Meeting of the Parliament (Hybrid)

Meeting date: Tuesday, May 31, 2022

Official Report 919KB pdf

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Investing in Scotland’s Future

The next item of business is a ministerial statement by Kate Forbes on investing in Scotland’s future. The cabinet secretary will take questions at the end of her statement, so there should be no interventions or interruptions.

14:18  

The resource spending review today details how we will invest more than £180 billion to deliver the Government’s priorities in the coming years. I am also publishing our medium-term financial strategy, an accompanying equalities statement and a review of the capital programme.

We are, of course, still recovering from the Covid pandemic. There is acute pressure on the national health service, on businesses and on the wider economy. The illegal Russian invasion of Ukraine is a humanitarian crisis that is affecting the global economy. Rising energy prices and constrained supply chains have affected countries worldwide.

Although inflation is also impacting other countries, it is not impacting them equally. The United Kingdom currently has the highest inflation rate of any G7 country—it is almost twice the rate of France. Brexit has made the problem worse, with increases in food prices hitting the poorest hardest. We are experiencing an unprecedented cost of living crisis. Inflation is at a 40-year high, at 9 per cent, with households facing considerable hardship.

The Scottish Government is doing all that it can in response. It is prioritising additional funds to help households in need, but the limits on our fiscal and economic powers, in turn, limit the support that we can offer. This Government faces the same interrelated challenges as other Governments face across the globe—significant volatility, sharply rising inflation and a need for greater investment to aid Covid recovery and to shield people from the impact of the cost of living crisis—but we face those challenges without the tools and levers that other Governments have at their disposal.

Although I welcome the more targeted grant-based support that the chancellor announced last week, £400 per household is less than half of the predicted forthcoming rise in the energy price cap, and that is before factoring in the pressures that families face right now. Of course, that help has been funded disproportionately by taxes on Scottish industry. The chancellor’s efforts were in reserved areas, so there is little consequential funding. We will consider where there are gaps and who most needs the most help, before we decide how to allocate any further limited funding.

Today’s resource spending review is not a budget. Change to the fiscal position is inevitable over the next few years—for the better, one hopes—and tax decisions will be taken in future budgets. However, it is essential to share high-level financial parameters with public bodies, local government and the third sector, so that we can plan ahead together.

The basis for our spending plans was set out in the Bute house agreement and the programme for government. Our long-term ambitions for Scotland include tackling child poverty, transitioning to net zero, growing a stronger economy and improving public services. To those, we have added the actions that we are taking to help people who are struggling with the cost of living.

The funding that I have at my disposal is mainly based on the existing block grant settlements implied by the 2021 United Kingdom spending review and forecasts from the Scottish Fiscal Commission. Those judgments can change over time, in response to the available data and economic outlook, and of course as a result of decisions that the UK Government takes.

For example, the first medium-term financial strategy, back in 2018, set out the expected budget for 2022-23. In reality, that projection was out by around £7 billion. That illustrates the level of volatility that is inherent in the funding outlook and underlines the importance of taking decisions at each annual budget. Inflation will inevitably erode the funding growth that we have assumed in today’s MTFS, thereby reducing our spending power.

When the UK spending review in October set out funding for the Scottish budget, inflation was 3.1 per cent. Despite inflation hitting 9 per cent, the UK Government has not updated its spending plans, leaving us with far less funding in real terms. Following a real-terms reduction of 5.2 per cent between last year and this, our real-terms funding is to grow by only 2 per cent across the whole four-year period of the resource spending review, after accounting for the devolution of social security benefits. That is the stark reality, as reflected in the commentary by the Institute for Fiscal Studies and the Fraser of Allander Institute last weekend. However, it is not inevitable; it is the result of a deliberate choice by the UK Government as it sits on its hands.

Although the chancellor has provided welcome, if limited and late, support for households, the chill winds of Tory austerity are blowing when it comes to spending on public services. That lays bare the constraints of the current fiscal framework. Our budget is largely decided by others and we are denied sufficient borrowing powers, yet we face the same demands for increased spending as Governments with much greater levers do.

Therefore, we must prioritise. We have prioritised spending on health, social security, education and tackling climate change but, by definition, we cannot prioritise everything. After years of growth in the public sector, due to Brexit and the pandemic, we need to reset. We need to focus on how the public sector can reform to become more efficient, giving us space to realise our ambitions for better outcomes.

Reform will therefore focus on digitalisation, maximising revenue through public sector innovation, reform of the public sector estate, reform of the public body landscape, and improving public procurement. The spending review also incorporates continued engagement with trade unions and public sector employers about pay and workforce. I know that inflation is a very real concern for public sector employees, as it is for those in the private sector, and particularly for those on lower incomes.

The UK Government has chosen not to act on public sector pay, meaning that our more progressive approach, with public sector wages on average 7 per cent higher in Scotland than in the rest of the UK, is funded from within our severely limited budget.

We do not intend to take the same approach as that set out by the UK Government, but we do need to reshape and refocus the public sector after the Covid pandemic. The spending review calls upon the whole public sector to look creatively at ways to address that challenge sustainably, while seeking to ensure fair increases.

The proposed reforms are necessary in order to prioritise spending that will make the biggest difference to our objectives on child poverty, net zero, a growing economy and improved public services.

The spending review will fund the Scottish child payment, which will more than double—to £25 per child per week—over the course of this year, with eligibility expanded to under-16s. It will provide for universal free school meals to schoolchildren from primary 1 to primary 5 and the expansion of provision beyond that. It will deliver increased investment in front-line health services by 20 per cent over this session of Parliament, and will increase investment in primary and community care to provide more care for people in a place and in a way that meets their needs.

Capital investment of around £18 billion over the period will fund improvements in Scotland’s transport network, the NHS, the public sector estate and affordable housing. It will also fund the shift to a low-carbon economy, with an additional £500 million being directed to net zero programmes that meet the climate challenge.

The resource spending review will deliver on our commitments to invest in energy efficiency and zero-emissions heating; it will support public transport; it will see record investment in active travel; and it will protect our natural environment. It will also underpin the actions of the national strategy for economic transformation, which will deliver strong, inclusive and greener growth to Scotland’s economy, stimulate entrepreneurship, open new markets, increase productivity and develop the skills that we need today and long into the future.

Today, I set out an ambitious but realistic public spending framework for the years ahead. It does not ignore the realities of our financial position; neither does it roll back on our ambitions for change. It balances the need to shift resources so that we achieve the greatest impact for our economy, our environment and our society with the need to continue improving public services as we build back from Covid-19 and respond to the challenging economic and financial outlook for Scotland.

The cabinet secretary will now take questions on the issues raised in her statement. I intend to allow around 20 minutes for questions, after which we will move on to the next item of business. I would be grateful if members who wish to put a question were to press their request-to-speak button now.

If ever proof were needed of the Scottish National Party’s mismanagement of the Scottish economy, it is today’s announcement of a glaring £3.5 billion black hole in the public finances. That comes despite the Scottish Government’s having received record payouts from Westminster.

We know only too well that the world economy faces extraordinary pressures, as do hard-pressed families here. However, those families will receive no comfort whatsoever from today’s statistics. The financial shortfall that is set out in today’s forecast is stark—especially the gaping hole between projected public spending and tax revenues in the next few years. That is plain for all to see, and it is the product of incompetence from an SNP Government that has no idea how to manage public finances—the ferries fiasco being the worst example of that.

I have three questions for the cabinet secretary. First, will she commit to ensuring that Scottish income tax levels are put back on a par with UK levels, so that Scotland is no longer the part of the UK that pays the highest rates, which threatens jobs and investment?

Secondly, does she agree with Archie Meikle, the chairman of Ashwood Scotland Ltd, who, in today’s issue of The Times, said that the prospect of a second independence referendum should be taken off the table immediately because it is doing serious damage to Scottish business and trade?

Thirdly, will the cabinet secretary finally admit that the Scottish Government has completely failed to act to address the low productivity, imbalances in the labour market and skills shortages in the Scottish economy that the Scottish Fiscal Commission has been warning about not just today but for years?

If ever we needed proof of the Tories’ priorities, the day when an investigation by the University of Glasgow confirms that UK Tory austerity is the reason behind stagnating life expectancy across Scotland and the UK is the day to get it. That investigation is the proof that we need of where the Tories will prioritise their spending.

Liz Smith mentioned £3.5 billion. I suggest that she read the resource spending review and the medium-term financial strategy, because the figures that she quoted are well out of date; they go back to December 2021, and are based on forecasts. Before us today is a resource spending review that balances the budget that is available to us with our priorities. It is a budget that, comparing this year with last year, has been cut by 5.2 per cent by her colleagues, and it is a budget that will see growth of only 2 per cent over the next few years.

Liz Smith talks about the constitution. Today, Ernst & Young confirmed that Scotland has outperformed the whole of the UK and the whole of Europe in attracting foreign investment, which is a sign of strength, not weakness, in the Scottish economy.

Although we are celebrating increased foreign investment, we are seeing—under the Tories—the sharpest fall in living standards and the sharpest rise in food prices as a result of their Brexit, and families across the country are struggling. The resource spending review outlines our commitments to tackling child poverty and to our transition to net zero, and it will ensure that we have the resources to help families who are dealing with the cost of living crisis.

We have waited 11 years for a spending review, yet we are getting just 30 minutes of question time and had less than 60 minutes to digest the document. For a Government that seeks to refute accusations of lack of transparency, the cabinet secretary would do well at least to begin by remarking that we must do better than that.

There are three big problems with the statement that the cabinet secretary provided. The first is the lack of context and insight. For the past three to four decades, Scotland has, typically, experienced higher rates of wage and productivity growth than the UK averages. However, over the past decade, our wage and productivity growth rates have been below the UK averages. That is a problem because of the fiscal framework, which depends on those things for the moneys that the Scottish Government has to spend. That is why there is £200 million less to spend than if income tax had not been devolved. However, there has been no acknowledgement from the cabinet secretary that the Scottish Fiscal Commission’s just-published report shows that there will be an income tax deficit next year of £359 million.

Secondly, there is no sense of the Government getting better. Ministerial salaries have doubled and the number of quangos is up by a third in the past decade, and the cost of Government has increased by £2 billion to £4.5 billion. Although the Government proposes to cut economic and enterprise support, it is finding £20 million for another independence referendum.

The final problem is the lack of data. We have waited 11 years, yet there is no detail. Eleven years ago, the spending review went down to levels 3 and 4, which gave us insight into what health boards would have to spend and into the split between university and college spend—

Let us have a question, please, Mr Johnson.

—yet we have none of that, this time.

My questions are as follows. Will the Government come forward with a full and frank economic assessment of why rates of wage and productivity growth here are lagging behind those of the rest of the UK? Will it pledge to cut consultants, communications agencies and non-executive directors before front-line staff, and will it bring forward the detail—at levels 3 and 4, by portfolio—that is lacking in the spending review, so that we have the appropriate clarity?

I am happy to answer as many questions as any member has; it is not my job to set the time for how long I speak. I do not know whether the Labour Party asked for the statement to be extended.

I do not need to do any additional analysis of productivity; I can give that to the member now. Between 2007 and 2019, which is the latest year for which figures are available, productivity in Scotland grew by 10.7 per cent, compared to the latest estimate of 5.2 per cent for the UK. The gap in output in Scotland reduced.

Regarding income tax, it is interesting to hear the Labour Party now advocating a different approach to taxation, when the lowest-paid people in Scotland pay less and the highest-paid people pay more. That is a far more progressive approach than he suggests, and one that has also raised revenue for the public sector.

Mr Johnson mentioned ministerial salaries. I assume that he knows that ministerial salaries have been frozen since 2008, yet—in sharp contrast—public sector workers in Scotland receive, on average,7 per cent higher wages than those in the rest of the UK.

A great deal of discussion is going on in the chamber [Interruption.]

A great deal of discussion is going on in the chamber. I would be grateful if we could hear the cabinet secretary and only the cabinet secretary.

Daniel Johnson raises an important point about the need for as much granularity as possible. He will appreciate that, when we published the resource spending review back in December, inflation was forecast to rise to just over 4 per cent. It is currently at 9 per cent and is forecast to rise to 11 per cent. We have to make decisions based on the best available data, while recognising how volatile the situation now is. We have set out the most granular data that we can, with a view to updating it in advance of next year’s budget. This is not a budget.

On a point of order, Presiding Officer, on 30 March this year, a motion without notice to extend business for up to 30 minutes was agreed to. The business was a ministerial statement on maternity services in Moray and the motion was agreed to on the ground that a number of members still sought to ask questions. In the vein of what has been said, both by the Labour spokesman and by the cabinet secretary, and given members’ significant interest in this topic, I propose a similar motion without notice, under rule 8.14.3 of standing orders. [Interruption.] Members can shout me down all they like.

Members! I will hear Mr Kerr.

I propose a similar motion without notice under rule 8.14.3 of standing orders, to extend business by up to 30 minutes, or for as long as it takes to get through the remaining questions.

I thank Mr Kerr for his point of order. I note that he referred to a previous incident. No precedent was set by that previous incident or by the decision that was taken by the chair at that time.

I point out that the time that has been allocated for this item of business was agreed at the Parliamentary Bureau and was voted on by Parliament. At this morning’s bureau meeting, there was no call for an extension to the time for this item of business. [Interruption.]

Members!

I also point out that it is very important that we protect the time that has been allotted for other important items of business in Parliament today. I am mindful of that need. We have a full speakers list. When questions and responses are concise, we can accommodate more contributions.

Now that we have taken up time debating that matter, I would be grateful if we could move on. I call Liam McArthur.

It is barely three weeks since elections in which the SNP and Greens told voters about their commitment to local government. We now see what those promises were worth. The cash for local government is effectively frozen for the remainder of this session of Parliament, which means real-terms cuts to local services. The Government intends to spend countless millions stripping powers from local authorities to create an expensive centralised national care service.

Can the cabinet secretary advise local authorities what the appropriate response would be if the UK Government were to treat the Scottish Government in that way?

Liam McArthur is right to draw attention to investment in local government. We have said that one of the primary reasons for the resource spending review is to give local government clarity about spending parameters.

I have already said—I will say it again—that this is not a budget. I can spend only the funding that is allocated to me by the UK Government. In the light of there having been a 5.2 per cent cut between last year and this, and an outlook in which inflation is eating into our spending power, I say that we have treated local government fairly.

It is important to say that the resource spending review will go hand-in-hand with an updated fiscal framework. The member talked about powers; the fiscal framework will see local government being further empowered.

Inflation is clearly very high at 9 per cent and it is not helped, of course, by the Conservatives’ actions at Westminster. Can the cabinet secretary go into any more detail about the assumptions that she is making on inflation over the next four years for both tax revenues and expenditure?

That question is hugely important because it demonstrates again the changes and the level of volatility that we are contending with. Our plans are based on the Scottish Fiscal Commission’s latest economic forecasts which, like the Office for Budget Responsibility’s, see inflation averaging at 8 per cent across 2022-23—double the rate that was forecast at the time of the Scottish budget in December—before falling back to be in line with the Bank of England’s 2 per cent forecast in 2024-25.

That is in stark contrast—this is an important point—to the inflation assumptions that the UK Government used to underpin its spending review in October 2021, which makes sense, because things have changed. However, we can spend only what was allocated to us back in October 2021, which does not take into account the significant rise in inflation.

This shameful devolved SNP Government is nothing if not predictable. It presents data that shows that its tax policies are failing and its spending is out of control, with the Scottish Fiscal Commission predicting a funding black hole of £3.5 billion by 2026-27. Once again, however, it attempts to pass the buck of responsibility to the UK Government. With the public finances in such a mess, does the cabinet secretary agree that the £20 million allocated for another divisive independence referendum is a slap in the face for so many hard-working Scots who are having to pay more and get less?

I respectfully suggest that any future Conservative speakers base their questions on the facts that are in front of us. They keep quoting figures that were last published in December. Today, I have outlined spending plans that must balance. We cannot have unbalanced spending plans within a devolved arrangement in which I can spend only what is raised.

The other point is that the Conservatives continually defend what their UK Government counterparts have allocated to Scotland. If they have such a concern, might I suggest that they say what they would cut or lobby their UK Government colleagues to increase funding to the Scottish budget?

Today’s publications confirm this SNP Scottish Government’s priorities: the game-changing Scottish child payment, huge increases for front-line health services, free school meals for young people and money to decarbonise buildings and promote active travel, among many others. However, the cost of living crisis will be at the front of most people’s minds at the moment. Will the cabinet secretary expand on what the Scottish Government is doing to help?

We added the response to the cost of living crisis to our priorities in light of the challenges that people are facing. Within our fixed budget, we are investing almost £770 million this year through a package of cost of living measures and social security support that is not available anywhere else in the UK. That includes the Scottish child payment, which will increase to £25 per child per week by the end of this year and which we will extend to under-16s. That means that our five family benefits will be able to provide support of over £10,000 by the time a family’s first child turns six, with funding for subsequent children as well.

It has been estimated that around 90 per cent of the revenue that is raised from the UK Government’s energy windfall tax may be set to come from Scotland on account of our substantial energy resources. If that funding was retained in Scotland, the Scottish Government would be in a much stronger position to support people who are facing the brunt of the cost of living crisis.

The Bank of America warned yesterday that the UK has an emerging market currency in all but name. It is warning that investors should hedge for a sterling crisis. That is UK Government management. Does the cabinet secretary agree that far more could be done to build a fairer and more prosperous society with the full powers of independence in Scotland’s hands?

I agree with that whole-heartedly. It is an irony that it is only thanks to Scotland’s huge energy resource that the UK Government is able to respond in this way to its own, Tory-made cost of living crisis. If Scotland was independent, the money raised would deliver more for every Scottish household, but we will get only a small fraction of it under Westminster control. We want to do more to help to tackle the cost of living crisis. We would do more with more powers.

The cabinet secretary’s claim of a new deal for local government in fact sounds the death knell for local government as we know it. Today’s review plans a further £900 million of real-terms cuts by 2026-27, on top of a decade of cuts that has led to libraries closing, roads crumbling and bins overflowing. Does she not accept that there is nothing more to cut in local government—that the grinding down of local services and economies has got us into this mess and will not get us back out of it?

I suggest to the member that he joins us in calling for a bigger pot of funding to be shared more equally across all the needs and priorities that we have identified. Right now, within the funding that we have allocated, which has been cut by 5.2 per cent compared with last year, we have treated local government fairly and have given it as much forward clarity as possible in this resource spending review, which goes hand in hand with the fiscal framework and does not replace annual budgets.

I note that the cabinet secretary wrote to the UK Government ahead of last week’s statement by the chancellor calling for it to go further in tackling the cost of living crisis. Will she provide further information on what engagement the Scottish Government had with the UK Government in advance of the chancellor’s statement, and does she believe that the UK Government acted on her calls?

Ahead of last week’s statement, I wrote to the chancellor urging him to use the full £30 billion fiscal headroom to introduce a comprehensive funding package to address the cost of living crisis and to provide support to business. Unfortunately, the UK Government did not engage on those points before the announcement and, although I have already welcomed a number of the measures that have been belatedly announced, it is clear that the majority of support will not be received until the autumn. For example, there is very little support for business, which is facing the same spiralling energy prices as domestic households, and, obviously, the statement was very silent on public sector pay. The UK Government still needs to get to grips with those issues.

Despite the Scottish Government receiving the biggest block grant in the history of devolution, it has overseen a litany of public spending disasters in recent years—such as £250 million, so far, on rusting hulls in the Clyde while local ferry services collapse; £150 million on a census that may be useless; and the unsold Prestwick airport, which is still a financial albatross. During a period in which, the cabinet secretary accepts, resources will be tight, what will she do to ensure an end to massive cost overruns on public projects, and how will she ensure value for every penny of public money, allowing us to target it to those who are struggling with the cost of living crisis?

The package that I set out today includes reform to ensure that we derive value from every penny. Every year, I balance the budget to ensure that we spend every penny that we have at our disposal.

However, I suggest that, right now, what commentators, economists and families are worried about is the cost of living crisis that Jamie Halcro Johnston’s colleagues are presiding over—with inflation at its highest rate eating into our spending power. That will have the biggest impact over the next few years.

Despite the challenges that have been created by the UK Government and the financial straitjacket that the Scottish Government is in, this spending review has made available the funds to increase the Scottish child payment and will involve the investment of an additional £1 billion in the transition to net zero. Will the cabinet secretary set out how that will allow Scotland to step up our climate action? Will she acknowledge that that represents the minimum that we need to do and that, across the UK, we need a significant step up in public investment in the transition, on the scale that we see in many European countries, if we are to deliver on our climate targets?

Ross Greer is right to draw attention to that. In my statement, I was clear that the reforms that I have set out allow us the space to invest in our objectives and ambitions. One of those is to ensure that we transition to net zero effectively, despite challenging circumstances. The resource spending review and the targeted refresh of the capital spending review protect and enhance our commitment to the twin global climate and nature crises. We are investing in publicly funded infrastructure to enable that transition to net zero by 2045. Over the course of this parliamentary session, we will take forward a number of initiatives, from the heat in buildings strategy through to the nature restoration fund and the public transport network, that will enable that to take place.

As we know, work on the review of the fiscal framework is on-going. Can the cabinet secretary provide an update on progress along with any detail on what outcomes the Scottish Government is hoping to see from the review and how those outcomes could affect the management of Scotland’s public finances?

Together with the UK Government, we have finalised the terms of reference for the independent report, which precedes the fiscal framework review, and we are jointly taking forward the preparatory steps for the report and the review. As I have already noted, the need for the review has been reinforced through the pandemic and now the cost of living crisis. Our current powers are inadequate for us to manage the risk, which is laid bare in the publication that has been published today.

Looking beyond the usual whataboutery in this statement, we see that it has only one mention of the word “outcomes”. Audit Scotland has repeatedly commented on the complete lack of measurement of outcomes and the lack of transparency on how money is being spent. What will the cabinet secretary do differently to measure and report outcomes, not just the extraordinary sums of money being spent?

That is an extremely important question. Among the reports that are published today, we have the medium-term financial strategy, the resource spending review and the capital spending review, but there needs to be equal interest in our outturn statement and the national performance framework, both of which measure our funding according to the outcomes that they develop.

We have laid out today the approach that we intend to take. It is an ambitious approach that does not shy away from the realities that people are facing, and it is based on wanting to ensure the best outcomes for our people: tackling child poverty and reducing the pressures on families. Alongside updating the national performance framework, the outturn statement, which I think will be published in the next few weeks, allows us to scrutinise the extent to which the money that we spend is delivering the results that we want to see.

That concludes the ministerial statement on investing in Scotland’s future.