Budget (Scotland) (No.3) Bill - stage 3 debate: Deputy First Minister speech

Presiding Officer, in opening today’s Stage 3 debate on the 2024-25 Scottish Budget, I have been very direct with Parliament that this is a challenging Budget requiring difficult choices.

In making those choices our priority throughout has been to protect our frontline services.

This has been done in the face of the UK Government cutting Scotland’s budget - our block grant has fallen by 1.2 per cent in real terms since 2022-23.

And our capital spending power is due to contract by almost 10 per cent in real terms over five years. And that’s after factoring in our borrowing powers. All told that’s a cut from Westminster to our ability to invest in infrastructure of around £1.6 billion.

I appreciate that there are differing views on what this Budget should support but we cannot spend money that we do not have.

If members today have alternative priorities, if they wish more investment to be made in one area then I ask them to be straight with the people of Scotland and say what they would cut to pay for it.

We are choosing to make our income tax system more progressive in order to help fund our vital frontline services. There has become something of a mantra for politicians who sit to the right of this government that we should instead be focusing on ‘growth’. As though the word growth was a panacea to cuts from the UK Government on public spending.

Growth is vital and we are investing more than £5 billion across government to support it. This will  help create jobs and support the green economy, support businesses, aid the transition to net zero and fund almost £2.5 billion in public transport and a further £220 million in active travel to provide viable alternatives to car use.

We are also investing £67 million to kickstart a five-year commitment to develop Scotland's offshore wind supply chain – bringing the total Scottish public sector support for offshore wind to £87 million next year.

That's in contrast to the UK Government who are paying for unsustainable tax cuts by further reducing government spending and investment into the UK economy.

It is unclear to me how the UK Government intends to provide the infrastructure or investment in capital that creates long-term sustainable economic growth when it is hell-bent on returning to a new age of austerity.

To be clear, if you stand in this chamber today and say that the UK’s income tax bands and rates should be followed here in Scotland, then in the interests of fiscal transparency you need to say where your hammer blow of £1.5 billion of cuts would fall.

And this budget’s changes to income tax – including the creation of the new Advanced rate – will mean that only employees earning in excess of £100,000 will pay more in income-based taxes in the coming financial year than they did in this one.

The contribution from our progressive tax system is supporting us to provide over half a billion pounds extra for the NHS – taking total funding for frontline health boards to £13.2 billion next year. A real terms increase – despite a real terms cut to NHS England.

We will continue to prioritise tackling poverty, through investing £6.3 billion in social security benefits and payments, which is just over £1 billion more than in 2023-24.

We are also proud to support pay deals for public sector workers that reflect the vital jobs that they do, providing support in the face of high inflation.

This year pay deals were around £800 million greater than planned and our total expenditure on public sector pay is now around £25 billion – over half of our fiscal resource, and on average public sector pay in Scotland is around 6% more than the rest of the UK.

We intend to set out pay metrics for 2024‑25 after the UK Spring Budget when the fiscal outlook is updated but I cannot stress enough the danger to Scotland’s public finances from the decisions of the UK Government at the Spring Budget next week.

We are in the absurd position of finalising our budget plans for 2024/25 today – when in a week, large parts of it may be impacted by the choices of the UK Chancellor.

Depending on which briefing is to be believed to which black top newspaper, the Chancellor possibly has headroom of around £10 billion. My message to the Chancellor could not be clearer - prioritise investment in public spending and infrastructure over further tax cuts – a message echoed by the IMF, the IFS, the Resolution Foundation and others.

I want to turn now to the Affordable Housing Supply Programme, rightly a topic of much interest across parties and stakeholders and let me be clear, this is and remains a key priority for this Government.

Since 2007, Scotland has seen over 40% more affordable homes delivered per head of population than in England and over 70% more than in Wales. And I was pleased to see from this morning’s stats that our affordable homes increased by 7% in 2022-23 compared to the year before, delivering 10,462 homes  – the highest annual increase since 2000.

The very difficult decision to reduce funding next year was driven by necessity, rather than choice. Given the reliance on Financial Transaction funding for affordable housing, this has been significantly decreasing from the UKG, with a reduction of around £290 million (62%) since 2022-23.

And the challenge has been compounded with the UK Government announcing in the last two weeks, a further reduction of £64 million in-year of Financial Transactions through their recent Supplementary Estimates. And on top of this, we have the savage cut to capital budgets of £1.6 billion, all of which is impacting directly on the affordable housing budget.

Despite all these challenges, we remain focused on our target of delivering 110,000 affordable homes by 2032 and to support that we will bring forward the review scheduled for 2026-27 to 2024, which will concentrate on deliverability.  

And of course housing is the key priority if any additional capital becomes available, which as I said earlier the Chancellor has the opportunity to do next week and I urge him to do so. I will return to Parliament in due course to set out what the impact of the Spring Budget is for our spending plans, including for affordable housing.

I want to turn to Local Government. Presiding Officer and I do recognise their undeniable challenges and I thank COSLA and Council Leaders for the ongoing engagement on the Scottish Budget.

The budget delivers record funding of £14 billion for local government which is an increased share of the discretionary budget; baselining almost £1 billion of funding across Health, Education, Justice, Net Zero and Social Justice; a fully funded council tax freeze protecting up to two million households nationally; and additional support for our island communities.

The 2024-25 local government revenue settlement is already over £650 million higher than the position published in the Resource Spending Review less than two years ago.

However, in recognition of the representations made by COSLA, I have confirmed to COSLA my intention to prioritise additional funding to local government following the Spring Budget, allocating up to £62.7 million of additional funding to local government in addition to the £147 million already made available that is contingent on the freeze to the council tax.

I welcome the fact that 15 of the 16 councils to have set budgets so far have confirmed the freeze and protected household budgets across their authorities and I hope that this assurance removes the final impediment for those councils still considering their position.

I have also listened, Presiding Officer, to the case made by island authorities regarding the additional costs of delivering services to island communities. 

I am keen to work with COSLA to review the effectiveness of the Special Islands Needs Allowance but in the interim I have committed to boosting the Islands Cost of Living Fund from £1 million to £5 million to support those services.

In addition to the funding I confirmed earlier, I am also committed to increasing local empowerment and working collaboratively to reform and improve existing local fiscal levers.

In the short term, the Joint Working Group on Sources of Local Government Funding will continue to identify, explore and deliver reforms to council tax, building on the progress already made, including exploring improvement on targeting of council tax collection and support for lower income households.

Depending on the final analysis of the recent consultation, I can also confirm our intention to extend the powers to increase council tax on second and empty homes through primary legislation.

I am committed to increasing the fiscal empowerment of local government over the course of this parliament and we are already making good progress with the passage of the Visitor Levy Bill.

Alongside this we continue to explore jointly with local government how a cruise ship levy could be introduced either in that Bill or through another legislative vehicle and we are keen to explore further options brought forward by local government and other partners.

In the Budget Statement in December we committed to examining the scope for increased local discretion over fees and charges. One of these related to planning and a consultation on improvement of planning services including increased discretion over fees will be launching tomorrow.

We are always open to new proposals from local government and joint exploration of options for increasing fiscal empowerment and functional empowerment, indeed we are open to sensible proposals from any source including from across this Chamber.

But we have also listened carefully to the ask from local government for more scope to take the steps they believe are necessary to support their communities, building on our commitment to support Mark Ruskell MSP with the reconsideration of the European Charter of Local Self Government Incorporation Bill.  

With this in mind, I can confirm that we will now begin constructive engagement on the request to consider powers of general competence and examine whether the outcome desired could be delivered through adjustment to the general power councils already have to advance wellbeing.

Any new powers must balance fiscal responsibility and risk against the potential for positive outcomes and should therefore be explored in the context of the fiscal framework which we remain committed to developing with COSLA.

Finally, the Scottish Government is committed to reform of the Council Tax, a commitment we share with our partners in the Bute House Agreement, the Scottish Green Party, and which is shared with COSLA.

We have to date taken forward a number of short term reforms to council tax led by that partnership through the Joint Working Group on Council Tax, which is co-chaired by COSLA and the Scottish Government.

As the Minister for Community Wealth and Public Finance has discussed with Councillor Katie Hagmann this week, I will now commit to supporting the Group in their second phase of work focused on longer term reform, and in line with the commitments we have made in the Verity House Agreement, I hope  we will have the support also of COSLA Leaders representing all parties in agreeing to this work. This will include developing and implementing plans for public engagement to help build consensus on the nature of that reform.

I will provide resource as appropriate to enable that work to commence in the coming financial year with a view to it concluding in 2025-26, and to the outcome being considered by this parliament before the next Scottish elections.

In conclusion Presiding Officer, I have been clear about the fiscal challenge that we face as a result of the UK Government’s failure to invest in public services and infrastructure.

I have called on the Chancellor to rectify this in his Spring Budget and I continue to press the UK Government to increase capital funding available to Scotland.

This is a budget which, in tough times, protects the vulnerable, invests in public services, grows our economy and tackles the climate emergency.

Presiding Officer, I move, that the Parliament agrees that the Budget (Scotland) (No. 3) Bill be passed.