Scottish Budget 2021 to 2022

Foreword by the Cabinet Secretary for Finance

The publication of Scottish Budget 2021-22 comes almost one year on from the first case of COVID-19 being notified in Scotland. We have, tragically, lost many lives. Since then, our society, economy and way of life have undergone significant change - even now, that process of change continues, as we deal with the ongoing impacts of the pandemic during a severe second wave and face the challenge of new variants.

The exceptional circumstances in which the Scottish Government is bringing forward this Budget demand an exceptional response. The Budget delivers continued, urgent measures to control the virus and protect our economy and people, while supporting the roll-out of the vaccine as quickly and as safely as possible.

The experience of the last year, however, has also laid bare the need to do things differently. This is a Budget to provide help in the immediate term, but also to rebuild a fairer, stronger, and greener economy.

I am setting out today the Scottish Government's clear priorities to help people, businesses and communities across the three guiding themes in Programme for Government 2020-21:

1. It is a Budget that delivers a national mission for new, good, and green jobs, backed by a large-scale and transformational programme of infrastructure investment, to boost skills and employment opportunities for all, with a supportive tax environment to deliver inclusive growth across all of Scotland.

2. It puts the promotion of lifelong health and wellbeing at its heart, underpinned by a world-class public health system and renewed work to tackle health inequalities, not least the drugs and mental health crises we face.

3. It promotes equality and helps young people grasp their potential, driving progress at all levels of learning, tackling the deep-seated inequalities in society, and supporting the renewal and recovery of our local communities.

The Budget lays out in detail how we will deliver the Scottish Government's objectives in these three areas through targeted investment, funding key policies and building on the unprecedented financial support provided in 2020-21.

It is also a Budget that reflects the incredible collective effort across Scotland's public services. I am publishing alongside the Budget a distinctive Scottish pay policy which charts a different course to the damaging pay freeze announced by the UK Government.

The policy reflects the commitment and dedication we have seen across all public sector workforces. However, the funding implications for the Scottish Budget of the UK Government's pay freeze necessitate a targeted approach that prioritises those on the lowest incomes. The policy will see those earning up to £25,000 receive a pay increase of at least 3%, through a guaranteed cash underpin of £750. We will also continue to support payment of the real Living Wage, applying the increased rate of £9.50 per hour. Those earning more than £25,000 will be guaranteed a 1% increase, capped at £800 above £80,000. Through this policy, I aim to promote a fair and progressive approach in every sector, in recognition of the vital role public sector workers are playing in keeping the country going during these difficult times.

The Budget provides an uplift in overall funding for local government, together with additional funding to deliver key priorities in early learning and childcare and social care, and significant funding increases for education, and police and fire services. In recognition of the unique pressures created by the pandemic for household incomes, the settlement also includes an additional £90 million to compensate councils who choose to freeze their council tax at 2020-21 levels.

The Budget also sets out how we will use our devolved tax powers to support Scotland's economic recovery and our public spending commitments in 2021-22 and beyond. Our tax choices recognise the impact the pandemic is having on people, households and businesses, underlining our commitment to tackle the inequalities further exposed by COVID-19. I am clear that this is a time for certainty and stability for taxpayers, underpinning targeted support for the individuals and businesses most affected. The tax package set out in this Budget delivers on that. We provide certainty and stability for Income Tax payers, with all Scottish taxpayers paying slightly less Income Tax in 2021-22 than in 2020-21, based on their current income.

We will use the powers and resources available to us to provide a significant package of support for businesses, particularly those most impacted by the crisis. The Scottish Budget commits to extending the current 100% non-domestic rates relief available to properties in the retail, hospitality, leisure and aviation sectors for at least the first three months of the financial year. This support is worth an estimated £185 million and delivers on a key priority for the business community. Should the UK Government bring forward an extension to their equivalent relief in the March budget, generating consequential funding, we will match the extension period as part of a tailored package of business support measures. We will also reduce the poundage rate for all businesses to 2019-20 levels, saving Scottish businesses over £120 million compared with previously published plans.

We cannot underestimate the scale of the challenge we face as a result of COVID-19. The measures that we have all had to take to control the virus mean that Scotland's GDP is not expected to recover to pre-pandemic levels until the start of 2024. Unemployment is expected to rise, and remain higher than pre-pandemic levels across the forecast horizon up to 2025. That requires an unprecedented response, and investing in both the immediate resilience and longer-term recovery of our businesses, which this Budget seeks to deliver.

We will continue to offer a package of financial support through the Strategic Framework Business Fund, and targeted sectoral support as it is required in the early months of the next financial year, so that there is no cliff edge for businesses. This will require careful Budget management over a two-year period. Building on this, we will also invest in economic recovery, delivering key recommendations of the Logan Review and the Tourism Task Force Report to invest in key sectors.

Against these pressing risks and uncertainties, however, we are also seeing the first signs of hope and optimism for a better future, with the approval and roll-out of vaccinations. We are working to ensure we vaccinate as quickly as supplies allow, prioritising vaccination on the basis of clinical evidence and public health.

While this is an ambitious Budget to both protect and renew Scotland, it is also one that comes with significant fiscal uncertainty. The recent UK Spending Review provided only partial information, with key details around tax and spending decisions missing. It also raised the risk of vital support, such as the Coronavirus Job Retention Scheme being wound down too quickly, threatening our public health measures.

We now know that the UK Budget on 3 March will provide further necessary detail. This may require significant revisions to the spending plans set out here, to ensure we maximise every penny available for important health, social and economic measures. We will continue to engage closely with the UK Government to seek the necessary clarity. And as we have seen this year there remains the distinct possibility that significant budget revisions will be required in the year ahead to meet the changing circumstances arising from the pandemic.

I have consistently welcomed the UK Government's COVID-19 funding and have committed every penny of consequential funding we receive to our pandemic response, notably to support our businesses, NHS, other public services and the roll-out of vaccines. But it is clear that more is needed to meet the estimated demand, and to manage the financial support that will continue into 2021-22. Costs across all areas are outstripping what the Scottish Government can provide within our budget limitations, and we have called on the UK Government to quickly release Scotland's share of its COVID-19 reserve which could provide us with up to £1.7 billion of additional funding in 2021-22. We also require certainty from the UK Government that they will continue to provide us with the funding necessary to continue paying business support grants, should restrictions still be required.

I recognise the challenges that this uncertainty presents for parliamentary scrutiny and for delivery partners who need to plan ahead, in particular in areas where current COVID-19 response measures are likely to continue to be needed early in the new financial year. I have therefore included proposals in this Budget setting out how the Scottish Government plans to deploy anticipated additional consequential funding of £500 million, subject to confirmation of the level of such funding in the delayed UK Budget. In doing so, I have made a prudent assumption against the UK Government's unallocated COVID-19 funding, based on the overall proportion of such funding that the devolved administrations have received so far during the pandemic. I emphasise that the funding position will not be confirmed until the UK Budget, but I hope this transparent and proactive approach will help to make parliamentary consideration of the Scottish Budget as meaningful and effective as possible as the Budget Bill proceeds over the coming weeks.

These issues have also further underlined the limitations of the existing Fiscal Framework and the strain this has put on our ability to respond to the crisis - limitations in tax powers, our inability to borrow on the financial markets, or even exceptionally use unspent capital funding to address immediate day-to-day needs, leaves us reliant on decisions made by the UK Government. Our Medium Term Financial Strategy, published alongside the Budget, sets out many of these issues in more detail and what I believe to be an utterly compelling case for further fiscal devolution. With this in mind, I will work to ensure that the forthcoming review of the Fiscal Framework delivers fairer funding arrangements and much greater fiscal flexibility for Scotland.

The continued threat from COVID-19, and the need to put in place the necessary public health measures, and in turn economic and social measures, means that we must be responsive and adaptable. We cannot be certain what further risks lie ahead, and in turn what measures may be required. In our planning, we have done everything possible to build in the necessary resilience, but we will need to maintain maximum flexibility and the support of a broad range of partners to deliver what is needed.

The collaborative and partnership approach to managing the crisis across all areas of Scottish life - public and private, national and local - has been truly inspirational. People, businesses, and a wide range of organisations have come together in ways never seen in recent memory. With the uncertainties that lie ahead, but also the green shoots of hope we now see, this Budget will require a similarly collaborative approach across the Scottish Parliament. We must deliver resources where they will have the greatest impact, help manage the continued effects of the crisis and provide the strongest framework for recovery and renewal.

We have been through so much as a country already, and we cannot guarantee that difficult times do not still lie ahead, but there is light at the end of the tunnel. I give my assurance that this is a Budget that seeks to mitigate the prevailing risks as far as possible, making the light at the end of the tunnel shine that bit brighter. This is a Budget that I firmly believe can help to secure a positive future and I will engage with all parties in the Scottish Parliament to deliver it for Scotland.

This Budget will:

• Support the safe and sustainable recovery of the NHS, with record funding in excess of £16 billion - an increase of over £800 million in core Health and Sport funding to allow investment of £11.9 billion in Health Boards, £1.9 billion for primary care, and spend in excess of £1.1 billion for mental health services.
• Direct £145.3 million funding to alcohol and drugs support, with an increase of £50 million specifically targeted at reducing drugs deaths - part of a five-year, £250 million commitment.
• Invest £883 million in social care, including £34 million for delivery of the living wage.
• Support the economy and protect jobs through NDR measures worth almost £1 billion, extending current relief for the most affected sectors and reducing the poundage for all businesses.
• Provide £1.1 billion to drive forward our national mission for jobs, and equip our future workforce with the skills they need, including an additional £125 million of investment targeted at employment support, including the National Transition Training Fund and Young Person's Guarantee, alongside £230.9 million for Skills Development Scotland.
• Invest £2.7 billion in education and skills - alongside significant funding delivered through the local government settlement - including £125 million to help close the attainment gap, and £1.9 billion for our world-class universities and colleges.
• Support all sectors of our economy to recover and grow sustainably with £17 million additional funding for our enterprise agencies, the launch of our £100 million Green Jobs Fund, and £51.9 million of dedicated help for our tourism sector including doubling the Rural Tourism Infrastructure Fund.
• Deliver just over £6 billion of capital investment in 2021-22 through our National Infrastructure Mission - including £667.6 million grant funding to continue our ambitious programme of affordable house building, £142 million to support housing support schemes including shared equity and almost £100 million for superfast digital connectivity.
• Invest £2 billion additional funding to decarbonise the way we live, travel, and heat our buildings, and to support woodland creation - supporting new, green Scottish industries, creating thousands of low carbon jobs, and helping to end Scotland's contribution to climate change by 2045.
• Secure £3.5 billion for social security and welfare payments, including £68 million for the 'game changing' Scottish Child Payment, which once fully rolled out will help lift an estimated 30,000 children out of poverty.
• Help to protect local services by guaranteeing £11.6 billion for local government, including £90 million to deliver a national council tax freeze and £567 million to deliver our commitment to 1,140 hours funded early learning and childcare by August 2021.
• Keep our communities safe with £1.3 billion for the Scottish Police Authority, including an uplift of £60 million in the resource budget - continuing to deliver real terms protection and surpassing our commitment to deliver a £100 million boost by 2021.
• Deliver a clean, efficient, and connected transport network, with investment of £3.2 billion, maintaining our record high commitment of £100.5 million for active travel, and £15 million to deliver a concessionary travel scheme for under-19s.

Kate Forbes,

Cabinet Secretary for Finance