Scotland is facing a cost of living crisis.
A combination of the impacts of Brexit, the aftermath of the pandemic and the energy crisis fuelled by Russia’s illegal invasion of Ukraine, have sent prices spiralling.
Inflation is at a 40 year high and the pressure on the finances of households and businesses is acute.
Public services are facing demands – entirely legitimate demands – to make significantly enhanced pay offers to their staff.
As a Government we have a duty to respond. But our ability to respond is limited by the inactivity of the UK Government and the financial restrictions of devolution.
The Scottish Government budget is largely fixed. We have no ability to borrow to increase our day to day spending, our reserve funding is fully utilised and our income tax powers do not allow changes to be made during the financial year.
In August we announced that we would undertake an Emergency Budget Review to identify every possible penny to support the people of Scotland through the cost of living crisis, while maintaining a pathway to balance the budget.
On 7 September, I set out to Parliament the first of the hard prioritisation choices already made and today I provide a further update on our progress through the Emergency Budget Review process.
Since September, the crisis has deepened further.
The inactivity of the UK Government gave way to calamity.
The UK Government’s ‘mini budget’ sent shockwaves through the markets, driving up borrowing costs for Government, businesses and households.
So disastrous was the package of un-funded and un-costed tax cuts for the rich, that not only did the mini-budget not survive the month, but neither did its architects, the Chancellor and the Prime Minister.
The utterly needless upheaval has created significant damage for individuals and great uncertainty for Scotland’s finances.
Initially the Scottish Government was told that we would receive an additional £660 million through the Block Grant Adjustment.
Now, with the new Chancellor scrapping the plan to cut the basic rate of income tax in the rest of the UK, our funding will be reduced by £230 million over the period of the UK Spending review.
This represents a swing of almost £900 million in the space of less than a month. Now under a new Prime Minister and a new Chancellor, calamity is giving way to austerity, with deep spending cuts expected.
As Members will be aware, I had intended to present the outcome of the Emergency Budget Review to Parliament last week but paused that announcement while we awaited the Fiscal Statement of 31 October. However that date has now changed to 17 November.
While I would have preferred to see the OBR forecasts and outcome of the UK Autumn Statement prior to publishing this Review, I have concluded that we can wait no longer.
The scale of the challenge is so severe, and the impacts and uncertainties for people, households and businesses so significant that the imperative consideration must be to provide as much stability, certainty and transparency as possible.
We now also, once again, face the prospect of tax changes from the UK Government. It is only right then that we take appropriate time and care to consider any impacts on our Budget and devolved tax policies, so I will wait until after the UK Government’s next fiscal statement before deciding on the content of any tax discussion paper.
Presiding Officer, I cannot overstate the degree of challenge associated with undertaking this Emergency Budget Review. I have said before that, in all of my experience, now and during my previous tenure as Finance Secretary, there has never been a time of greater pressure on the public finances.
Inflation means that our annual budget today is worth £1.7 billion less than when it was published last December. At the same time, demand for government support and intervention is understandably increasing.
I must balance the books, but I am committed to doing so in a way that prioritises funding to help families, to back business, to provide fair pay awards and to protect the delivery of public services.
This Emergency Budget Review delivers on these objectives.
This Government is determined to enhance pay and target support to the lowest paid wherever possible, as a crucial part of our response to the cost of living crisis.
This support includes offers in the region of 7% for frontline workers in the Local Government non-teacher and the NHS Agenda for Change workforces. This would increase salaries for the lowest paid staff in Agenda for Change by over 11%.
Although some pay negotiations have still to conclude, I have already committed over £700 million of additional resources to fund enhanced pay settlements.
I am grateful for the efforts of employers and trade unions to facilitate these vital collective bargaining processes.
But to be absolutely clear, every additional penny for pay has had to be found from existing, previously allocated and agreed budgets elsewhere within the current, finite, Scottish Budget.
We have reached the limit of what can be done in terms of re-prioritisation.
Presiding Officer, when I set out the initial package of £560 million in savings for 2022-23 I was clear that additional savings would still be required. Today I have published an Emergency Budget Review that sets out a further £615 million in savings.
This includes £400 million from reprioritisation of spend within Health and Social Care to support a fair pay offer for NHS staff and meet the extraordinary pressures from inflation and demand as the service begins to recover from the pandemic. This has included rephasing some social care spending in line with expected spending profiles and repurposing spend in other areas such as mental health. Despite this, we continue to progress our work to deliver a national care service as well as commitments to fair work and adult social care, and we continue to provide overall increases to mental health spending as well as delivery of dementia, learning disability and autism services, and cross-cutting trauma work.
These are extraordinarily difficult choices, which no government wishes to have to make, but the full balance of Health and Social Care reprioritisation will remain within the portfolio.
A further £33 million of resource savings and £180 million of capital reductions have also been made, including, reducing our marketing expenditure to below pre-covid levels.
Taken together, these decisions and those already set out in September, total almost £1.2 billion.
They are not decisions we would wish to make, but in the absence of additional funding from the UK Government, they are decisions we are compelled to make.
They ensure a path to a balanced budget, whilst also prioritising fair public sector pay offers and recognising that this is critical to the delivery of key public services.
This Government will also, always, do what we can to support those most affected by the cost of living crisis.
I can confirm that we have identified and allocated the resources required to,
- double the value of the December Scottish Child Bridging Payment, benefitting around 145,000 school age children registered to receive free school meals
- double the Fuel Insecurity Fund to £20 million
- increase funding to local authorities for additional Discretionary Housing Payment support to mitigate the UK Government’s benefit cap as fully as possible within our devolved powers,
- introduce a new £1.4 million Island Cost Crisis Emergency fund,
- introduce new payment break options to help protect those who have taken control of debt through the highly successful Debt Arrangement Scheme, and;
- implement reforms to remove cost burdens for the most financially vulnerable.
In our efforts to support business, we have also looked closely at regulation and how we can make it easier for businesses to thrive, and we have used today’s Review to set out a range of improvements. After extensive engagement with business organisations, industry groups and individual businesses and including industry summits on energy and financial services, we will introduce a range of measures set out in the EBR today, and these include :
- building on the additional £300,000 provided to Business Energy Scotland this year by doubling the energy efficiency cashback element of the Loan & Cash Back Scheme to £20,000
- protecting the Small Business Bonus Scheme, the most generous scheme in the UK, which takes over 111,000 business out of rates altogether
- And establishing a Joint Taskforce with COSLA, local authorities, our regulatory agencies and business to consider the differing impacts of regulation on business.
Presiding Officer, alongside our counterparts in Wales and Northern Ireland, we have repeatedly called on the UK Government to do more, given the considerably greater flexibility available to the UK Government. The First Minister reiterated these calls to the latest Prime Minister, highlighting the essential need to:
- provide further targeted financial support to low-income households
- urgently provide clarity on what support will remain available for both non-domestic consumers and households following the early end to the Energy Price Guarantee next March
- make additional funding available so that devolved governments can support people, provide fair public sector pay uplifts and protect public services.
The First Minister has also re-iterated our deep concern about the risk of social security benefits not being increased with inflation in April.
A permanent £25 uplift to Universal Credit should be introduced now, alongside the reversal of the two-child limit for Universal Credit and tax credits, and the abolition of the benefit cap.
We have been clear that an enhanced windfall tax should fund this support, in place of increased borrowing or spending cuts.
We are now anticipating a package of “eye-watering” cuts and tax rises in the Autumn Statement.
It will be evident to all Members that the Emergency Budget Review has involved extremely difficult decisions. Even when such decisions need to be made quickly, as is the case now, I believe it is essential that we use the best available evidence and also be as transparent as possible. To that end I would like to thank the members of our Expert Panel for the consideration and advice they have provided over recent weeks and which I also publish today. The Panel has assessed the outlook that faces the Scottish Government in its Budget and advise the Government to proceed with caution to achieve its objectives in these difficult days.
In addition I publish a new analytical report on the Impact the Cost of Living Crisis in Scotland alongside a high level summary of the evidence around the equality and fairness impacts of the Emergency Budget Review measures.
The outlook for 2023-24 and beyond is clearly even more difficult than when we set out the Resource Spending Review earlier this year, and measures for efficiency and reform in the delivery of our public services will be even more important.
Nonetheless, I can assure Parliament that this Government remains firmly committed and focussed on continuing to support our public services recovery from the impacts of Covid, tackling and reducing child poverty, taking forward our net zero ambitions and supporting strong and sustainable growth.
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