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16/12/15 15:17

Draft Budget 2016-17

Deputy First Minister John Swinney
Scottish Parliament
Draft Budget 2016-17

Presiding Officer,

The Scottish Government’s purpose is to deliver sustainable economic growth and to create the opportunity for all of our citizens to flourish.

We believe that with a relentless focus on tackling inequality and boosting productivity, we can create the foundations for a stronger and more inclusive economy.

That aim has to be delivered however, within a significantly constrained public spending environment. As a consequence of UK Government austerity, the Scottish Budget will continue to fall in real terms - as it has done since 2010 - until the end of this decade.

The realities of the public finances are such that if we want to improve our services, we must be prepared to continually reform the way in which we deliver them.

This Budget is therefore driven by two themes: supporting inclusive growth and protecting and reforming public services.

We will deliver inclusive growth by focusing on investment in innovation, infrastructure, education and skills, and by maintaining a competitive business environment.

And we will protect and reform public services by delivering on the Christie Commission approach of service integration at local level, a shift to prevention and improving outcomes for individuals.

The tax and spending plans that I am announcing today will equip the country for the future and lay the foundations for the reforms that will define the next parliament - reforms that will reshape our health and social care services, deliver a step change in educational attainment, provide greater focus in the innovation system, deliver a fairer system of local taxation and use new powers over tax and welfare in a way that supports our central purpose.

The current financial landscape presents us with a challenge and a choice.

Scotland can accept these Tory cuts or we can rise to the challenge and choose a Scottish alternative to austerity.

We choose to rise to the challenge. We choose the Scottish alternative. We choose to put reform and growth at the heart of this Budget.

Delivery

Presiding Officer,

We will build on the Scottish Government's record of delivering for the people of this country.

  • Our economy has now grown in each and every quarter of the last three years;
  • Over the latest period, employment has risen and unemployment has fallen;
  • We have invested heavily in infrastructure –– modernising services and boosting construction;
  • We have invested in Scotland’s NHS - staff numbers are at record levels;
  • We have worked to mitigate the most damaging effects of the UK Government’s welfare cuts.
  • We have delivered Curriculum for Excellence, and a record number of Higher and Advanced Higher passes were achieved in 2015;
  • We have delivered 600 hours of free high-quality early learning and childcare;
  • Our country is safer, with crime at a 41-year low;
  • And we are on track to reach our 2020 interim climate change targets.

That is a record we are confident of taking to the people.

Context

This year’s Programme for Government reaffirmed our commitment to build on these strong foundations.

However, our aims are made more difficult to achieve by the UK Government’s continued austerity agenda.

By 2020 our budget will be 12.5 per cent lower in real terms than when the Conservatives came to power.

This is the equivalent of one pound in every eight we spend being cut by Westminster by 2020.

Even our capital budget will still be more than half-a-billion pounds a year lower in real terms in 2020-21 than it was in 2010-11.

Whilst we all recognise the public finances need to be sustainable, the scale of the cuts is unnecessary even to meet the Chancellor’s own Fiscal Mandate.

We laid out clear, detailed plans that reduced both the deficit and debt while allowing public investment in the economy.

The Conservatives rejected that plan. Their ideological obsession with austerity is born out of choice rather than necessity.

We will not make that same choice. We won’t make the poorest in society bear the burden.

Taxation announcements

This vision – and commitment to fairness – underpins our approach to taxation.

We recognise that to support the public services we all rely on, we must ensure that our tax policies are built on the principle that the tax burden should be proportionate to the ability to pay.

Presiding Officer, today’s Draft Budget marks the first time that a Scottish Government will propose a Scottish Rate of Income Tax.

From April 2016, the UK Government will reduce the block grant by £4.9 billion with the partial devolution of income tax powers and at the same time switch-off 10 pence of income tax in Scotland.

I am required now to set a rate in Scotland.

The current power allows for one single rate to be set here in Scotland and applied equally to all three income tax bands – the basic, higher and additional rates.

This means that any rate set above 10 pence would increase the tax paid by all Scottish taxpayers. By its nature, exercising this power would have a disproportionate effect on the amount of tax paid by those on the lowest incomes.

Likewise, whilst any rate below 10 pence would cut the tax bill paid by all taxpayers, those on the highest incomes would see the greatest benefit.

So the simple fact is, this tax power does not enable me to target help to those on the lowest incomes.

I do however have the power to ensure that this tax does not inflict an additional burden on those on low incomes.

I can therefore confirm that there will be no change in income tax rates next year. I propose that the Scottish Rate of Income Tax be set at 10 pence in the pound. The rate people pay this year will be the same rate they will pay next year.

I hope Presiding Officer, that, from 2017/18, this Parliament will have more flexibility in setting income tax rates. However, that will depend on reaching agreement on a new fiscal framework and final passage of the Scotland Bill.

I can confirm that - subject to achieving these outcomes - the Government will set out our longer term intentions with regard to income tax ahead of the dissolution of Parliament at the end of March.

Presiding Officer, the setting of the Scottish Rate marks the latest tax power to be transferred to Scotland.

Since April this year, Revenue Scotland has been responsible for the administration and collection of Scottish Landfill Tax and Land and Buildings Transaction Tax and we are on track to meet our forecast revenues for the year.

Scottish Landfill Tax returns covering the first six months of this financial year amounted to over £74 million, against a forecast of £117 million for the year as a whole.

Land and Buildings Transaction Tax revenues exceeded £218 million for the first seven months this financial year, which also compares favourably with our forecast revenues of £381 million for 2015-16.

In setting the rates for 2016-17, we have listened to the views of the property industry and other key stakeholders. I plan to maintain the existing rates and thresholds for Land and Buildings Transaction Tax – for residential, non-residential and lease transactions – ensuring that the system remains progressive.

This means that more than 10,000 additional purchases will be taken out of tax compared to the UK-wide stamp duty system it replaced last year , and result in a reduced tax charge for over 36,000 house purchases at or below £330,000. Overall, 93% of house buyers pay no tax or less tax than under stamp duty.

I am however conscious of the issue of second-homes. We need to ensure that the opportunities for first time buyers to enter the market in Scotland are as strong as they possibly can be.

And we need to make certain that tax changes elsewhere in the UK do not make it harder for people to get on the property ladder.

That is why I today announce my intention to introduce a supplement to Land and Buildings Transaction Tax for those purchasing an additional home for £40,000 or more.

Such properties will be subject to a supplement of 3% of the total purchase price, payable in addition to the existing LBTT charge.

We will shortly bring forward legislation to seek Parliament’s approval to introduce this supplement to ensure that it takes effect from 1 April 2016.

In keeping with the Scottish approach to taxation we will work closely with stakeholders in developing the specific policy and legislative proposals underpinning this.

For Scottish Landfill Tax I plan to set the lower rate of tax to £2.65 per tonne and the standard rate of tax to £84.40 per tonne with effect from 1 April 2016.

Last year, I announced my intention to set the credit rate for the Scottish Landfill Communities Fund 10% higher than the UK equivalent for the first three years.

However, the UK Government recently announced plans to drop its equivalent credit rate to 4.2%.

I believe that this is the wrong decision for our environment. Therefore, we will maintain the existing credit rate of 5.6%, ensuring landfill site operators contribute more to community and environmental projects than elsewhere in the UK.

Early this week we received the report of the cross party Commission on Local Taxation. We welcome the fact that four of the five parties in the Parliament took part and reached agreement on a set of crucial principles - that local tax should be more progressive, broader and more empowering to local government.

The government will now consider this report carefully and in the new year we will set out plans to reform the council tax in a way that will deliver sustainable council finances and greater fairness for local taxpayers.

I can also announce today that I intend to enter into a consultation with local government about possible future assignation of a proportion of income tax receipts – thereby giving local authorities an incentive to boost economic growth in their areas.

Forecasts and Scottish Fiscal Commission

Presiding Officer, taken together we expect to raise £671 million from the wholly devolved taxes in 2016-17.

These forecasts have been assessed as reasonable by the independent Scottish Fiscal Commission, which will publish its own report setting out this assessment today.

I am grateful to the Commission for their work, and for the scrutiny they have applied over the past 12 months.

As it should, the Commission’s report challenges us to improve the robustness of our forecasting methodologies and the Government will do that.

For the first time, we are publishing five year forecasts for the devolved taxes. These forecasts will aid transparency around the medium-term assessment of Scotland’s devolved public finances.

Economy

Presiding Officer, a strong and sustainable economy lies at the heart of a successful Scotland.

Our economic strategy set out our approach to deliver the dual and complementary objectives of tackling inequality and boosting competitiveness.

Let me be clear, economic growth gives us the revenues needed to tackle inequality. However, we also believe that tackling economic inequality, in turn, boosts growth, removing a drag on the economy and boosting prosperity.

This Draft Budget provides the resources to deliver this by supporting innovation, investment, internationalization, and inclusive growth.

We will work in partnership with employers, employees and trade unions, through the Scottish Business Pledge and the Fair Work Convention, to deliver fair work and inclusive growth;

One of our most significant investments in the future of Scotland’s economy is the delivery of 600 hours of free high-quality early learning and childcare for all 3 and 4 year olds and vulnerable 2 year olds.

But we are going further. We are committed to the ambitious plan to almost double free nursery provision during the next parliament, to 1140 hours.

The First Minister set out in the Programme for Government the priority we place on educational attainment.

Just yesterday the OECD report examining Curriculum for Excellence provided real encouragement that Scotland is on the right track in our schools. And, just this morning new figures were published showing record numbers of school leavers in positive destinations – work, education or training.

We have a good education system. But we are committed to making it better

We must raise attainment for all and close the gap that has existed for decades between children in our most and least deprived areas.

This Budget makes provision for that commitment with £33 million investment in attainment programmes in 2016-17, which will support the four-year £100 million Scottish Attainment Challenge. We also intend to maintain teacher numbers next year.

And it reaffirms our commitment to improving the wider education system.

We will continue to invest in high-quality schools and community health facilities through our new Hub programme of revenue-funded infrastructure investment.

In this difficult financial context I have protected college funding, delivering the budget stability the Further Education system needs.

And we will deliver on our promise to expand the Education Maintenance Allowance and Modern Apprenticeship programmes to help more young people fulfill their potential and enter positive, rewarding employment.

This Scottish Government has placed the principle of higher education based on the ability to learn not the ability to pay at the heart of what we believe.

I can confirm today that we will continue to fund our commitment to free tuition.

And we have backed up our commitment to keeping our universities world class by investing over four billion pounds in the higher education sector over the last four years.

Now, we will renew this commitment, investing a further one billion pounds in 2016-17 to support the continued success of our world class universities delivering high quality learning and research excellence.

But we want to go further. We want to see a new relationship with Higher Education. A long-term partnership, underpinned by ongoing significant investment to support the delivery of key shared priorities. That is our ambition and we welcome the constructive approach the universities have taken as we discuss with them how we make this a reality. Critical to that long-term approach is our investment in Higher Education Research. The budget settlement will enable the core research budget for higher education to be protected as a key investment for the future of Scotland.

This Government has always prioritised investment in infrastructure to stimulate the economy.

We are on track to build 30,000 affordable homes over the course of this Parliament.

We recognize the importance of extending our commitment on housing to create the quality accommodation people require and to provide continued stimulus to the construction industry.

We are committed to building 50,000 new affordable homes during the next Parliament and I am delighted to announce that - as the first step towards this - we will be increasing the budget for affordable housing next year by £90 million enabling us to invest around £690 million in housing supply.

On fuel poverty, we will continue to invest to help people have warm, affordable homes, building on our achievements to date through our Home Energy Efficiency Programme for Scotland. In total, we will be making available over £100 million to tackle fuel poverty and climate change and help improve the condition of Scotland’s homes.

The development of energy efficiency as a national infrastructure priority will create transformational change in improving the energy efficiency and heating of homes, businesses and public buildings in Scotland, reducing fuel bills and greenhouse gas emissions.

Our investment in digital connectivity is central to our ambition of harnessing the opportunities for growth and improving public services across all aspects of Scottish life.

We will invest £130 million in Scotland’s digital infrastructure next year to help meet our 2017 target that 95 per cent of premises in Scotland will have access to next generation broadband, alongside our investment through the Emergency Services project which will enhance mobile coverage.

We will invest almost £1 billion in transport projects.

On rail, this will include the completion of the electrification of the Edinburgh-Glasgow rail line.

On our roads, we are making progress on dualling the A9, including construction of the first section between Kincraig and Dalraddy.

I can announce today that new projects are now also able to proceed. I am authorizing the commencement of works in 2016-17 on the construction of the Dalry by-pass in Ayrshire. And, in light of the excellent progress on the Aberdeen Western Peripheral Route, I am today confirming that work will begin in 2016-17 on the improvements to the Haudagin roundabout.

In addition, the Forth Replacement Crossing is on track to be completed by the end of 2016.

Alongside these major new projects, we will invest in the maintenance and operation of Scotland’s trunk roads and motorways.

Significant investment will also be made to support ferry services with two new 100-metre vessels earmarked for Skye and the Western Isles and the Ardrossan-Arran route.

We will also continue to support Highlands and Islands air travel through the Air Discount Scheme which offers a 50 per cent discount on core air fares.

We are committed to a significant programme of investment in Scotland’s water and sewerage infrastructure for the 2015-21 worth £3.5 billion and including £250 million to upgrade Glasgow’s wastewater infrastructure to improve the environment of the River Clyde and tackle flooding.

On flooding specifically, there have been a number of incidents this year that have caused enormous distress to members of the public. I can announce that this year we will provide £4 million to the local authority areas affected most by recent flooding in Hawick, Newcastleton, Dumfries, Alyth and other localities to help with recovery and to help households and businesses access the support they need.

Presiding Officer, Scotland’s businesses are the key to creating jobs and boosting prosperity.

This Draft Budget therefore maintains the Small Business Bonus Scheme. Nearly 100,000 firms across Scotland will benefit from reduced or zero business rates.

This Draft Budget again matches the English poundage rate.

In looking forward, I am mindful of the views and representations of many in the business community about the future of business rates in Scotland.

I share with Scottish business a recognition that our system of business rates must minimise barriers to investment, be responsive to economic conditions and support long-term economic growth and investment.

I can therefore announce that we will launch a review of the Non-Domestic Rates system in Scotland.

Over the last two years, the levels of inflation, coupled with below-inflation increases in poundage have generated lower Non Domestic Rates Income than anticipated. Those incomes projections have not kept pace with the benefits to business from the Small Business Bonus Scheme.

That is why I am today proposing to increase the Large Business Supplement on Non-Domestic Rates and make changes to some other reliefs. Taken together this will raise around £130 million to fund investment in the economy.

This Draft Budget also recognises the importance of the third sector, and the key role it plays in supporting communities and social enterprise. I have protected the core budget for the third sector.

Presiding Officer,

Our economy is now in a sustained period of growth and employment is above pre-recession levels.

The future health of our economy, however, lies in improving our productivity through greater innovation.

We are committing funding of around £345 million to support research and innovation through our Enterprise Agencies and the Scottish Funding Council.

The SFC has committed £124 million of funding over six years (2013-19) to its network of Innovation Centres.

But we believe that our approach to innovation needs greater focus to achieve greater economic impact.

The Scottish Government therefore intends to work with our partners including the Enterprise Agencies, the Scottish Funding Council and the Universities to align our approach to innovation, to pool funding and to simplify the innovation landscape.

This ambitious reform – the next in our agenda for reform - will help us to create an innovation environment which drives the development of new products, processes and services through improved collaboration

These measures capture the agenda of the Government in working to create inclusive growth, one of the two key elements of the Budget today. The other element is the reform of our public services.

Protecting and reforming public services

Our public services play a vital role in shaping both our economy and our society by making a major contribution to the wellbeing of our communities, promoting prosperity and enabling people to participate more fully in society.

Having removed the ring-fencing of local authority budgets in our first term of office, we have encouraged a greater degree of joint working at local level between public bodies - with a strong focus on meeting the needs of individual citizens.

The Christie Commission in 2011 reinforced this approach with its emphasis on integration of public services and a decisive shift towards preventative spending.

Since then, we have reformed the delivery of college education and the police and fire services with greater efficiency as a result.

This Budget underscores our commitment to continue on this journey of reform.

We will take steps to extend digital applications in public services, increase the use of shared services, secure further value from procurement, make more effective use of our public assets and reduce overlap between public services.

Presiding Officer, our police play a critical role in protecting our communities. In the last few years, our police service has undergone difficult but necessary reform. It is now time to build on that.

I am pleased to confirm today that we will provide real terms protection to the frontline policing resource budget, next year, and if we are re-elected in May, for every year of the next Parliament – a boost of £100 million over the period.

When this Parliament passed the legislation for a single police service, it agreed that this current financial year would effectively mark the end of the time-limited police reform budget. However, given the challenges facing our police – particularly arising from the current security situation – I am announcing further support today.

Instead of removing the reform budget as Parliament intended, in order to consolidate the reforms and to support the work of the police I am committing a further £55 million next year to this important task of community safety.

In all of these reforms our objective is to provide coherent public services underpinned by an approach based on partnership. From our earliest reform of removing ring-fencing, the Government h