UK Spring Forecasts - Letter to the Chancellor

Dear Chancellor

Your statement on 3 March accompanying the Spring Forecasts from the Office for Budget Responsibility will be an important update on the state of the UK economy and public finances. However, I also urge you to use the opportunity to act to address the pressures on public services, commit to further investment in the infrastructure necessary for economic growth, and announce an immediate end to the Energy Profits Levy.

Investment in public services and infrastructure

The UK Spending Review provided a resource funding settlement for the Scottish Government that delivers growth on average of only 0.5% in real terms each year across the spending review period – falling far short of what is required in the current context.

The Capital Block Grant will reduce in real terms by 0.3% a year by 2029-30. This follows historic real terms cuts to our Capital Block Grant by the previous UK Government, which has led to an increase in our backlog maintenance costs. Inflation-driven cost increases have further eroded our spending power. We set out our updated Infrastructure Delivery Plan in January which sets out the infrastructure projects and programmes we will deliver over the next four years. However, we could go further with increased capital funding – to increase investment in areas such as housing, transport infrastructure and climate adaptation.

The Scottish Spending Review, published in January, directs spending to deliver on our priorities while embedding fiscal sustainability. As part of this the Scottish Government published Portfolio Efficiency and Reform Plans, which outline roughly £1.5 billion of cumulative savings over the Spending Review period, progressing our ambitious reform agenda set out in the Public Service Reform Strategy and Fiscal Sustainability Delivery Plan.

Public services across the UK continue to face challenges and your statement on 3 March provides an opportunity to announce increased investment in these vital services, which will in turn deliver increased funding for the devolved governments and the services we deliver.

As we approach the next financial year, it is important that the Scottish Government has clarity on the levels of funding available. I would therefore welcome confirmation of what level of Barnett Consequentials will flow from your recent announcement on changes to Business Rates reliefs in England as part of your Statement.

Energy Profits Levy

The Scottish Government has repeatedly called for action to remove the Energy Profits Levy (EPL), as this is both damaging Scotland’s economy and placing a just energy transition at risk. The consequences of your decision to retain the EPL at the last Autumn Budget are already being felt for business confidence, jobs and investment across Scotland’s energy sector.

The Cabinet Secretary for Climate Action and Energy wrote to you and the Secretary of State for Energy Security and Net Zero on 25 February urging the UK Government to use the Spring Statement to announce an immediate end to the EPL. This would send a strong and positive signal across the energy industry, as well as to communities and workforces here in Scotland. These fiscal changes must also form part of any wider plan for a just transition from oil and gas to renewables, one which protects jobs and skills and delivers a pipeline of future investment.

Local Growth Funding and respect for devolution

The continued use of the powers in the UK Internal Market Act to directly fund activity in devolved areas in Scotland, while bypassing the Scottish Parliament, is unacceptable. It is most disappointing that the current UK Government is continuing the practice of the previous government, most notably through the Local Growth Fund, where the UK Government refused to engage with the Scottish Government in the design and delivery of this fund. This contrasts with the situation in Wales, where funding will be provided to the Welsh Government. This level of funding announced also does not come close to matching the funding it is intended to replace and leaves nine local authorities without support. The Scottish Government, working with Local Government and communities, has been leading the way on regeneration policy in the UK through place-based, cross-sector collaboration, and any UK Government initiatives must respect this.

It is important that any further funding announcements respect the devolution settlement and that funding is provided to the Scottish Government in the usual way. It is simply not acceptable for the UK Government to ignore the role of the Scottish Parliament and bypass the devolved responsibilities of the Scottish Government to spend directly in devolved areas.

Working with devolved governments

I look forward to meeting with the Chief Secretary to the Treasury in a few weeks at the Finance: Interministerial Standing Committee (F:ISC). This is an important forum for the finance ministers of the devolved governments to discuss matters of common concern with HM Treasury. However, it is vital that the interests of devolved governments are listened to and respected throughout HM Treasury decision-making.

I am copying this letter to the Chief Secretary to the Treasury, the Rt Hon James Murray MP.

Yours sincerely,

                                                                SHONA ROBISON