Update on Scotland’s Public Finances
Deputy First Minister John Swinney
26 November, 2015
Presiding officer, I am grateful for the opportunity today to update parliament on Scotland’s public finances.
As well as using this opportunity to respond to yesterday’s UK spending review and its implications for Scotland, I will also provide an update on the fiscal framework which will underpin the Scotland Bill, the outlook for devolved taxes and our NPD and Hub investment programme.
Yesterday, the Chancellor set out his spending plans for the period 2015/16 to 2020/21. These spending plans clearly show that the chancellor has continued with a programme of austerity with deep cuts to spending on business, transport, local government and the environment.
Looking ahead, our Fiscal Resource DEL budget – our budget for day to day spending in Scotland - will decrease in real terms by almost 6% over the next four years.
Taken with the cuts imposed in recent years, this means that by 2019-20 the Scottish Government’s total discretionary budget will be £3.9 billion or around 12.5% lower in real terms than it was in 2010-11.
Whilst we recognise the need to ensure the public finances are on a sustainable footing, the scale of the cuts is unnecessary.
The Scottish Government has consistently advocated an alternative approach, that would ensure the deficit is reduced whilst also allowing for significant additional investment in public services compared to the Chancellor’s plans.
Instead the Chancellor has continued to pursue an ideologically driven programme of austerity.
There were three specific decisions in the statement on which I would comment today. Firstly, the decision to scrap the proposed changes to tax credits was a welcome change of direction.
The proposed cuts were targeted at working families on low incomes, and would have affected around 250,000 households in Scotland.
This is a victory for those who campaigned against these cuts, and highlights the importance of continuing to voice opposition to UK Government policy.
This Government remained steadfast and focussed on defeating the tax credit cuts.
However, the chancellor was clear that planned £12 billion cuts to welfare in future years will still go ahead. Delayed cuts are still cuts.
The Chancellor should cease his unnecessary attack on those on benefits and protect rather than punish those who find themselves in need of financial support.
The Scottish Government will continue to do all that it can to protect the most vulnerable in society from the UK’s austerity programme and will continue to pressure the UK Government to reverse these cuts.
Secondly, the Chancellor announced welcome increases in Capital Spending which will see our ability to invest in long-term infrastructure investment enhanced over the Spending Review period.
We need, however, to see this improvement in the Capital position in its proper context.
By 2019-20 our Capital DEL Budget will still be lower in cash terms than it was when the Conservatives came to office ten years previously.
Thirdly, the decision to scrap the Carbon Capture and Storage proposal that could have been taken forward at Peterhead is a short-sighted decision that undermines a global economic opportunity for Scotland. We are making the strongest possible representations to the UK Government to reverse this decision.
I will set out the Government's budget proposals to Parliament for consultation on 16 December.
I now turn to provide a brief update on devolved taxation.
Our forecasts for devolved tax receipts for 2015-16 were considered by the independent Scottish Fiscal Commission who endorsed them as a reasonable assessment.
Revenues from Land and Building’s Transaction Tax remain on track and in line with our expectations.
We forecast total LBTT revenues of £381 million in 2015-16, before allowing for forestalling losses and we have collected around £218 million in the first seven months of the tax.
The Scottish Fiscal Commission provided an assessment of devolved tax outturn against forecast to the Finance Committee yesterday.
That assessment supports our view that overall LBTT revenues remain in line with expectations.
Revenues from Scottish Landfill Tax are performing well against our original forecast of £117 million – over £37 million was declared for the first quarter of 2015-16. Revenue Scotland will publish data for the second quarter tomorrow morning.
The Office for Budget Responsibility published updated forecasts for devolved taxes. These have no bearing on our budget, our forecasts or our revenues. But I do welcome the fact that these are now more closely aligned with the forecasts of the Scottish Government.
I continue to discuss the Fiscal Framework with the UK Government with regard to those taxes that are due to be devolved under the Scotland Bill.
These discussions are focussed on securing a fair and workable outcome on a financial settlement that is faithful to the recommendations made and principles articulated by the Smith Commission.
Smith was absolutely clear that the Barnett formula should continue as the major determinant of Scotland’s spending power, and that Scotland’s budget should be no larger or smaller simply as a result of further devolution.
The risks of an unfair fiscal framework were made clear last week by the STUC and Professor Anton Muscatelli, Principal of Glasgow University, who warned that changes to funding methods that did not properly reflect the Smith Commission’s recommendations could leave Scotland worse off by hundreds of millions of pounds. These are credible, independent voices who should be listened to.
We need a fiscal framework that will ensure – as the Smith Commission intended - that further devolution provides the right incentives and increases the accountability of the Scottish Parliament – linking the Scottish Government’s budget to Scottish economic performance. Scotland should retain the rewards of her success in the same way that we must bear the risks into the bargain.
It is absolutely essential that the fiscal framework allows us to pursue our own distinct policies that meet the needs and wishes of the people of Scotland and does not tie us to UK Government policies.
We aim to complete this work as soon as possible in order to give respective Parliaments time for due consideration of both the Fiscal Framework and the Scotland Bill.
But without a framework that is fair to the people of Scotland, I have been clear that the Scottish Government will not recommend that Parliament approves the Scotland Bill.
Presiding Officer, I would like to conclude by updating Parliament on our engagement with the Office of National Statistics about the impact of recent updates to EU accounting guidance on the Government’s infrastructure programme.
I advised Parliament on 9 September that the Scottish Futures Trust had submitted proposals for revised arrangements for the Hub model to the ONS.
I am today able to advise Parliament that the ONS has offered the view that the proposed model would be classified to the private sector.
This response means that I am today able to advise relevant Local Authorities and Health Boards that they can proceed to contract award with hub projects under the revised model.
Confirmation of a private sector classification from the ONS means that Scottish Government support for these projects can be drawn from long-term Resource DEL budgets as intended.
The revised arrangements for the Hub programme will maintain the current balance of public good, with projects taken forward by special purpose companies owned 60% by the existing hub private partners, 20% by a charity, 10% by SFT and 10% by the procuring Authority.
More widely in the NPD programme, it has become clear that a rapid reversal of the ONS’s public classification of the Aberdeen Western Peripheral Route project under the revised Eurostat rules will not be possible.
I have asked SFT to continue to review options for the potential amendment of the AWPR project and potentially other NPD projects in the light of ONS’s welcome decision on the revised hub model.
The Scottish Government also continues to discuss the budgeting implications with HM Treasury, including for our Capital spending plans, and I intend to reflect the outcomes of these discussions in the Budget in December.
This will have no impact on the delivery of the project itself. It is on time and on budget.
The Scottish Government has always prioritised public infrastructure projects as a critical tool for growing our economic recovery.
I am therefore delighted to be able to confirm that the ten school and two health centre projects within the Hub programme will now proceed.
That is around £330 million of capital investment in our children’s education, our NHS and Scotland’s economy.
These twelve projects will make an enormous difference in their communities, both in terms of the immediate boost provided by the jobs that their construction will bring, but also through the long term health and education benefits that these projects will provide to local communities and to local people.
Presiding Officer, while the Scottish Government welcomes the Chancellor’s U-turn in relation to tax credits, we will continue to argue for the chancellor to abandon his policy of austerity, and make the case for greater emphasis on public sector investment.
We remain committed to investing in our infrastructure and public services and the ONS decision on the Hub programme allows us to continue on that track by moving forward with projects previously on hold.
When we set out our plans for the Scottish budget next month, we will be driven by our principles of establishing a system that is fair and progressive and creating a sustainable economy that ensures opportunity for all within Scotland.