Presiding Officer, I welcome the opportunity to update Parliament on the provisional outturn against the budget for the financial year 2022-23.
The provisional outturn demonstrates once again this Government is prudently and competently managing Scotland’s finances.
The financial situation faced by the Scottish Government has been the most challenging since devolution. The shocks of over a decade of austerity, a hard Brexit, the COVID pandemic, the cost-of-living crisis, pressures on public sector pay, and the war in Ukraine combined have placed extreme inflationary pressure on the public finances.
The plain fact is that the buying power of the 2022-23 budget was significantly eroded by inflation since initial spending plans were set out in the Budget publication. At the same time, demand for government support and intervention understandably increased, but ultimately our in-year budget has been effectively fixed – the UK government took no action to address the in-year impact of inflation. We are constrained by UK Government spending decisions, and have limited fiscal levers, in particular no ability to borrow for day-to-day spending. Our income tax powers do not allow changes to be made during the financial year.
Within these constraints, the only avenue for us to manage the pressures we faced was through reprioritisation and robust management of demand-led budgets. This is why we undertook the Emergency Budget Review in the autumn, to balance the budget whilst prioritising funding to support the cost-of-living challenge. This effective and prudent financial management has meant every penny received by the Scottish Government has been channelled to where it was needed the most.
In 2022-23 we:
- invested significantly in fair public sector pay deals, committing than £900 million more than was originally factored into spending plans. Delivering higher increases in pay for lower earners, in turn supporting families and individuals with the cost-of-living crisis. Achieving more beneficial packages than UK counterparts, minimising the impact of strike action, while ensuring continuity of vital public sector services.
- spent nearly £4.1 billion on Social Security benefits including £219 million on Scottish Child Payment, which we more than doubled to £25 per week.
- doubled the Fuel Insecurity Fund from £10 million to £20 million to provide additional immediate support to people most impacted by the cost of living crisis, specifically by rising energy prices.
- introduced new payment break options to help protect those who have agreed to repay debt through the Debt Arrangement Scheme but face unexpected increases in the cost of living.
- and spent £216 million to support those displaced by the on-going war in Ukraine. We have welcomed over 24,000 people (some 20% of all UK arrivals) from Ukraine since the outbreak of Russia's war against the country and are continuing to provide financial aid and medical supplies.
Going forward we will continue to press the UK Government to provide sufficient funding to meet the scale of the ongoing inflationary pressures, for more powers and necessary reforms to the Fiscal Framework through the forthcoming Review.
Our Medium Term Financial Strategy published on 25 May made clear the scale of the anticipated future pressures on the public finances, on top of those already felt over recent years, and how this Government will address the challenges of sustainability of the public finances.
The Scottish Government remains committed to achieving and maintaining a balanced budget whilst delivering against our three central missions:
- Community: Prioritising our public services
- Opportunity: A fair, green and growing economy
- Equality: Tackling poverty and protecting people from harm
Sound finances are the strong foundations from which we will deliver for the people of Scotland and progress the vital missions set out by the First Minister.
Turning now to the 2022-23 Provisional Outturn.
Under the current devolution settlement, the Scottish Government is not permitted to overspend its budget. We must therefore operate, within a tight margin of just over 1%. The level of volatility in our overall funding envelope continues to increase. On top of this our block grant is not finalised until February each year and we must manage this uncertainty within the limited fiscal levers at our disposal. Despite this, the Scottish Government has a strong track record of delivering a balanced budget, while continuing to provide the people of Scotland with the broad range of high quality public services they expect.
Presiding officer, I am pleased once again to announce to parliament today that we have maintained this balance. I can report the provisional fiscal outturn for 2022-23 is £46.9 billion against a total fiscal budget of £47.1 billion.
The remaining budget of £244 million, which represents 0.5% of our total budget will be carried forward in full through the Scotland Reserve if confirmed at final outturn. It is made up of £180.6 million fiscal resource, £24.7 million capital and £39.0 million of Finance Transactions.
There is no loss of spending power to the Scottish Government as a result of this carry forward.
As I have said before, the management of funding across years is an essential part of our financial strategy - every penny of this carry forward has been allocated in full in 2023-24, allowing us to implement measures at the most optimal time, rather than being constrained to a single financial year. We are required to actively manage a resource underspend to cover the risk of post-year-end audit adjustments, which have occurred in previous years.
The majority of this carry forward has already been pro-actively anticipated in the 2023-24 spending plans, already approved by this parliament. These include: the £39 million of Financial Transactions anticipated within the 2023-24 Budget (published in December 2022), and £115 million of additional funding announced (at stage 3 of the Budget Bill on 21 February 2023) by the Deputy First Minister to further support Local Government, Creative Scotland and the inter-islands ferry network. This carried forward funding is directly linked to late UK Government consequentials finally confirmed only six weeks before the end of the financial year. The revised budget allocations will be set out later in the year as part of our Autumn Budget Revision process and subject the usual parliamentary scrutiny and approvals process.
An element of our budget allocation from HM Treasury is non-cash, which is used for accounting adjustments, predominantly depreciation. It is not possible to use this ring-fenced non-cash budget to support any day-to-day spending. Non-cash funding does not flow to the Scotland Reserve and is not included in our headline provisional outturn results. For 2022-23 this shows an underspend of £984 million against a budget of just over £2 billion. (A large proportion of this budget is consequentials for student loan impairments which are simply not required at the same level in Scotland because of our policy of free university tuition).
Turning to the accounts, I must address the ongoing focus on this headline accounting underspend figure – it is spend that just does not flow into the reserve. It is only the elements within HM Treasury limits for discretionary funding that are controllable (and that fundamentally matter). Every year we have a charade where this higher headline accounting underspend is quoted as if the budget has been mismanaged. This government has never had an underspend that has fallen outside of the narrow limits within which we can carry forward funding, there is no loss of spending power to the Scottish Government this year as has been the case in each and every year of SNP government.
Finally, I want to emphasise that the £244 million underspend is provisional and will be finalised later in the year once the Scottish Government and its bodies complete their year-end audits.
Finalised figures will be reported as usual in the annual Scottish Government Consolidated Accounts and a Statement of Final Outturn for the financial year 2022-23 later this year.
To conclude, the provisional outturn demonstrates once again that the Scottish Government has maintained its firm grip on Scotland’s public finances. We have ensured we have met out priorities, whilst balancing the budget within the very tight margins we have available, and I commend today’s figures to Parliament.
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