guidance as we start to emerge from lockdown. Our priority continues to be saving lives and reducing the spread of the virus. I also specifically thank members of the national health service, the emergency services and the thousands of carers across Scotland for the amazing work that they have done during this time.

The financial challenges of managing our response to the pandemic are immense, because this is an economic crisis as well as a health crisis. The global economic collapse has disrupted trade, financial markets and global supply chains on an unprecedented level. Today’s gross domestic product stats, alongside a reduction in business activity that is sharper than that during the 2008 financial crisis, demonstrate that. As in other nations across the world, the effects have been felt throughout our economy. International tourism has been hit hard by travel bans, supply chains have been disrupted and labour markets have been severely affected by physical distancing measures, absences and falling demand. That is before we add the already significant uncertainty caused by Brexit and the continued refusal of the United Kingdom Government to listen to reason and extend the transition period, to ensure that we do not add the calamity of a no-deal withdrawal to the huge economic challenges we now face as a result of Covid-19.

It is against that economic backdrop that we report our provisional outturn today. Although the path to recovery remains uncertain, the Scottish Government is implementing measures to ensure that, as a country, we are back on our feet as quickly and safely as possible.

The recently published 2020-21 summer budget revision shows that the Scottish Government has already committed significantly more than just the expected consequentials arising from additional UK Government spending to combating the effects of Covid-19, despite the financial restrictions under which we operate. We are committing more than £4 billion in response to the health, economic and social challenges created by Covid-19. That includes over £2.3 billion to support Scottish businesses, including £1.2 billion for business grants; more than £900 million in non-domestic rates reliefs; £620 million of health and social care funding; £350 million to support the welfare and wellbeing of our communities; more than £200 million in funding for rail; and more than £90 million to support bus operators across Scotland.

Those figures demonstrate the scale and breadth of our response to this unprecedented situation, and that is just a snapshot of the measures that we have taken so far in response to the challenges that are faced across Scotland. What is not in doubt is that significant budget challenges lie ahead; therefore, work is under way to ensure that Scottish Government resources are targeted at stimulating a safe, swift and sustainable recovery for our communities, public services and economy. We have very limited room for manoeuvre within our own budget, which is why I will continue to make the case to the UK Government for an increase in funding and flexibility to allow the Scottish Government to respond fully to the crisis.

I turn now to the 2019-20 provisional outturn. As members will know, under the current devolution settlement, the Scottish Parliament is not permitted to overspend its budget. Therefore, we have again controlled public expenditure to ensure that we live within the budget control limits that apply.

I can report that the provisional fiscal outturn for 2019-20 is £34.4 billion against a total fiscal budget of £34.6 billion, resulting in an overall cash underspend of £258 million. That £258 million is made up of £86 million of fiscal resource, which is for day-to-day spending; £76 million of fiscal capital; and £96 million of financial transactions, which, of course, can be used only for loans or equity investment in entities outside the public sector. Overall, the cash variance of £258 million represents less than 1 per cent of the total fiscal cash budget, with resource underspend—which, again, is for day-to-day spending—being less than 0.3 per cent of the resource budget.

It is important to note that there is no loss of spending power to the Scottish Government as a result of that underspend. Every penny is carried forward in full through the Scotland reserve, and, indeed, the majority has already been deployed through the 2020-21 budget. The resource underspend is marginally lower than the £100 million anticipated as being available to support the 2020-21 budget position. That is the inevitable result of our having to divert additional funding to support the earlier part of our response to the Covid-19 emergency. There were no Barnett consequentials to offset that additional spending, because the UK Government has supplied all consequentials, including those for 2019-20, in 2020-21. However, the shortfall is relatively small and I will pick that up as part of my management of the overall position, to ensure there is no impact on public service delivery.

We have also managed to achieve a capital underspend while prudently borrowing less than we originally budgeted for. In 2019-20 we borrowed £45 million less in capital than the originally planned £450 million and still funded all necessary expenditure while also achieving a sufficient capital underspend to fund 2020-21 budget commitments. The capital investment was, of course, also impacted by the pandemic. Decisions to borrow were made before the full impact on infrastructure projects became clear. The decrease in capital activities in March also resulted in a higher level of underspend than was previously anticipated. However, that is all carried forward through the Scotland reserve.

Finally, and in addition to the above, there is a provisional non-cash underspend of £130 million. The non-cash budget is used for technical accounting adjustments such as depreciation and impairments, and it cannot be used to fund public services. That represents no loss of spending power to the Scottish Government.

It is important to note that those outturn figures for 2019-20 remain provisional, as they are subject to an on-going audit process. Finalised figures will be reported as usual in the annual Scottish Government consolidated accounts and in a statement of total outturn for the financial year 2019-20 later this year.

To conclude—well within my allotted time, Presiding Officer—the provisional outturn demonstrates that the Scottish Government has spent more than 99 per cent of our budget in 2019-20 on the delivery of public services and our support for the economy. The cash underspend of less than 1 per cent of that budget is retained in full by the Scottish Government and will be used in its entirety to fund 2020-21 spending priorities.

I commend today’s figures to Parliament.

The Deputy Presiding Officer:

The cabinet secretary will now take questions on the issues that were raised in her statement. I will allow around 20 minutes for that.

Members who want to ask a question should press their request-to-speak buttons now.

Donald Cameron is joining us remotely.

Photo of Donald Cameron Donald Cameron Conservative

I thank the finance secretary for advance sight of her statement, which is, of course, presented against the backdrop of the current pandemic, and I endorse her comments in thanking our key workers in the NHS, the emergency services and the care sector.

Some budget challenges already existed prior to the pandemic, not least in relation to the significant funds required for income tax reconciliations in the coming years—£270 million for this year and more than £500 million next year. That is before we get to the financial and, indeed, fiscal implications of the virus, which we debated only yesterday, when we considered the summer revisions to this year’s budget.

I note that the underspend remains, at £258 million, a significant sum. It is a huge figure on any view. I also note that the Scottish Government borrowed £45 million less than planned in 2019-20 and that it is not, therefore, using its existing borrowing powers to the full. With that in mind, why is the cabinet secretary demanding further borrowing powers at the very moment when her Government is not only underspending to the tune of £258 million but is not even spending to the borrowing capacity that it already has?

Photo of Kate Forbes Kate Forbes Scottish National Party

I thank Donald Cameron for that question. It is well documented that, by law, we cannot overspend our budget, so we must prudently balance it throughout the year.

The underspend that he referenced is less than 0.3 per cent of the resource budget. There is no loss of spending power, and, as he will welcome, we can use the money this year to mitigate Covid. I have repeatedly made it clear that I am looking for revenue borrowing powers. We have existing borrowing powers for capital; as I said in my statement, that is partly due to the impact of Covid in March. Some construction activity had to be suspended in March, and it stands to reason that that would have an impact on the amount of capital that we utilised.

With regard to borrowing powers, he makes the point for me. He referenced income tax, but, of course, the reconciliation that he talked about is born of forecast error, not Government decisions. The ability to borrow to cover that forecast error is limited to £300 million, and we have used some of that borrowing to cover our reconciliations this year in order that the maximum spending power is available to invest in people, communities and businesses. However, next year, we face a provisional £550 million reconciliation, with borrowing limited to only £300 million, which demonstrates that the existing borrowing powers are not sufficient.

Photo of Jackie Baillie Jackie Baillie Labour

I echo the cabinet secretary’s thanks to all key workers during this pandemic.

I have three questions for her. First, the overall cash underspend is £258 million, which is carried forward to this financial year. Will the cabinet secretary use some of that money to fund the return to school of children across the country? Secondly, last year, there was a shortfall in expected income from the land and buildings transaction tax and the Scottish landfill tax, but there is likely to be a greater variance this year. What order of magnitude does she think that it will be, and will it be covered by her remaining borrowing from the Scotland reserve? Thirdly, the Scottish Government has overestimated the income tax take for the past three years, resulting in a £1 billion black hole in the finances, which needs to be repaid. As she rightly said, £550 million of that needs to be repaid this year.

Given the likely further decline of income tax revenues because of Covid-19, what specific plans does she have to fill that even bigger black hole in the future?

Photo of Kate Forbes Kate Forbes Scottish National Party

The cash underspend in resource is about £86 million, and we are working with the Convention of Scottish Local Authorities to understand what the costs might be of the return to work. Clearly, all the money that is available will be deployed to meet our Covid-related needs this year. As I have already mentioned, we face an extremely challenging budget situation this year.

With regard to LBTT, I assume that Jackie Baillie welcomes the fact that, in total, the fully devolved taxes raised more revenue in 2019-20 than in any previous year. Clearly, this year, there will be a hit. The Scottish Fiscal Commission has already published LBTT figures for the first quarter, and I anticipate the commission updating those figures as the data becomes available.

With regard to the last point, on reconciliations, she is right to identify the challenge that we face next year. That is partly the reason why I was grateful that all parties—bar the Tories—backed my calls to the UK Government for additional flexibilities and powers to look at how we spread that reconciliation over a longer period. She will appreciate that using borrowing powers to cover the reconciliation means that we are not taking away from day-to-day spending on education or the NHS. Every Government around the world borrows for anticipated reconciliation due to forecast errors, which, by their nature, occur in every Government’s day-to-day budget management. I hope to ensure that we have additional flexibilities to cover that reconciliation. Perhaps we can even ensure that the reconciliation is dealt with over a longer period than we are currently allowed.

The Deputy Presiding Officer:

We move to open questions. A lot of members want to ask questions, so short questions and answers would be appreciated.

Photo of Patrick Harvie Patrick Harvie Green

I join others in paying tribute to the people who have been keeping our emergency services and public services working in these times.

I am grateful for receiving an advance copy of the cabinet secretary’s statement, which mentions that £90 million is being allocated to bus operators in Scotland. Given that we do not yet know for how long it will be necessary to have reduced capacity in the bus industry and what that will do to the viability of bus services, given that we do not yet know how long it will take for public confidence in using buses to return, and in light of yesterday’s statement in the chamber by the cabinet secretary’s colleague that confirmed that free bus travel for under-19s remains a Government policy commitment, when does the cabinet secretary anticipate being able to answer some of the fundamental questions about the delivery of such services and the impact that that will have on the Scottish budget?

Photo of Kate Forbes Kate Forbes Scottish National Party

In our route map, we appreciate that transport, whether in relation to the economy or schools, has to be a key part of the easing out of lockdown. I am in active discussions with my colleague Michael Matheson about how we fund transport needs, particularly given that bus services will have to adopt social distancing practices. Patrick Harvie will have noted yesterday that money was allocated in my return-to-work capital stimulus package to retrofit buses, in order to ensure that they can adopt social distancing practices.

I still believe that providing free bus services to under-19s is a good policy that I want to adopt in Scotland. Given the Covid crisis that we face, Patrick Harvie will appreciate that some policies have had to slip slightly, but that does not take away from our commitment. Over the coming months, as we try to get the economy and schools back up and running, we will return to some of the issues that have been on hold as part of a new way of thinking and new forms of Government intervention in our transport system.

Photo of Willie Rennie Willie Rennie Liberal Democrat

I am doubtful that a £76 million capital underspend was substantially because of the lockdown, given that it impacted on only two weeks of the financial year. Last year, the biggest underspend was in transport; this year, it is in transport again. That comes a day after the Government announced that its climate change targets were missed. What will the finance secretary do to get the transport budget effectively delivered to support cycling and walking projects, so that it is not contributing only to future underspends?

Photo of Kate Forbes Kate Forbes Scottish National Party

Clearly, there were a number of other delays. There was not a slight capital underspend only in transport; there was a slight underspend in health and across budget portfolios. This year, we are probably looking at a slight capital underspend, which is why, yesterday, I was able to announce the £230 million return-to-work scheme. There is substantial investment in transport through that capital stimulus, and we will continue to ensure that any capital underspends that emerge this year, because of delays to construction, will be reinvested in ensuring that our economy gets back up and running and that we reposition our economy, as all members have identified, so that it grows in a sustainable and fairer way. That includes ensuring that everybody has access to public transport.

Photo of Ruth Maguire Ruth Maguire Scottish National Party

Every year during this statement, Opposition MSPs criticise the Government for the slightest budgetary underspends. Will the cabinet secretary confirm that it is precisely that approach by the Government that has helped it to support key industries and sectors during the coronavirus crisis?

Photo of Kate Forbes Kate Forbes Scottish National Party

As I have said—I will say it again, for the benefit of everybody—under the current devolution settlement, the Scottish Parliament is not allowed to overspend. Attempting to spend the exact amount that is contained in the budget carries a significant risk of reaching the Treasury’s budget cap.

I hope that members welcome how low the underspend is, because of prudent management of the budget. That has enabled us to maximise our response to the coronavirus pandemic, which has included the provision of more than £50 million during March 2020 in support of key industries and sectors, such as general practitioners, prescriptions and the rail franchise. We know that this year is a challenging year for the budget, so it is quite right that we are able to use some of the underspend from last year, through the reserve, to reinvest during the current crisis.

Photo of Alexander Burnett Alexander Burnett Conservative

I refer to table 4 of the accompanying notes. We will always welcome an underspend when it is low in individual portfolios. However, can the finance secretary explain the underspend of £63 million in communities and local government at a time when local authorities are crying out for more funding?

Photo of Kate Forbes Kate Forbes Scottish National Party

I have already identified that that underspend is extremely low, and that it is because of prudent management. We have tried to bring in budgets as close to their forecasted budget as possible.

Inevitably, there is sometimes a little bit of slippage; on that particular portfolio, it relates partly to resource and partly to capital. For example, there has been a delay to some of the city deals and also some delay to transport. When Covid—which is one reason, not the only reason—had an impact, toward the end of the year, it meant that there was a reduced and small underspend.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

It was reported on 12 June that leaked treasury documents have suggested that UK borrowing will reach £340 billion and quantitative easing will reach £645 billion this year. Does the cabinet secretary agree that that puts into perspective the supposedly generous £10 billion that was committed to Scotland, and that it is now time for UK ministers to ensure that Scotland has the resources that are needed to deal with a pandemic and its aftermath?

Photo of Kate Forbes Kate Forbes Scottish National Party

It shows some of the hypocrisy, as although the UK Government has reprioritised its own budget to invest in Scotland, clearly most—if not all—of the funding for the furlough scheme, self-employed income support and the consequentials that we have received have come from borrowing, because the UK Government can borrow. As Kenny Gibson said, borrowing is forecast to increase to £300 billion.

That is why we are making the point that our current powers and levers are insufficient to manage our own response to the range of issues that we face. Our resource borrowing limit is £1.75 billion and our capital borrowing limit is about £3 billion. That demonstrates why we need additional funding and flexibility to allow the Scottish Government to fully respond.

Photo of Sarah Boyack Sarah Boyack Labour

Given the underspend that was identified in the cabinet secretary’s statement, will she now commit to working with our local authorities to support them further? She should take into consideration the £145 million shortfall that they have already faced due to the pandemic, and the commitment that the First Minister made today to spend whatever is needed to get schools in Scotland going again.

Photo of Kate Forbes Kate Forbes Scottish National Party

I did not quite catch the first part of Sarah Boyack’s question, but I think that she asked about capital underspend.

Photo of Sarah Boyack Sarah Boyack Labour

It was general underspend.

Photo of Kate Forbes Kate Forbes Scottish National Party

Okay, the question was about general underspend so it is very similar to Jackie Baillie’s question.

As I said, we have used the entirety of any underspend that has been put through the Scotland reserve this year to respond to Covid. The costs of Covid—which were in the summer budget revision—were already approximately £4 billion. The consequentials that we have received are several hundred million lower than that. Therefore, being able to use some of the resources from last year in this year’s response has been very helpful.

However, there are continued needs and there are shortfalls that we need to meet. We need to meet those either through additional consequentials from the UK Government or through the fiscal flexibilities and powers that would allow us to make up the shortfall ourselves.

Photo of Joan McAlpine Joan McAlpine Scottish National Party

Can the cabinet secretary give us any more information on how the current coronavirus crisis has affected the provisional budget outturn figures that she presented?

Photo of Kate Forbes Kate Forbes Scottish National Party

Today’s provisional outturn figures cover last year, and the coronavirus pandemic began only at the end of that year. Due to our prudent management of finances, we were able to absorb some of the additional costs that relate to the virus in March of the last financial year, without overspending on our budget.

Today’s figures include over £50 million that was spent in 2019-20 on the coronavirus response. However, that was spent mainly in the health and transport sectors and is in addition to the over £4 billion that we have allocated to coronavirus in this financial year.

Photo of Murdo Fraser Murdo Fraser Conservative

The accompanying document shows that the underspend in the finance, economy and fair work portfolio was £158 million last year; that represents a substantial proportion of the total in that budget line. Can the finance secretary explain what makes up that figure and why it is so high?

Photo of Kate Forbes Kate Forbes Scottish National Party

I can probably provide a more helpful breakdown in full.

However, generally—this answer is similar to my answer to Alexander Burnett’s question—some of it will relate to capital that had to be rescheduled, particularly when it related to construction costs or loans and financial transactions that were planned for that financial year. There is a much lower resource figure. I will provide a breakdown of the specifics of what is within the economy portfolio later.

Photo of John Mason John Mason Scottish National Party

The underspend is very small, if not tiny. Some people would call it worryingly low, given what lies ahead with Covid and Brexit. Is the cabinet secretary committed to continuing to take a prudent approach to Scotland’s finances?

Photo of Kate Forbes Kate Forbes Scottish National Party

Indeed we are. Given the limited fiscal levers that we have to accommodate any overspend, we must make sure that we control spending and that we meet the budget cap. That is what we have done this year, as we have every year, because of our prudent management and our competence with Scotland’s finances.

Photo of Neil Bibby Neil Bibby Labour

If education is the Scottish Government’s number 1 priority, we would expect to see that reflected in the statement. It is regrettable that the finance secretary did not mention education once in her statement.

We cannot have an economic recovery without schools and childcare. With the lockdown generation facing upheaval in their education, will the finance secretary allocate the resources necessary to provide our children with the world-leading educational response that they need?

Photo of Kate Forbes Kate Forbes Scottish National Party

I see that Labour members are all asking the same very important question today about education.

I have already committed that we will use all the funding from last year’s reserve to meet our Covid costs. Some of those costs are the ones that Mr Bibby has identified in education, along with local government, transport and health. We are grappling with all those costs. We have ensured that we are using all the resources available to us, whether capital or revenue, to meet those costs and we will continue to do so.

Photo of Bob Doris Bob Doris Scottish National Party

Can the cabinet secretary provide further details of the estimated and actual spend on both the implementation and the delivery of Scotland’s social security powers? In doing so, will she say more about how that will inform us of the nature of the demand-led budget for the current financial year, given the Scottish Government’s lack of borrowing powers and the probably significant strain that will be placed on the social security budget by Covid-19?

Photo of Kate Forbes Kate Forbes Scottish National Party

Last year, £134.9 million was spent on implementing and operating our social security powers, against a budget of £149.1 million. Furthermore, £345.3 million was spent on social security assistance, against a budget of £346.8 million.

In response to the Covid crisis, the Cabinet Secretary for Social Security and Older People announced a reprioritisation of the social security programme to focus more on securing our front-line services and on delivering the benefits that we already have in place to support low-income families, carers and people facing bereavement. That will ensure that we are in as robust a position as possible to manage the impact of Covid-19 on benefit delivery.

The Deputy Presiding Officer:

That concludes the questions on the 2019-20 provisional outturn statement. I thank everyone for their brevity.