The Scottish Government’s draft budget for 2015-16 is rooted in our purpose of delivering opportunities for all of Scotland to flourish through increasing sustainable economic growth. The discipline of that approach, achieving growth while delivering on our obligations of sustainability, cohesion and solidarity, has guided this Government since 2007.
Our record of delivery is rigorously assessed through the national outcomes that are set out in Scotland performs, which has been cited by the Carnegie Trust and others as an international leader in wellbeing measurement, and we will put the outcomes approach into law through the Community Empowerment (Scotland) Bill.
Alongside the draft budget, I have published a number of supporting documents, including an update on Scotland performs, an equalities budget statement and a carbon assessment of our spending plans.
This budget comes at a time when Scotland enters a new phase in our economic and political debate. The economy has grown continuously for almost two years and output is now above pre-recession levels. As a result, 2014 is forecast to be the strongest year of growth since the financial crisis began. The number of people in employment has increased by 87,000 over the past year, to reach a record high of more than 2.6 million, and female employment is at its highest level since records began. Scotland now has the highest employment rate, the lowest unemployment rate and the lowest inactivity rate of all four United Kingdom nations. As we move from recession to recovery, it is essential that the benefits of economic growth are not only maintained but shared by everyone across Scotland.
This budget also follows the most vibrant political campaign Scotland has ever experienced. In the course of the referendum campaign, whether we argued for yes or for no, all of us must have been struck by the unprecedented engagement of the electorate, and the hope—expressed with breathtaking clarity by Scotland’s people—that they want to live in a more prosperous and much fairer country than we do today.
I had hoped to deliver a budget that would lay the foundations for an alternative to austerity through full financial powers. We are not yet in that position. Since 2010-11, our fiscal departmental expenditure limit budget has been cut by around 10 per cent in real terms, and our capital budget has been cut by more than a quarter. Regrettably, once again, Scotland’s budget must strive to meet Scotland’s needs in the face of UK austerity, but I give the commitment, unreservedly, on behalf of the Scottish Government, that we will do all that we can within the powers available to this Parliament to ensure that the people of Scotland are able to live in a more prosperous and much fairer country.
This is my eighth budget to Parliament, but it is the first one in which I have been able to set tax rates—indeed, it is the first time that any finance minister has set national tax rates in Scotland since 1706, when the Scottish Parliament last set the rate of the cess land tax on property. Now, after a hiatus of 308 years, and in a moment of splendid coincidence, we return to the issue of the taxation of property transactions.
From April 2015, land and buildings transaction tax and Scottish landfill tax will replace stamp duty and UK-wide landfill tax in Scotland. In establishing those two taxes and determining the rates that will apply, we have put in place a Scottish approach to taxation that is based on the four maxims set out by Adam Smith in 1776: that the tax system should offer certainty, and convenience; that collection should be efficient; and that taxes should be proportionate to the ability to pay. It is that final maxim—that taxes should be proportionate to the ability to pay—that drives the decisions that I will announce.
As part of my commitment to a robust fiscal framework, I established the Scottish fiscal commission to provide independent scrutiny of the Scottish Government’s forecasts of tax receipts and of the economic determinants that underpin forecasts of non-domestic rates income. The fiscal commission has today published its report, and I am pleased to note that the commission has been
“able to endorse as reasonable the forecasts made by the Scottish Government”.
I have decided that the taxes raised should be revenue neutral, raising no more or less than the taxes that they replace. In setting rates for landfill tax, I am acting to avoid any potential for waste tourism through material differences between the tax rates north and south of the border, and to support our ambitious zero waste goal. As a result, I propose that the standard rate of Scottish landfill tax should be set at £82.60 per tonne and that the lower rate should be set at £2.60 per tonne. I am also setting the credit rate for the Scottish landfill communities fund at 5.6 per cent, which is 10 per cent higher than the UK equivalent. We will increase the funding available to address environmental harm without increasing the burden of taxation.
In accordance with Adam Smith’s maxims, we have designed land and buildings transaction tax to remove the distortions in the residential property market created by the existing UK system, which saw prices set to avoid increased tax bills and placed a barrier in front of first-time buyers. Our progressive approach ensures that the tax that is paid on property transactions is more closely aligned to the ability to pay and that those on lower incomes, particularly first-time buyers, are helped to become home owners in a balanced and sustainable way.
The following rates and bands will apply to residential transactions taxable under LBTT, with effect from 1 April 2015: the threshold for paying the tax will be increased from £125,000 to £135,000; a marginal tax rate of 2 per cent will apply to the proportion of the transaction between £135,000 and £250,000; and a marginal tax rate of 10 per cent will apply between £250,000 and £1 million.
Last week, many people, energised by the referendum debate, will have watched in horror as the Conservative Party cheered the prospect of reducing the incomes of many low-paid workers—not, as the Conservatives claimed, in order to reduce the deficit but to fund a tax break for the better-off. This Government will take a very different approach. As a result of the rates that I have announced today, nobody will pay tax on the first £135,000 of their house purchase; 5,000 more transactions will be taken out of tax, supporting first-time buyers and those buying properties in the affordable market; and tax will be reduced for a further 44,000 house sales up to the value not of £250,000, as had been speculated, but of £325,000. We will do that while ensuring that 90 per cent of taxpayers will be better or no worse off than under the stamp duty land tax.
As a final rate, we will set a top rate of 12 per cent for properties above £1 million, ensuring that the most well-off in our society make a contribution to the public purse. In exercising its first judgments on national taxes, this Government has put fairness, equity and the ability to pay at the heart of what it has done. That is the benefit of putting decisions about Scotland’s future in Scotland’s hands. [Applause.]
As a consequence of our proposals, a first-time buyer purchasing a house at £130,000 will pay no tax; a young couple buying a flat at £140,000 will save £1,300, paying only £100 in tax; and a family buying a home at £260,000 will save £4,500 on their tax bill.
The proposed rates and bands of LBTT for non-residential transactions will ensure that Scotland remains a competitive place to do business. I propose to set the following non-residential rates of LBTT with effect from 1 April 2015: the nil rate threshold will be set at £150,000; a marginal tax rate of 3 per cent will apply to the proportion of a transaction between £150,000 and £350,000; and a marginal tax rate of 4.5 per cent will apply above £350,000. Those rate proposals reduce the tax charge for the majority of transactions below £2 million, ensuring that 95 per cent of non-residential taxpayers are better or no worse off than under SDLT.
The following rates will apply to leases with effect from 1 April 2015: the nil rate threshold will be set at £150,000; and a marginal rate of tax of 1 per cent will apply to the proportion of a transaction above £150,000.
We are also today publishing a fact sheet and a tax calculator to demonstrate the benefits that those rates will have for home buyers in Scotland.
The Scottish Government takes a prudent approach to managing the non-domestic rates pool, but forecasts, by their nature, will never be 100 per cent accurate. Between 2008 and 2014, the difference between the total amount of non-domestic rates income received and the Scottish Government’s estimated budget was three tenths of 1 per cent—£40 million out of a total of £13.1 billion over the period—which was a small but welcome surplus.
The fiscal commission has considered our NDRI forecasts and has expressed the view that the buoyancy assumptions “seem optimistic”. As a result, I have revised down the NDRI forecast in the draft budget for 2015-16. Despite that revision, we will continue to apply the small business bonus scheme and maintain parity with the poundage in England, and I confirm that the public health supplement will conclude, as announced, at the end of this financial year. That will deliver the most competitive tax framework for business in the United Kingdom.
There is one outstanding factor in the devolution of taxation to the Parliament that I wish to raise. Despite repeated engagement with the UK Treasury, a final adjustment to the block grant has not yet been agreed. The budget having been set, any such adjustment must now allow the Scottish Parliament to meet the spending plans that I have set out and to enable an initial payment into the cash reserve.
In addressing the issues that were raised in the referendum, my draft budget is focused on three main themes: to make Scotland a more prosperous country; to tackle inequality; and to protect and reform public services.
The economic policies in the draft budget are focused on job creation, delivering investment and rebalancing the economy. Strengthening Scotland’s labour market performance by improving participation, workforce skills and the quality of employment is essential to achieving sustainable economic growth and ensuring that the benefits of that growth are shared.
Youth unemployment remains a key challenge. We have already allocated £12 million in this financial year to take forward the recommendations of the commission for developing Scotland’s young workforce. In partnership with local government, colleges, Skills Development Scotland and others, we will allocate a further £16.6 million in 2015-16 to expand apprenticeship opportunities, establish new regional employment partnerships and support employers to engage with and employ young people to ensure that they have access to job-relevant learning.
We will maintain our commitment to education that is based on the ability to learn and not the ability to pay by keeping free tuition at the core of higher education, with over £1 billion-worth of investment, and we will maintain our plans to increase funding for further education to £526 million.
Opportunities for all will support 16 to 19-year-olds with training and employment, and we will build on our successful delivery of 25,000 modern apprenticeship opportunities with a target of 30,000 starts each year by 2020.
To ensure that the benefits of economic growth are available to all, we are investing more than £300 million over two years to allow for expanded childcare provision of 600 hours for three and four-year-olds and 27 per cent of two-year-olds. That investment will reduce the cost barriers that face parents with young children when they look to participate in the labour market.
A consistent focus of the Scottish budget has been on expanding investment in infrastructure to secure economic recovery. I will continue to make that argument. In 2015-16, we will secure around £4.5 billion of infrastructure investment, including through the use of the capital borrowing powers that are available to us under the Scotland Act 2012, on top of the capital investment that is being facilitated through the tax increment financing pilot schemes and the national housing trust initiative.
Almost £650 million-worth of projects in the current £2.5 billion non-profit-distributing pipeline began construction in 2013-14 alone. The budget provides an update from the Scottish Futures Trust on the latest timetable for NPD projects and the achieved cost savings, principally through the M8, M73 and M74 improvement works.
I can also confirm the detail of the £1 billion extension to the programme that I announced in April. We will make £140 million available to create new learning campuses at Fife College and Forth Valley College; £330 million for the schools for the future programme; £400 million for health projects, including the Royal Edinburgh hospital; £60 million for up to three new justice centres; and £70 million for low-carbon and digital projects.
Our overall investments in schools, digital infrastructure, energy efficiency, health and transport, including an additional £10 million next year for cycling and walking infrastructure, target projects that will make the economy more productive, with assets that deliver greater energy efficiency and better outcomes.
This investment includes once-in-a-generation projects such as the Queensferry crossing where, on Monday, the Deputy First Minister announced a £50 million reduction in the project’s budget requirement, demonstrating this Government’s continuing determination to secure maximum value for public money.
We will focus on developing the international outlook of our businesses with support for exporting through our enterprise agencies and initiatives such as the Scottish Investment Bank. We will support commercialisation of world-class research in Scotland through our innovation centres programme, backed by up to £124 million of funding over six years. We will help businesses create employment by delivering the most competitive package of business rates relief in the UK, with more than half of all properties benefiting from zero or reduced rates through a relief package worth around £615 million next year. This is a budget that will support business and sustain growth.
We are taking a sustained approach to tackling poverty and inequality, but our efforts are being undermined by the UK Government’s welfare reforms. Child poverty organisations have warned that, by 2020, an additional 100,000 children could be living in relative poverty because of those cuts. Building on our expansion of childcare provision, this budget delivers our commitment of free school meals for all primary 1 to primary 3 children, worth £330 per year for around 170,000 children.
Our social wage commitments, including concessionary travel, free prescriptions, free eye tests, free personal care and freezing the council tax for the eighth year, support household incomes, particularly for those on the lowest income.
Last year we took significant steps to mitigate the impact of UK welfare reform on households in Scotland. It is to my regret that the direction of Westminster policy means that we need to take the same action again. This draft budget maintains our increased support for welfare reform mitigation at £81 million in 2015-16, including funding to fully mitigate the bedroom tax and support the Scottish welfare fund. The fund has helped more than 80,000 households, with around 50 per cent of awards being made to applicants living in the 20 per cent most deprived areas in Scotland. Some 500,000 households have benefited from our council tax reduction scheme, delivered in partnership with local government.
We are committing additional funding to tackling child poverty and will work with the Convention of Scottish Local Authorities to extend financial support to kinship carers. We will increase funding to the early years collaborative, working with community planning partners, to help increase the take-up of healthy start vouchers. We will focus resources on the life chances of some of our most vulnerable young people with a package of support for care leavers, a mentoring scheme for looked-after children and advocacy support for children in the hearings system.
Tackling inequality is not simply about mitigating welfare cuts. Supporting economic growth, improving labour market outcomes and lifting people out of poverty are mutually supportive objectives.
Investment in housing provides economic stimulus, improves the energy efficiency of housing stock, reduces fuel poverty and supports thriving, cohesive communities. Scottish Government programmes are on track to meet our five-year target of delivering 30,000 new affordable homes, including 20,000 for social rent by 2016. An investment of over £390 million will be used in 2015-16 to deliver 6,000 affordable homes, of which 4,000 will be for social rent.
To meet the needs and aspirations of the people of Scotland, this budget recognises that we need to go beyond that commitment. I am delighted to be able to announce that a package of measures spanning social, affordable and market housing will be boosted this coming year by an extra £125 million of financial support for the housing sector in Scotland.
This Government is committed to protecting public services and to driving forward an ambitious programme of public service reform. We are focused on improving outcomes and on ensuring that our services are sustainable in the long term. That is all the more essential in the face of the budget challenges that we face now and those that we will face in the future.
Efficiency and control of costs are vital. We therefore remain committed to the two-year public sector pay policy published last year, which supports those on the lowest incomes, including through the Scottish living wage; guarantees no compulsory redundancies; and allows for affordable increases in pay, within the tight budget settlement imposed upon us. That approach enables us to protect key public service commitments, such as maintaining police numbers and providing a fair settlement for local government, including for shared priorities in school education.
The national health service is a precious asset to us all. Our NHS faces financial challenges arising from the austerity of the UK Government and the latest round of pension changes, in addition to rising levels of demand for care. That is why it is essential for us to continue our programme of reform.
NHS boards and local authorities are working to deliver integration of the adult health and social care system, to achieve better outcomes for individuals and to ensure the long-term sustainability of our services. In this budget the process will be further supported by additional investment in primary care. Taken together, the integration fund and the additional primary care spend will rise to a total of £173.5 million.
The Government gave a commitment in 2011 to pass on resource Barnett consequentials arising from health spending in England to the NHS in Scotland. We have done so, in full, in each and every year since 2011. That means that, in each and every year, the Government has delivered a real-terms increase in health resource funding, just as we promised we would.
Our budget plan for next year would have involved increasing the NHS budget by £202 million in 2015-16. I can confirm to Parliament that we will not now follow that plan. Some Opposition members have suggested that the NHS budget would be cut next year by £450 million. Not for the first time, they are wrong. In addition to allocating more than £400 million in NPD funding for capital projects, I have decided to increase the health budget from this year to the next, not by £202 million but by £288 million in total, with an additional £86 million bringing the health budget to more than £12 billion for the first time ever. Under this Government, Scotland’s NHS is properly funded and will be kept in public hands.
The budget embraces new tax responsibilities for the Scottish Parliament and, within our current powers, deals with the challenges that are created by austerity from the United Kingdom. It harnesses the positive engagement that we saw in the referendum and provides a response that is anchored in the approach that this Government has pursued since 2007.
With a clear and decisive focus on tackling inequality and on making Scotland a more prosperous country, it is a budget for fairness and opportunity, and I commend it to Parliament.