Covid-19 has presented Scotland, as it has much of the world, with twin economic and health crises. It has demanded a fiscal response that would have been unimaginable a few months ago. With that in mind, it is important that we debate both the fiscal response to date and the actions that are still required, as we move to the next phase of our response.
Let me be very clear: just as we have devoted our full and collective efforts, energy and creativity to dealing with the health emergency and to saving lives, so we will deploy all our resources and ingenuity to dealing with the economic crisis and to saving livelihoods. Since the beginning of the crisis, with the support of parties across the chamber and informed by stakeholders, we have taken a series of urgent actions, all with significant fiscal implications, in response to the challenges that are being faced by individuals, communities and businesses the length and breadth of the country.
In light of the pace and scale of those actions, fiscal transparency is vital in building shared understanding of our opportunities and constraints. Accordingly, I have brought to Parliament an early update through a summer budget revision, which the Finance and Constitution Committee has considered.
It has become ever clearer that the fiscal framework was not designed with a pandemic or an economic emergency in mind. It is not fit for the purpose of flexible budget management in the current circumstances. That matters, because it will make the difference between investing in our communities, our economy and our public services and not investing in them. I am pleased to see cross-party recognition from Labour, the Lib Dems and the Greens of the need for additional flexibilities and powers.
The estimated Barnett consequentials that have been notified by the Treasury currently stand at £3.791 billion. We are directing all such funding to our Covid-19 response. However, I highlight the risk that the sums are subject to change and could be revised downwards—as they were, by £70 million, a few weeks ago. I am liaising closely with the Treasury, and continue to press for assurances that funding will not be clawed back.
To recap on our key spending actions to date, I note that all additional funding so far for health and social care has been passed on directly. That currently stands at about £780 million, with more anticipated in respect of personal protective equipment and test-and-protect costs. We have committed to more than £2.3 billion of business support measures, which are being targeted to reflect the differences between Scotland’s economy and recovery and those of the rest of the United Kingdom.
We have established sectoral schemes, including the 100 per cent rates relief for tourism, retail and hospitality businesses, and focused assistance for groups including fishermen, self-employed people and small bed and breakfasts. In fact, some of the groups that were highlighted over the weekend by the media and the UK Treasury Committee as falling through gaps in the Chancellor of the Exchequer’s schemes are being caught by our extra funding.
We have ensured that our response is nimble. Where demand has been lower than anticipated, we have repurposed funding. The prime example of that is the £120 million pivotal enterprise resilience fund, which is supporting companies that are considered to be vital to local economies or the national economy.
Our £350 million community support package is ensuring that the people who are most affected by the pandemic get the help that they need, in particular with emergency food. That funding supports low-income families with children, disabled people, older people, people who are self-isolating and others who are at risk. It has also helped to support the third sector, which is doing a brilliant job in very challenging circumstances.
We have committed more than £300 million of direct support for local authorities, including some of the communities package. We are in regular contact with the Convention of Scottish Local Authorities and individual councils about funding and other operational issues, which reflects the importance of those bodies.
I have been clear that the UK Government funding to date is welcome—not least, because it is our only source of extra funding during the pandemic, as we are not yet permitted extra powers or flexibilities—but it falls short of what is needed. The fiscal framework, which was agreed in good faith, is too limited for us to address the gap. Therefore, together with Wales and Northern Ireland, I continue to engage with the UK Government to press for fiscal flexibility. Today’s motion seeks support for that principle.
In respect of the summer budget revision, my main intention has been to support early parliamentary consideration of it, given the scale and pace of our fiscal response. The revision seeks to amend the Budget (Scotland) Act 2020 by allocating more than £3.5 billion in Covid response funding that has been notified by the Treasury; £112 million of other consequentials that have been generated by the UK budget; and a further £255 million that is being reprioritised from existing allocations. It is a snapshot from mid-May, and we intend to bring forward, in the usual way, autumn and spring budget revisions during the financial year.
The summer budget revision does not capture the extent to which the costs that we are now facing across all levels of Government exceed the very welcome funding that we have received to date. Based on notified consequentials, we currently estimate a shortfall of hundreds of millions of pounds. The risk of a shortfall was highlighted in March by the Institute for Fiscal Studies, and has now come to pass. That is based on budget that has been committed across portfolios to date, together with our central estimate of additional health and social care spend this year, excluding spending on PPE and the test and protect strategy, which are the subject of separate funding discussions with the UK Government, at the moment. That shortfall is before inclusion of any further portfolio pressures that we anticipate as a result of support for on-going containment, reopening and recovery this year. I make that point with the aim of being open about the on-going challenge and the context for any further UK funding.
Recovery from the Covid-19 outbreak will require significant further funding. For example, our transport system will need to adapt to the continuing constraints of distancing, as the economy reopens. The education system, from childcare to universities, will require new ways of working as children, pupils and students return. Our social security system will need to assist those who have been affected by the loss of income, while our employability and skills support will need to adapt to meet the challenge of growing unemployment.
Without additional funding or flexibilities, we will face the impossible choice between not funding those areas and, thus, harming the economy and the recovery, and making deep cuts to other areas of expenditure, which would similarly undermine recovery. Without certainty on funding, we are planning for recovery with one hand tied behind our back.
The funding that has been provided to date is most welcome, but we will not be clear on what is available through the Barnett formula until the UK Government has finalised its funding decisions, which might be too late for the decisions that we need to take now. I want to invest significantly in our economy, to restore confidence and to support Scottish businesses in creating jobs and protecting livelihoods. We will do what we can, but I want to be straight with the nation: as long as we are denied the ability to borrow for those purposes, to use our budget as efficiently as possible, and to get full guarantees on the funding that is available, risk, uncertainty and volatility will undermine our best efforts.
It is not just the Scottish Government that is making those arguments; people of other political persuasions and none are making them, too. The Institute for Fiscal Studies, which I have already quoted, has written that
“There is therefore a case for giving the devolved governments greater access to borrowing”.
A man whom I do not often quote—the former chancellor, Alistair Darling—said that Scotland should benefit from low-cost borrowing. The Fraser of Allander institute has said that
“the flexibilities in the fiscal framework are not sufficient”—[Official Report, Finance and Constitution Committee, 14 May 2020; c 4.]
to bear the risk of the pandemic. Those arguments underline the case for reasonable additional powers and flexibilities in respect of the fiscal framework, alongside the case for receiving assurances from the UK Government on estimated Covid-19 funding.
This is not a technical debate about fiscal flexibility, and it is not a proxy debate on the constitution. It is an appeal for common sense and cross-party recognition that movement on those matters will enable us to invest, and to reject austerity. Failure to make progress will prove to be unthinkable for our communities, our economy and our public services.
In the meantime, as we debate matters, we in the Government are still working as quickly to support the economy as we did at the beginning of the pandemic. On Friday, Fiona Hyslop announced our investment in oil and gas. We have published guidance and offered certainty. We are committed to investing.
The lockdown has impacted on capital investment plans across various parts of the Scottish Government, with the result that planned expenditure within some portfolios has been slowed or paused. The Scottish Government has a significant programme of planned infrastructure and capital investment, with £6.2 billion having been included in the budget for it in 2020-21.
However, in some cases, paused or delayed activity has meant that portfolios now anticipate underspends. Therefore, I am pleased to announce a 2020-21 return to work package, which will comprise £230 million of reallocated capital and financial transaction investment. That will be deployed across a range of activities that accelerate digital transformation and support access to digital services for the most vulnerable groups. It will bring an early boost to our ambition for a green economy and will bolster the remaining pipeline of 2020-21 construction activity, which will give additional support to the sector when we start to get under way.
Covid-19 has emphasised that digitally enabled public services are not only possible, but necessary. The package will, through further investment in digital transformation, build on the considerable progress that has been made in moving services online.
The package provides approximately £87 million altogether in a range of investments to bolster the pipeline of 2020-21 construction activity, which we estimate will support about 700 jobs in the wider Scottish economy, including through a range of place-based regeneration schemes.
The package also brings forward investment in multiple schemes that aim to support the transition to net zero emissions. It delivers investment across Scotland, in every part of Scotland—and that is only phase 1 of our economic response. As people go back to work, larger programmes will follow.
I will, of course, continue to press for additional funding. Although views on the detail might vary, I hope that members across Parliament can agree in principle that further fiscal flexibility will only enhance our collective response to the pandemic, and will enable us to invest and to reject austerity.