Scottish Budget Update

– in the Scottish Parliament on 29th September 2020.

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Photo of Kenneth Macintosh Kenneth Macintosh Labour

We would usually turn to topical questions at this point, but we have a different order of business today to accommodate members of the Finance and Constitution Committee. We will move to a statement by Kate Forbes on the Scottish budget update. The cabinet secretary will take questions after her statement and I encourage all members who wish to ask questions to press their request-to-speak buttons.

Photo of Kate Forbes Kate Forbes Scottish National Party

This is a welcome opportunity to provide an update linked to the publication of the autumn budget revision, which was laid on Thursday 24 September, and on related budget matters. The statement continues my commitment to engage with the Parliament on the budget process and on the funding provided to support the Covid-19 response.

I also take the opportunity to offer some thoughts in response to the chancellor’s statement last week, and to his decision to scrap this autumn’s planned United Kingdom budget.

The autumn budget revision is the second of three formal in-year amendments planned to the Scottish budget for 2020-21, reflecting the Scottish Government’s financial response to Covid-19. It remains a snapshot of a dynamic funding position, but brings the total Scottish Government financial response to Covid-19 to over £6.5 billion—around £4 billion at the summer budget revision and £2.5 billion here—with final allocations planned to be set out in February in the spring budget revision.

The ABR allocates £2.55 billion of Covid-19 and other funding changes. It is being funded through deploying £2.4 billion of Barnett consequentials, £142 million of re-prioritisation of existing expenditure and £30 million of Scotland reserve drawdowns for capital expenditure.

The largest element, £1.84 billion of Barnett consequentials, is allocated to health and social care. That brings total health funding on Covid-19 to over £2.4 billion and reflects that the crisis is, first and foremost, a health crisis.

We have allocated £222 million of resource consequentials to transport. There is £190 million for business, employment and cultural support and £119 million for education and skills.

The ABR also allocates the majority of capital expenditure from the £230 million economic stimulus package announced in June.

That leaves just over £500 million of Covid-19 resource consequentials still formally unallocated, but I remind opposition members who appear to be confused about the nature of a budget revision that that funding is fully committed to the Covid response. It will be formally allocated through the spring budget revision: a budget revision is a retrospective budget process.

The residual Scotland reserve position is currently £220 million in total.

Although they are not formally allocated here, the remaining consequentials are already being redeployed against existing, high-priority commitments and there is no available headroom. For example, we have made a commitment to provide funding for those on lower incomes who are required to self-isolate and we also know that essential support is required to sustain our transport networks.

We all want to do more and I face calls from all parties to fund additional measures. In the absence of any further UK consequential funding, the only way of supporting additional commitments is through further re-prioritisation of existing funding—funding that we know is required to support vital public services. That is why, in my discussions with the UK Government, I continue to press the case for additional borrowing powers and other fiscal flexibilities. Those powers are essential in enabling the Scottish Government to do more to maintain a Scottish approach to supporting the Covid-19 response and to assist in the management of the overall budget position.

We are not waiting for the UK Government to act. Instead, we have got on with the business of investing in the economy, with a view to providing clarity to businesses and supporting economic recovery. Last week, we published the draft infrastructure investment plan as well as the capital spending review framework document.

Together, those publications provide detail of future capital spending plans that will aid our response to the economic fallout from the Covid-19 pandemic and give much-needed confidence to key sectors of the Scottish economy.

The draft infrastructure investment plan sets out a clear vision to support and enable an inclusive net zero emissions economy. It includes the details of around £24 billion of major projects and national programmes that we can confirm now, with more to be added in future years. Infrastructure has a vital role to play in supporting jobs and helping businesses and communities to adapt and recover from the impact of Covid-19. Moreover, the package of investments set out in the draft plan responds to Scotland’s economic, social and environmental needs, and supports sustainable and inclusive growth for all.

The capital spending review framework gives the basis for publishing a full capital spending review later this year, which will provide multiyear capital budget allocations for the Scottish Government and other public sector bodies. We have done that despite continuing uncertainty about the UK Government’s own forward spending plans.

The chancellor’s decision to scrap this autumn’s UK budget is extremely concerning news. The Scottish budget envelope still depends heavily on the block grant set by the UK budget and on UK tax policy. Without that tax policy and the other announcements of a UK budget, the Scottish budget for next year, on which vital public services depend, will be based on provisional and partial figures and therefore subject to unnecessary uncertainty and risk. That is no way to set a multibillion pound budget on which the communities and businesses of this country rely.

We faced a similar situation this year when the UK budget was not set until March. Members across the chamber, no matter how much they might defend the UK Government today, know full well that last year’s delay was deeply problematic for our budget setting and scrutiny processes. However, the situation that we now face is far, far worse as it is compounded by the financial challenges of Covid-19, the potential for the UK Government to make substantial changes to tax and spending, and the uncertainty surrounding Brexit.

It is completely unacceptable that Scotland and the other devolved Governments are being put in this position again. Together with the finance ministers of Wales and Northern Ireland, I have written to the chancellor to register our concerns about the delay and the prolonged uncertainty about the scope and content of the UK comprehensive spending review. The situation again underlines the real need for us to have full financial powers to ensure that we are not adversely affected by UK budgetary decisions or, indeed, non-decisions. Whether it is Brexit uncertainty, lack of clarity on Covid funding or scrapping the autumn UK budget, our whole budget process is at the mercy of the dysfunction of Westminster.

The chancellor’s winter economy statement provided helpful clarity on his next steps, and I welcome the extension of support for some individuals and businesses. However, it was clear weeks ago to nearly everybody else—business leaders, manufacturers, trade unions and political parties across the chamber—that either extension of the existing measures or successor arrangements were essential to prevent unnecessary economic damage and protect livelihoods. While the chancellor has dithered, many businesses have already issued redundancy notices.

The job support scheme is a poor and narrow substitute for the job retention scheme. The Treasury’s own illustration makes it clear that the scale of its contribution to supporting individuals has plummeted, with the burden falling on hard-pressed employers to provide the majority of the support. The Institute of Fiscal Studies has stated that the job support scheme is significantly “less generous” than the furlough scheme and that a lot of those workers who are not working at all are likely now to lose their jobs. The Scottish Tourism Alliance has stated that

“employers cannot afford to pay staff when there is no work so we can still expect to see mass redundancies.”

I am under no illusions; despite those announcements, jobs will be lost, the economy will be more fragile and the recovery will be challenging.

I will continue to seek to engage Parliament at every step of our fiscal response to Covid-19. The autumn budget revision and the draft infrastructure investment plan are part of that transparent process. However, I believe that the chancellor’s statement on Thursday was a missed opportunity and that we need the clarity that an autumn budget would provide. The measures so far do not allow us to tailor our response to Covid’s impact on the economy. The UK Government’s continued failure to provide proportionate fiscal flexibility, such as borrowing powers, prevents the Scottish Government and the Parliament from acting to deliver the support that we all believe is necessary.

Our ambition remains to eliminate COVID-19 in Scotland and for the Scottish economy to return to delivering prosperity and growth. Unfortunately, under the current arrangements imposed on our budget approach and timetable, our response to the crisis is overly dependent on that of the UK Government.

The lack of an autumn UK budget increases the funding uncertainty for our decision making at a time when taxpayers, communities and our public services most need clarity.

Like all Governments, we are facing pressures to act now, to go further and to provide additional support, but we do not have the tools that allow us to do that. We do not have the clarity that we need on UK tax and spending to support our budget planning into next year. It does not seem credible to me, given these exceptional times, that the UK Government refuses to accept the case for our getting these routine, basic fiscal powers—powers that the Scottish Parliament has overwhelmingly supported in the past.

Photo of Murdo Fraser Murdo Fraser Conservative

I thank the cabinet secretary for the advance copy of her statement, although it is disappointing that she has now fully adopted the grievance agenda of all her Cabinet colleagues.

The finance secretary complains that the UK budget is being delayed, seemingly oblivious to the fact that we have a global health emergency wreaking havoc with economies and public finances across the world. Of course, the Scottish Government was able to set a budget in similar circumstances earlier this year, so is there any reason to believe that the current finance secretary will prove less capable in that regard than her predecessor in office?

I will ask two questions of the cabinet secretary in relation to the detail of her statement. She referred to the unprecedented £6.5 billion guarantee of additional spending from the UK Government. She said that £500 million of that was “formally unallocated”. First, how much of that is currently unspent in the Scottish Government budget? Is the entire amount unspent? If all that money is fully committed, where is it committed to? When will we be given all the detail? Secondly, how much has already been reprioritised in the existing Scottish Government budget to address the Covid-19 situation?

Photo of Kate Forbes Kate Forbes Scottish National Party

On the substance of the questions, it is precisely because of the global pandemic that I am appealing to the UK Government for clarity, so that we can provide clarity to our taxpayers, communities and public services. This is not about the Scottish Government feeling as though it has not got advance notice from the UK Government; this about the need to set a multibillion-pound budget on which our national health service relies and not having the certain figures that we require this autumn.

I am in conversation with the Treasury in the hope that it will provide some accurate figures in the autumn, because I cannot set a budget on the basis of estimates. Our taxpayers rely on precise figures, not on estimates.

Let us take the basic example of non-domestic rates. The Tories will know that our interventions on NDR this year to provide support to businesses was reliant on the consequentials that came. Setting a budget before we know what the UK Government will do on tax would make it difficult for us to go further, because we are not allowed to overspend our budget. That is not a point of grievance; that is a point of fact, which I would hope that all members recognise.

On the two specific questions about the £500 million, I can say with complete certainty that all of that money is deployed. The full raft of details will be confirmed in the spring budget revision, which should be published next February. The examples that I will give are the continued support for the transport systems and the continued support for self-isolation payments. Every single penny of that money has been committed and will be formally allocated in the spring budget revision. In the same way as we did not formally allocate everything in the summer budget revision—on which I have now provided an update—the same will apply to the spring budget revision.

On reprioritisation, we have reprioritised £142 million.

Photo of Jackie Baillie Jackie Baillie Labour

I thank the cabinet secretary for the advance copy of her statement. I start on a note of consensus, because I recognise the significant difficulty that the Scottish Government faces as a result of the chancellor’s decision to delay the UK autumn budget statement and, in turn, the difficulty that the Scottish Parliament faces in doing its job of scrutiny.

I turn to the autumn budget revision and the £537 million in Barnett consequentials for Covid-19 that has not been, to use the cabinet secretary’s words, “formally allocated”. If she is telling us that there is no headroom, that all the money is deployed and that all of it has been allocated, she should be telling us now where that money is going to. Specifically, will she tell me how much will be given to local government? It reported only last week a budget gap of some £350 million, much of which is Covid-related.

Photo of Kate Forbes Kate Forbes Scottish National Party

I thank the member for starting on that point of consensus, which I hope we can continue throughout the budget process.

On the sum of more than £500 million, I remind members of how the most recent consequentials—£800 million—were allocated to us, which was as a guarantee on the understanding that our transport costs, in continued subsidies to rail and bus, will continue.

The member also talked about local government. That is another good example of where funding has not been formally allocated, but we have entered into agreements with the Convention of Scottish Local Authorities to ensure that local government gets additional money. She will know that we have already committed £382.2 million of direct funding, £257.6 million of which was approved by Parliament on 27 June, with the remaining £124.6 million to be allocated following agreement with COSLA on the distribution methodology.

We are currently engaging with COSLA to finalise the details of the lost income scheme, which is estimated to be worth up to £90 million. That sits alongside £49 million that it has been agreed will be passed on to local authorities. That is part of the lost income scheme.

The member will know that I have written to the UK Government, seeking clearance on a package of fiscal flexibilities in order to provide further assistance to local authorities. The leader of my own local council, who is not a Scottish National Party member, said that that would be a game changer for council finances.

The Presiding Officer:

Patrick Harvie is joining us remotely.

Photo of Patrick Harvie Patrick Harvie Green

I, too, thank the cabinet secretary for advance sight of her statement, which mentions the replacement by the job support scheme of the job retention scheme and the likelihood that that will lead to increased unemployment. It is also likely to lead to increased poverty, because those at the bottom end of the wage scale will lose income that they can ill afford to lose.

What impact will that have on the Scottish finances, either through the devolved tax take or through uptake of and demand for devolved social security and other services? Is it possible to project the impact on the Scottish finances of those changes in time to allocate what is, so far, formally unallocated but will be included in the spring budget revision?

Photo of Kate Forbes Kate Forbes Scottish National Party

Patrick Harvie makes a good point about the impact on our tax receipts, as well as about the increased need for welfare support. He will know that, when it comes to setting a budget, one of the reasons that the timetable is so important is that the Scottish Fiscal Commission needs enough time to provide its own forecast, which will include the likely impacts on tax and welfare support.

We know that there will be a substantial impact on all the devolved taxes this year, which is something that we are monitoring very carefully. Patrick Harvie will know that the income tax impact will materialise only in the coming years.

The impact on welfare support is one of the reasons that, very quickly, in March, we provided additional support to local authorities, so that further support could be provided through things such as welfare payments. In the autumn budget revision—I am sure that we will get into the detail of it in committee next week—there are transfers that relate to the Scottish welfare fund.

Photo of Alex Cole-Hamilton Alex Cole-Hamilton Liberal Democrat

My question is in two parts.

First, I press the cabinet secretary on whether an estimate has been made for the amount that has been given directly to HM Treasury—or rather, from the Treasury—to people and businesses in Scotland under furlough and business support. That estimate was requested on 23 June.

Secondly, the Scottish Fiscal Commission’s estimates for Scottish tax receipts have led to hundreds of millions of pounds of negative reconciliations. The £309 million shortfall next year is really hard—that money is out of the budget. Have the processes been improved in order to get better estimates, and what other estimates will the cabinet secretary use to inform the budget?

Photo of Kate Forbes Kate Forbes Scottish National Party

I did not quite follow the first question.

Photo of Alex Cole-Hamilton Alex Cole-Hamilton Liberal Democrat

I may have fluffed it slightly. I was asking whether an estimate has been made by the Scottish Government for the total amount that has been given by the Treasury to support Scottish people and businesses through furlough and business grants.

Photo of Kate Forbes Kate Forbes Scottish National Party

I understand that the Treasury provides those figures and that they are publicly available. We know that 217,000 people in Scotland—about 15 per cent of the workforce—are still on furlough, so a number of people are still dependent on that furlough support, which will run out at the end of October. Clearly, the replacement scheme does not incentivise the resumption of those jobs if there is no work.

On the negative reconciliations, at the early stages of the devolution of income tax, all parties were improving the process of forecasting and estimates—that is widely accepted. It is worrying that, next year, those negative reconciliations will have a significant impact on the Scottish budget. That impact could be relieved, in part, if the borrowing powers reflected the need to cover the reconciliations.

I am relieved that the £309 million figure is significantly lower than previous estimates, and £300 million of that could be covered by the borrowing powers. Those powers were provided for the express purpose of covering negative reconciliations, which are to be expected in the early years of a new, devolved tax.

Photo of Bruce Crawford Bruce Crawford Scottish National Party

First, I am glad that the cabinet secretary has explained the reality of and the facts about the autumn budget revisions. Opposition members either have a fundamental misunderstanding of the financial arrangements that are in place or they have deliberately been seeking cheap, baseless headlines.

Can the cabinet secretary please expand on what the chancellor’s scrapping of the budget could mean for the Scottish budget and for vital public services, particularly when we are in the middle of a pandemic and look likely to crash out of the European Union, against the wishes of the Scottish people? This is unacceptable.

Photo of Kate Forbes Kate Forbes Scottish National Party

I am grateful to Bruce Crawford for that point. Budget revisions are predominantly retrospective in nature. I am aware that he knows that full well, as I have come before the Finance and Constitution Committee regularly to explain the details in the budget revisions. I look forward—that may be too strong; I look forward, in part, to further scrutiny at his committee next week.

Bruce Crawford is right to point out the huge problems that a delay to the UK budget causes, not only to the Parliament but to every public sector body in Scotland. We faced the same situation earlier this year when the UK budget was not set until March. We had to go in advance, which was deeply problematic for our budget setting and which, as all members know, no matter what side of the chamber they sit on, made scrutiny difficult.

However, the situation that we now face is further compounded by the financial challenges that Murdo Fraser alluded to. There are the challenges of Covid and the uncertainty surrounding Brexit, with the threat of a potential no deal at the end of the year. Ultimately, we need tax policy and we need an understanding of UK spending decisions in order to know what our budget will be based on. I cannot base a budget on provisional figures when the people of this country, the public services in this country and our taxpayers require certainty.

Photo of Maurice Golden Maurice Golden Conservative

The cabinet secretary has asked to be given full financial powers. In such a scenario, which public services would be cut?

Photo of Kate Forbes Kate Forbes Scottish National Party

If we were given full financial powers, we would extend the job retention scheme to avoid the cliff edge at the end of next month and to ensure that 217,000 people would no longer be facing redundancy. That is how I would use those full financial powers.

Photo of Tom Arthur Tom Arthur Scottish National Party

The financial resources at our disposal determine, to a large extent, our ability to respond to the public health crisis of Covid—a public health response that will determine whether people stay safe and healthy and whether they live. W hat impact will the delayed UK budget have on the Scottish Government’s ability to mount an effective public health response to Covid through the winter?

Photo of Kate Forbes Kate Forbes Scottish National Party

Last year, ironically, we were continually referred to the Conservative Party manifesto by Treasury officials when we asked for any certainty about our budget figures. We do not even have the luxury of a December election as we face this year’s budget.

We are resorting to guesswork not only for our total funding envelope, but, critically, in relation to how much funding we can allocate to health services as they continue to respond to the pandemic. As I have said, that is no way to set a multibillion-pound budget.

We have committed to passing on every penny of consequential funding that we receive and, as the autumn budget revision demonstrates, we will continue to do that. However, it is difficult to provide the certainty that everybody needs.

Photo of Alex Rowley Alex Rowley Labour

Does the cabinet secretary agree that, as well as a fiscal response to tackle the economic crisis that results from Covid, we need a policy response? Scottish Labour continues to support the Government in making the case to the UK Government for additional borrowing powers and fiscal flexibility, but what is the purpose of getting new resources? Where will the jobs come from? What jobs are at risk? Where are the skills gaps? Is the Scottish Government looking at a joined-up regional approach that involves the public and private sectors coming together to form a strategy in every region that creates, invests in and protects jobs?

Photo of Kate Forbes Kate Forbes Scottish National Party

That is a good question. Alex Rowley is right to talk about the policy response that needs to sit alongside other approaches. I will refer to three things—some of this is captured in the autumn budget revision. The first issue is how we navigate the next few months, when localised lockdowns might increase, and how we support businesses that cannot open. The public health response should not be hampered by the lack of economic levers.

Secondly, we must provide support for employment and retraining, which was notably absent from the chancellor’s winter update last week. The autumn budget revision includes £90 million of resource funding for employment support and training costs that are associated with Covid-19, for the very purpose of helping people back into work.

Alex Rowley will be aware of the third element—the jobs guarantee for young people—which involves the private and public sectors working together collaboratively. That ensures that every young person has access to education, training or a job. Given how hard hit the lives and employment prospects of our young people have been because of Covid, that aspect is particularly important.

Photo of John Mason John Mason Scottish National Party

The cabinet secretary mentioned the new job support scheme, which is quite a blunt instrument. If a geographical area was locked down, would she have the powers to help it? If a sector was not allowed to reopen, would she have the powers to help it? If not, what powers would she like to have to be able to help?

Photo of Kate Forbes Kate Forbes Scottish National Party

The issue is very much about having the powers to fund interventions. Having a fixed budget means that, if additional support is to be provided in one area, support must be cut from another. In an emergency, I cannot in good faith see cuts to any part of our budget.

The best way to protect jobs is by extending the furlough scheme. I take the point that the best way to do that is on a partial basis that allows us to tailor the scheme to particular sectors or areas. Certainly, the job support scheme that the chancellor has announced is a poor substitute, because it disincentivises employers to bring people back and it does not remove the risk of redundancy. During the localised lockdowns of the past few months, because furlough was in place, businesses could access support or refurlough staff. That will not be available going forward and, unless we have the powers to raise revenue, we are unable to fund our own interventions.

Photo of Bill Bowman Bill Bowman Conservative

Does the cabinet secretary agree with Scottish National Party hopeful Osama Bhutta—Alex Salmond’s former aide—when he says:

“The state literally creates money; it does not need our money.”

Is that a change to the SNP’s economic thinking?

Photo of Kate Forbes Kate Forbes Scottish National Party

I have not read those particular comments, but I can connect the question to the statement, although it seems quite removed from it, by saying very simply that, in extraordinary times, we need extraordinary powers to ensure that we support every business and every employee who is currently facing an uncertain future. What we are asking for is mind-numbingly basic: fiscal powers and fiscal flexibilities in order to do that.

Photo of Stuart McMillan Stuart McMillan Scottish National Party

Will the cabinet secretary provide an update on the Scottish Government’s latest engagement with the UK Government regarding requests for fiscal flexibilities to be devolved?

Photo of Kate Forbes Kate Forbes Scottish National Party

I had a meeting with the Chief Secretary to the Treasury last week. No progress has been made on my request for fiscal flexibilities since my previous meeting with him in July, and I do not think that I have had a response to the letter in which I set out the detail of the flexibilities that I have requested. However, I am committed to continuing to have engagement with the Treasury, alongside my devolved Government counterparts. We are all united in pressing the UK Government for those flexibilities, most of which do not cost the Treasury a penny.

Photo of Sarah Boyack Sarah Boyack Labour

I draw members’ attention to my entry in the register of interests in relation to my former employment with the Scottish Federation of Housing Associations.

How can the cabinet secretary justify the fact that the capital spending review includes a 30 per cent real-terms reduction in spending on the affordable housing supply programme? Given that we have a huge waiting list for appropriate affordable housing and a high level of homelessness, do we not need to protect jobs in the construction industry and support the Scottish economy to get through the pandemic?

Photo of Kate Forbes Kate Forbes Scottish National Party

Of course, the infrastructure investment plan consultation was published last week, and I am sure that Sarah Boyack is welcome to respond to it.

What we have at the moment as regards capital spending is a framework. My sincere hope is that we will have the promised UK Government comprehensive spending review, which will provide additional clarity on precisely what our capital allocations will be for the next five years. Alongside the budget, whenever that it is—I hope that it will be soon—that will allow us to publish a more fulsome capital spending review, with exact figures.