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11/12/14 16:17

UK Autumn Budget Statement and Local Government Finance Settlement

Presiding Officer, I am grateful for the opportunity today to respond to the UK Government’s Autumn Statement of 3 December, and to update parliament on non-domestic rates in Scotland and the terms of the provisional local government settlement for 2015-16.

The Scottish economy has performed strongly this year with output now above pre-recession levels. The most recent labour market statistics show Scotland outperforming the other nations of the UK on unemployment, employment and economic activity.

This success reflects our approach to growing the economy and this government will continue to focus on securing economic growth, protecting our public services and tackling inequality.

However, the UK Government’s approach to austerity harmed the recovery and the growth we are now seeing follows years of underperformance.

By the end of 2015, the UK economy is forecast to be almost 4% per cent smaller than was projected in 2010 when the Chancellor first entered office.

Real wages also remain subdued. As a result borrowing this year will be £50 billion higher than the Chancellor predicted in 2010.

Looking forward, the OBR forecast that 60 per cent of the UK Government’s cuts are still to come. These will reduce UK spending on public services to the lowest level since the 1930s as a share of our economy.

Since 2010 the Scottish Government has taken steps to mitigate the impact of these cuts, by protecting the health budget, increasing the provision of free nursery education, investing over £1.7 billion in housing and addressing the impact of welfare reform.

But we are not immune from the UK Government’s austerity agenda. Scotland’s share of the cumulative real-terms cut planned for the next five years is estimated to be around £15 billion.

There are measures in the Autumn Statement that I welcome, including the abolition of employers national insurance contributions for young apprentices. I can also confirm that the Scottish Government will pass the £127 million Barnett consequentials arising from increased Department of Health expenditure to the NHS in Scotland. The Government will take decisions about other consequentials in due course.

Other announcements were disappointing. The Chancellor’s confirmation that Northern Ireland will have the ability to vary corporation tax, while the UK Government continues to block devolving this power to Scotland continues to deprive us of key job creating powers.

However devolved taxation is clearly good for the Chancellor. Despite ample opportunity to redesign the outdated and distortive slab structure of stamp duty land tax -the Chancellor waited to copy the reforms introduced by this Parliament.

The rates and bands for Land and Buildings Transaction Tax proposed in October by the Scottish Government were designed for the Scottish housing market where the average house price is £100,000 lower than the average price across the UK – and only one-third of the value of the average house price in London. The rates originally proposed would benefit 90 per cent of home buyers in Scotland and take 5000 transactions out of tax at the bottom end of the market helping first time buyers.

The Chancellor may have moved the goal posts but with our proposals continuing to ensure that 80 per cent of taxpayers in Scotland will either pay no tax or pay less tax than they would under the new UK regime announced last week our scheme continues to support first time buyers and the Scottish housing market.

Parliament has been advised of the delay in reaching agreement on the block grant adjustment that comes with the devolution of tax powers. I have spoken to the Chief Secretary about this issue and I am anxious to resolve this before Christmas. That factor is of course material to my consideration of the changes made by the Chancellor.

Our proposals also replaced the distortive slab system with a progressive rate structure for non-residential property transactions ensuring that Scotland remains a competitive and attractive location for business investment.

This government has a clear commitment to the most competitive package of business taxation in the UK.

At the heart of our approach is the Small Business Bonus Scheme. Recent statistics show over 96,000, or two in five, rateable properties benefiting this year – a record high. Eligible businesses will this year be up to £3,140 better off than competitors located in England – even allowing for the temporary extension to the Chancellor’s equivalent scheme.

I also reiterate my previous confirmation that the public health supplement will conclude at the end of this financial year.

I am also pleased to announce that agreement has been reached with COSLA to a revised Business Rates Incentivisation Scheme which is more tightly focussed on rewarding growth in the underlying tax base. Full details of the scheme and the agreed targets which come into effect in 2014-15 are set out in the Local Government Finance Circular which is published today.

In addition our Community Empowerment bill, currently in parliament, contains provision for local authorities to offer targeted rates relief to stimulate economic growth in their areas.

In 2012-13 we began our review of the rates system ahead of the next revaluation in 2017. Our consultation in 2012-13 led to a twenty-point action plan, including a review of the appeals system and I am pleased to publish our consultation paper on the future of the appeals system today.

Finally I can confirm that in 2015-16, to maintain our competitive position, we will continue to match English poundage rates – in contrast to previous Administrations who imposed higher rates and put Scottish businesses at a competitive disadvantage for years.

Our overall package of rates reliefs provides increasing support to businesses, estimated at £618 million for 2015-16. Scotland remains the most competitive business tax environment in the UK.

Presiding Officer, non-domestic rates are a key component of the funding package we provide to local authorities through the local government finance settlement.

In 2015-16 we will provide a total package of resource and capital funding of almost £10.85 billion in support of local authorities’ services.

This settlement is set against the challenging fiscal environment and the austerity measures which are set to continue with further damaging cuts from Westminster to public services.

Despite that context the terms of this settlement offer to local government continues to represent a very fair settlement.

Local government and the essential services they deliver are an integral part of the overall good governance of Scotland and continue to be a critical partner in the Scottish Government’s transformative programme of public service reform. This settlement builds on our joint priorities and is focussed on growing the economy, protecting front-line services and supporting the most vulnerable in our society.

The local government settlement maintains funding on a like-for-like basis in both 2014-15 and 2015-16 with the allocation of additional money for new responsibilities.

The 2015-16 revenue allocations have been increased by £241 million since the Draft Budget 2014-15 with £54 million to give all children in p1 to p3 access to a free school meal; £44 million to fund extended pre‑school entitlement; £38 million for the Scottish Welfare Fund; £35 million to fully mitigate the impact of the Bedroom Tax; and £6.5 million to support administration costs of the Council Tax Reduction scheme.

The 2015-16 capital allocations have increased by £39 million to support the extended pre-school entitlement.

In 2014-15 the main additional sums are:

  • a further £18.5 million for Early learning and Childcare resulting from the Children and Young People Act;
  • almost £16.5 million for the delivery of Free School Meals to children in primary 1 to 3;
  • £15 million to allow us to fully mitigate the impact of the Bedroom Tax;
  • £12 million to cover the cost of the Enterprise Areas business rates relief scheme;
  • £5 million to provide additional Teachers’ Support resulting from the new National Qualifications; and
  • £2 million to help local authorities fund the teachers’ Pay Award.

I can confirm that, following agreement with COSLA earlier this year, the needs-based formula has again been applied in its entirety to the settlement for 2015-16.

In return for this package of resources, local authorities will require to deliver a council tax freeze for the eighth consecutive year and secure places for all probationers who require one under the teacher induction scheme.

The Scottish Government and COSLA have also agreed to work together with others towards reaching an in-principle agreement on an educational outcomes based approach. This approach would consider a broad range of indicators of educational improvement and should include teacher numbers as an important contributory factor.

This process will be inclusive and engage other parties notably trade unions, parent bodies and others with an interest in educational outcomes and must be satisfactory to both the Scottish Government and Local Government.

In addition NHS boards and local authorities are working to deliver integration of the adult health and social care system, and we have committed additional funding to tackling child poverty and will work with COSLA to extend financial support to kinship carers.

This government is also supporting the Glasgow Clyde Valley city deal with £15 million of Scottish Government funding for the city deal from 2015-16, the first part of our £500 million contribution to a £1 billion package over 20 years agreed with the UK Government.

We are supporting our capital city with our new Growth Accelerator Model to support an £850 million investment in the St James Quarter in Edinburgh City Centre with just under £100 million from Scottish Government over a 25 year period, and we remain interested in proposals from all our cities on how they can be helped to grow and to develop.

Presiding Officer, my statement today marks the start of the consultation process with local government on the provisional 2015-16 revenue allocations and, once confirmed, I will bring the final figures to Parliament early next year.