- 20 Jun 2019
Presiding Officer, I welcome the opportunity to update Parliament on the provisional budget outturn for the 2018-19 financial year.
The provisional outturn results show that once again this Government has prudently and competently managed Scotland’s finances.
These results are in spite of the ongoing uncertainty created by the disastrous decision to leave the EU, the needless continuation of UK austerity.
The provisional figures I am announcing today are set against an extended period of economic turbulence. The global economy is going through a sustained period of weakness and for Scotland this is compounded by the continuing uncertainty around the UK’s exit from the EU. Whilst leaving the EU without a deal is the worst possible outcome, even a Brexit with an exit deal will result in significant economic loss compared to remaining in the EU.
The UK Government’s decision to take us out of the EU single market and the customs union – the largest market in the world – presents a risk to economic growth, which in turn has an impact on forecast revenues to support public services, to investment in funding programmes, migration and our population. Hence, the Scottish Fiscal Commission have downgraded their growth forecast for 2019, citing continued Brexit uncertainty as the cause.
The Scottish Government are using the limited powers at our disposal to mitigate as best we can the economic and employment impacts and to prepare for Brexit.
Measures such as committing over a billion pounds to support our cities and regions through City Region Deals, increasing capital investment by £1.5 billion per year by the end of the next Parliament and a wide range of other economic and social initiatives.
Despite the exceptional political uncertainty, Scotland’s economy enjoyed a positive year in 2018. GDP growth was 1.3 per cent, surpassing earlier lower SFC forecasts, continuing a pattern of stronger growth compared to 2016 and 2017.
For 2019 the SFC predict that our economy will grow by 0.8 per cent - as they explicitly point to Brexit uncertainty as the reason for their more pessimistic outlook.
Scotland’s labour market has continued to perform well in the first quarter of 2019, with unemployment falling to a record low of 3.2 per cent, outperforming the UK unemployment rate of 3.8 per cent. Alongside this, labour productivity grew by 3.8 per cent in 2018, its fastest pace since 2010.
Despite the challenging environment, we are taking positive action to transform Scotland’s future through the Economic Action Plan. Transformational projects include delivering the National Manufacturing Institute and the Scottish National Investment Bank.
Scotland’s future budgets will be determined by a combination of Scottish and UK Government fiscal decisions. Our funding outlook for the medium term continues to be dominated by austerity at a UK level. The UK Government’s macroeconomic policy stance since 2010 has been characterised by austerity. In Scotland, we have protected key services despite austerity causing a real-terms reduction of £2 billion in the resource block grant between 2010-11 and 2019-20.
The Scottish Government’s second Medium Term Financial Strategy (MTFS) published on 30 May explains the Fiscal Framework and funding arrangements the Scottish Government operates within. It outlines our approach to financial management and fiscal rules, and sets out a range of possible funding scenarios for the Scottish Budget over the next five years. It sets out our responsible approach to financial planning and fiscal rules, which will allow us to invest in the economy and protect essential public services.
Turning to the provisional outturn.
Under the current devolution settlement, the Scottish Parliament is not permitted to overspend its budget. As a consequence, we have consistently controlled public expenditure to ensure that we live within the budget control limits that apply.
I can report that the provisional fiscal outturn for 2018-19 is £32 billion against a fiscal budget of £32.5 billion, resulting in an overall cash variance of £449 million.
This variance includes £148 million of Barnett consequentials funding provided very late in the financial year. Treasury has confirmed the Scottish Government is not required to carry this funding forward through the Scotland Reserve, rather this funding will be held within UK reserves and re-allocated to the Scottish Government in 2019-20.
The remaining cash variance of £301 million includes £5 million of additional income for devolved taxes, secured over and above initial budget forecasts. I can inform Parliament today that the total provisional income from Land & Buildings Transactions Tax and Scottish Landfill Tax is £699 million and the surplus of £5 million will be added to the Scotland Reserve. The variance also includes £3 million relating to fees in respect of a financial guarantee, which will also be added to the Reserve.
Of the £293 million variance remaining, £171 million is resource funding, all of which has already been committed in the 2019-20 budget , £1 million in respect of capital and £121 million of financial transactions – of course financial transactions funding can only be used for loans or equity investment in entities outside of the public sector. Overall, the cash variance of £293 million represents less than one per cent of the total fiscal cash budget.
All of this funding is carried forward in full through the Scotland Reserve. None of it is handed back to the UK Government and so there is no loss of spending power to the Scottish Government.
The £1 million fiscal capital underspend has been achieved whilst prudently borrowing less than originally planned. The 2018-19 draw down of £250 million is lower than the £450 million initially planned within the published 2018-19 budget. This followed a full assessment of a range of influencing factors including additional capital funding confirmed in-year and only making funding available to match the actual demand from projects confirmed in the original 2018-19 budget.
In finalising arrangements I also gave careful consideration to building a staggered debt maturity profile. The borrowing in 2018-19 has been undertaken over 10 years, in contrast to 25 years in 2017-18. Whilst the shorter repayment period pushes up the annual repayment, this is balanced by the lower amount that was borrowed at a lower interest rate, a lower cost of borrowing overall and is affordable in the context of the sum set aside for repayment in the 2019-20 Scottish Budget. It also ensures greater borrowing capacity will be available when it is needed to support the National Infrastructure Mission.
2018-19 was the first year of the Social Security Scotland Agency operation which provided over £185 million of support to the people of Scotland. This included over £35 million of additional support as the first payments of the Carer’s Allowance Supplement and the Best Start Grant Pregnancy and Baby Payment were made, and this year four new benefits will be implemented to help young carers and low income families.
Finally, and in addition to the above, there is a provisional non-cash underspend of £142 million. The non-cash budget is used for technical accounting adjustments such as depreciation and impairments and cannot be used to fund public services. This represents no loss of spending power to the government.
In conclusion, the cash underspend is entirely retained by Scottish Government, is less than 1 per cent of budget, makes the contribution planned for the 2019-20 budget and contributes to the reserve which is prudent, particularly in light of the SFC income tax reconciliation forecasts detailed at MTFS.
The figures I am reporting to you today remain provisional as they are subject to change pending completion of 2018-19 audits. Finalised figures will be reported as usual in the annual Scottish Government Consolidated Accounts and a Statement of Total Outturn for the financial year 2018-19 later this year.
I commend today’s figures to Parliament.
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