Meeting of the Parliament

Meeting date: Thursday, June 15, 2023

Official Report 1072KB pdf

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Provisional Outturn

The next item of business is a statement by Tom Arthur on provisional outturn. The minister will take questions on the issues that are raised in his statement, so there should be no interventions or interruptions.

14:36  

I welcome the opportunity to update the Parliament on the provisional outturn against the budget for the financial year 2022-23. The provisional outturn demonstrates once again that the Government is prudently and competently managing Scotland’s finances.

The financial situation that the Scottish Government faces has been the most challenging since devolution. The shocks of more than a decade of austerity, a hard Brexit, the Covid pandemic, the cost of living crisis, pressure on public sector pay and the war in Ukraine, combined, have placed extreme inflationary pressure on the public finances.

The plain fact is that the buying power of the 2022-23 budget was significantly eroded by inflation after initial spending plans were set out in the budget publication. At the same time, understandably, demand for Government support and intervention increased. However, ultimately, our in-year budget has, effectively, been fixed. The United Kingdom Government took no action to address the in-year impact of inflation. We are constrained by UK Government spending decisions and have limited fiscal levers. In particular, we have no ability to borrow for day-to-day spending, and our income tax powers do not allow for changes to be made during the financial year.

Within those constraints, the only avenue by which we could manage the pressures that we face was the reprioritisation and robust management of demand-led budgets. That is why we undertook the emergency budget review in the autumn: to balance the budget while prioritising funding to support the cost of living challenge.

That effective and prudent financial management has meant that every penny received by the Scottish Government has been channelled to where it was needed the most. In 2022-23, we invested significantly in fair public sector pay deals, committing more than £900 million more than was originally factored into spending plans. That delivered higher increases in pay for lower earners and, in turn, supported families and individuals with the cost of living crisis. It achieved more beneficial packages than did UK counterparts, minimising the impact of strike action while ensuring the continuity of vital public sector services.

We spent nearly £4.1 billion on social security benefits, including £219 million on the Scottish child payment, which we more than doubled to £25 per week. We doubled the fuel insecurity fund from £10 million to £20 million, to provide additional immediate support to the people most impacted by the cost of living crisis—specifically, by rising energy prices. We introduced new payment break options to help to protect those who have agreed to repay debt through the debt arrangement scheme but who face unexpected increases in the cost of living.

We also spent £216 million to support those who have been displaced by the on-going war in Ukraine. We have welcomed more than 24,000 people—20 per cent of all UK arrivals—from Ukraine since the outbreak of Russia’s war against that country, and we continue to provide financial aid and medical supplies.

We will continue to press the UK Government to provide sufficient funding to meet the scale of the on-going inflationary pressures, for more powers, and for necessary reforms to the fiscal framework through the forthcoming review.

Our medium-term financial strategy, published on 25 May, made clear the scale of the anticipated future pressures on the public finances, on top of those that have already been felt over recent years, and how the Government will address the challenges of sustainability of the public finances.

The Scottish Government remains committed to achieving and maintaining a balanced budget while delivering against our three central missions. Those are: community, prioritising our public services; opportunity, a fair, green and growing economy; and equality, tackling poverty and protecting people from harm. Sound finances are the strong foundations from which we will deliver for the people of Scotland and progress those vital missions set out by the First Minister.

Turning now to the 2022-23 provisional outturn, under the current devolution settlement, the Scottish Government is not permitted to overspend its budget. We must therefore operate within a tight margin of just over 1 per cent. The level of volatility in our overall funding envelope continues to increase. On top of that, our block grant is not finalised until February each year, and we must manage that uncertainty with the limited fiscal levers at our disposal. Despite that, the Scottish Government has a strong track record of delivering a balanced budget while continuing to provide the public of Scotland with the broad range of high-quality public services that they expect.

I am pleased once again to announce to Parliament that we have maintained that balance. I can report that the provisional fiscal outturn for 2022-23 is £46.9 billion against a total fiscal budget of £47.1 billion. The remaining budget of £244 million, which represents 0.5 per cent of our total budget, will be carried forward in full through the Scotland reserve if confirmed at final outturn. It is made up of £180.6 million of fiscal resource, £24.7 million of capital and £39 million of financial transactions. There is no loss of spending power to the Scottish Government as a result of that carry forward.

As I have said before, the management of funding across years is an essential part of our financial strategy. Every penny of that carry forward has been allocated in full in 2023-24, allowing us to implement measures at the most optimal time, rather than being constrained to a single financial year. We are required to actively manage a resource underspend to cover the risk of post-year-end audit adjustments, which have occurred in previous years.

The majority of that carry forward has already been proactively anticipated in the 2023-24 spending plans, which have already been approved by the Parliament. Those include the £39 million of financial transactions anticipated within the 2023-24 budget, published in December 2022, and £115 million of additional funding announced at stage 3 of the Budget (Scotland) (No 2) Bill on 21 February 2023 by the then Deputy First Minister to further support local government, Creative Scotland and the interisland ferry network. That carried-forward funding is directly linked to late UK Government consequentials, which were finally confirmed only six weeks before the end of the financial year.

The revised budget allocations will be set out later in the year as part of our autumn budget revision process and will be subject to the usual parliamentary scrutiny and approvals process. An element of our budget allocation from HM Treasury is non-cash, which is used for accounting adjustments, predominantly depreciation. It is not possible to use that ring-fenced non-cash budget to support any day-to-day spending. Non-cash funding does not flow to the Scotland reserve and is not included in our headline provisional outturn results. For 2022-23, that shows an underspend of £984 million against a budget of just over £2 billion. A large proportion of that budget is consequentials for student loan impairments, which are simply not required at the same level in Scotland because of our policy of free university tuition.

Turning to the accounts, I must address the on-going focus on the headline accounting underspend figure. It is spend that just does not flow into the reserve. It is only the elements within HM Treasury limits for discretionary funding that are controllable and which matter. Every year, we see a charade in which the higher headline accounting underspend is quoted as though the budget has been mismanaged. This Government has never had an underspend that has fallen outside the narrow limits within which we can carry forward funding. There is no loss of spending power to the Scottish Government this year, as has been the case in each and every year of Scottish National Party-led Government.

Finally, I emphasise that the £244 million underspend is provisional and will be finalised later in the year, once the Scottish Government and its bodies complete their year-end audits. Finalised figures will be reported, as usual, in the annual Scottish Government consolidated accounts, and a statement of final outturn for the financial year 2022-23 will be published later this year.

The provisional outturn demonstrates once again that the Scottish Government has maintained its firm grip on Scotland’s public finances. We have ensured that we have met our priorities while balancing the budget within the very tight margins that we have available.

I commend to Parliament the figures that have been published today.

The minister will now take questions on the issues raised in his statement. I intend to allow around 20 minutes for questions, after which we will have to move on to the next item of business. I would be grateful if members who wish to ask questions could press their request-to-speak buttons.

I thank the minister for the advance sight of his statement. Most members of the public will be shocked to hear that there was an underspend of nearly quarter of a billion pounds last year. [Interruption.]

We have listened to the minister’s statement, so we will listen to the questions similarly.

Thank you, Deputy Presiding Officer. Last year, nearly quarter of a billion pounds was underspent. It seems that, in key areas, the Government likes to announce high spending figures in its budget, but it is woeful on delivery. It talks the talk, but it does not walk the walk. At a time when our local communities are seeing swimming pools, libraries and sports facilities being closed, how can that be the case? For a Government that talks about there being a skills crisis, how can it be that its education and skills budget has been so massively underspent? For one that claims that tackling climate change is a key priority, how on earth is it that the net zero and transport budget has been so massively underspent once again? Those are serious questions, so perhaps we could have serious answers.

I do not think that the public will be shocked that, in a budget of some £47.1 billion, 0.5 per cent has been underspent. That money has been proactively announced—the majority of it as part of the budget process to be carried forward. There was £115 million at stage 3 of the budget process and £39 million of FT at the time when the budget was introduced to the Parliament, in December 2022.

We have managed the public finances competently and prudently, as is demonstrated in the outturn figures. Every penny that I have identified in my remarks—£244 million—is being carried forward and spent against this year’s priorities.

I have already made an appeal for members to listen to the questions and answers with equal respect.

I thank the minister for the early sight of his statement, which trumpets the Government’s allegedly effective and prudent financial management. That claim comes as Scotland stares down the barrel of a £1 billion gap in its public finances this year, and a looming gap of £1.9 billion by 2027-28. The Institute for Fiscal Studies has said that the Government has precious

“little sense of how to address it.”

Instead, it has a completely non-strategic approach, with top-slicing cuts to budgets being made year in, year out.

The minister has told us that the Government’s current approach will deliver the vital mission set out by the First Minister. However, last year, Mr Arthur said:

“the Scottish Government has a purpose and a mission ... That is exactly what the resource spending review will deliver.”—[Official Report, 8 June 2022; c 76.]

Yet, here we are, with Kate Forbes’s resource spending review completely ditched. That strategic approach has gone and nothing is replacing it. Does the minister not accept that his Government has no plan to bring about the changes to our public finances that this country so badly needs?

I reject absolutely everything that Mr Marra has said. The central point of his question on the resource spending review was addressed yesterday by my colleague the Deputy First Minister. I am sure that Mr Marra can look at the Official Report if he has already forgotten what the answer was.

We have set out, through our policy prospectus, a clear set of missions for Scotland, upon which we will deliver. In our medium-term financial strategy, we have set out the approach that we will take to deliver on that fiscally. We will set out further details as part of the annual budget process, as we always do.

The need for additional fiscal flexibilities to allow the Scottish Government to better manage its budget is pretty clear to most of us and has been highlighted beyond doubt by the pandemic and the challenging economic conditions that we continue to face, not least the projected 14 per cent cut from Westminster to our capital budget over the next four years. Can the minister provide any update regarding the Scottish Government’s latest engagement with the UK Government on the review of the fiscal framework and can he say any more about the outcomes that the Scottish Government would hope to see as a result of that review?

I very much agree with Mr Brown on the importance of the fiscal framework review. We are placing a priority on getting a successful outcome from that, because our current borrowing powers are heavily restrained and that limits our ability to support the economy in the short term. Although the UK Government has previously ignored our calls for greater fiscal flexibility, we remain in constructive discussions on the wider fiscal framework review. The Deputy First Minister will be meeting the Chief Secretary to the Treasury in the coming weeks to progress those discussions.

In terms of outcomes, Scottish ministers have made clear to the UK Government the need for greater budget flexibility and borrowing powers to enable us to manage risks and support economic recovery as well as ensuring that the block grant adjustment mechanisms remain in line with the Smith commission principle of no detriment.

Does the minister acknowledge that the difficult fiscal circumstances that we are facing just now are in no part always to do with the UK Government but are in large part a result of the SNP Government not growing the economy?

Do you know what, Presiding Officer? I always find it fascinating that the Conservatives are keen to trumpet that Scotland has two Governments, but whenever the anaemic economic growth of the UK comes into question, all of a sudden, the UK Government is nowhere to be found. Apparently, Scotland is already independent and the UK Government has no role at all to play in Scotland’s economy.

The reality is that the factors that have been driving low economic growth and low productivity in the UK, which are impacting on Scotland, are a decade of austerity by a Conservative Government; the reckless policy of Brexit; and the chaotic approach to public finances, which reached its apotheosis in the mini-budget—and which Liz Smith wanted this Government to follow.

As mentioned by my colleague Keith Brown, the Scottish Fiscal Commission projects a real-terms cut of 14 per cent in the Scottish Government’s capital expenditure budget in the next five years, which, of course, restricts our ability to undertake infrastructure projects such as road building. As we also do not have proper borrowing powers, that ultimately flows through into limiting our productivity and therefore how much tax we can raise to fund vital public services.

Does the minister think that all members of the Scottish Parliament, particularly the ones who are involved in the Finance and Public Administration Committee, understand that point? If they do understand it, surely they would agree that that is an example of the damage that is being done by our not having control over the normal financial levers and of leaving their future in Westminster’s hands?

Michelle Thomson hits the nail on the head—she hits it absolutely square on the head, Presiding Officer—because we are being lectured by the Conservatives on economic growth when we are in a position of having to reduce our capital spending, which is so fundamental to economic growth.

Through the fiscal framework review, we want to get increased borrowing powers for this Parliament and for this Government, including in relation to capital, but, ultimately, we want to get full fiscal powers—which only independence can deliver—so that we can really unleash Scotland’s potential.

Maybe we can return to the numbers. On the £244 million that will be carried over, I would point out that, because of the time-based value of money, it is worth less this year than it would have been last year. However, when did the Government identify the £274 million underspend for the net zero budget? I note that those figures are very close to the sums that were being talked about in relation to the cost of uplifting social care pay. When did the Government know about the underspend, and by how much would £180 million in resource uplift social care pay?

On the £180 million of fiscal resource, £115 million was announced at stage 3 of the budget to support local government, Creative Scotland and inter-island ferry services.

As the member will know from the figures in front of him, the largest element—by some distance—in relation to net zero and transport is capital. About half of that is an international financial reporting standard 16 technical adjustment on leases. It is a ring-fenced sum; we do not have any discretion over how we use it. On the remainder of the capital, the largest drivers of that were based on reprioritisation to support the emergency budget review process and an uptake of demand-led schemes that was lower than anticipated.

Those were the drivers in relation to net zero, and the total capital that we have carried forward is just under £25 million.

I congratulate the minister and the cabinet secretary for being so close to balancing the budget—the figure of 0.5 per cent is incredibly good for any organisation or business. Will the minister reiterate to Douglas Lumsden and others who are struggling to understand it that we cannot have the budget dead-on?

I thank Mr Mason for his remarks and commend the Scottish Government’s officials who have been so central to delivering a near-balanced budget position. I recognise Mr Mason’s professional background. It is a pity that we do not have more accountants in the Parliament. If we did, perhaps we would have fewer of the sorts of questions that I have been subjected to following my statement.

The reality is that we have to spend underneath our allocated budget; we are not allowed to go above it. I am pretty sure that, if I had come to the Parliament saying that our provisional outturn was in excess of Treasury controls, we would be getting a different line of questions from the Conservatives. We have delivered an underspend or variance of 0.5 per cent. The majority of that was proactively anticipated through our budget process, which once again demonstrates the Scottish Government’s prudent and competent handling of the country’s public finances.

I apologise for my slightly late arrival.

In the context of the health and cost of living crises, it is critical to get money to where it is needed as fast as possible, so that we can treat people quicker and ease the pressure on household budgets. Despite the long shadow of the pandemic and its visceral impact on our communities, £50 million was cut from mental health over the winter, and the Government is still way behind England and Wales in its provision for people who are suffering from long Covid. As the underspend rolls on, will the Scottish Government finally commit to funding those priorities properly?

As I have already indicated, the money that has been carried forward through the process of the provisional outturn, if confirmed, will be committed against pressures this year. The majority of what is within the provisional outturn as a variance was already proactively anticipated as part of the budget process. The formal allocation from the reserve to the budget will take place through the budget revision process.

In previous years, the overspend on core Scottish Government civil service costs, known as total operating costs, has significantly exceeded the budgeted costs, often by up to 10 per cent or more than £60 million out of a budget of around £600 million. The balance has been covered by transfers from other budget lines within relevant portfolios. What was the budget for the Scottish Government’s total operating costs in the past year, and what was the final outturn?

I recognise the important work that Mr McKee did as a minister in ensuring that we are as efficient as possible within the Government’s operating costs. In the past year, the total budgeted cost for the Scottish Government was £706 million and the forecast outturn was £744 million, which is an overspend of £38 million or 5 per cent, with staff costs being a driver of that increase. That reflects our wider position and investment into public sector pay deals and our support for families and individuals with the cost of living crisis. That has minimised the impact of strike action while ensuring that there is continuity of vital public services. That spend also supported investment in our operating systems, which ensure that the Scottish Government is being run as efficiently and effectively as possible, now and for the future.

As has been demonstrated in the debate, the Government’s underspend is misrepresented every year, both at provisional outturn and when Audit Scotland publishes its report on the annual accounts. Have Scottish Government officials had any discussions with officials at Audit Scotland about how we present the underspend as part of the annual accounts, and on how we foster good public understanding in the face of such deliberate disinformation being spread from elsewhere?

We recognise the independence and autonomy of Audit Scotland, but we all have a shared ambition for public finances to be presented and reported in as transparent a manner as possible, to ensure that our debate is as informed as possible. When the consolidated accounts are published in due course, it is important that the way in which those figures are used and reported on, particularly by members of the Parliament, is done so in a way that demonstrates responsibility.

I remind the minister to address his remarks to the front so that we can be sure that they are caught by the microphone.

As usual, the SNP has tried its best to shift the blame to the UK Government for the financial mess that has been made in Scotland by the Government of Scotland. It has failed to point out the tremendous investment that the UK Government has made in Scotland over the past year, including £177 million in levelling up communities and £52 million for the establishment of free ports, which will generate billions of pounds of investment for Scotland.

Will the minister acknowledge that investment as a positive benefit of the union and an example of why working together across nations enhances all our communities?

It would be better for the people of Scotland if their hard-earned taxpayers’ money was administered by this Parliament rather than a Government at Westminster that they did not vote for.

As the minister has explained at some length, the narrow limits within which we can carry forward additional resource makes managing underspend a very careful balancing act. How does the Scottish Government’s underspend compare with that of other devolved nations that are also required to balance their budgets?

Our underspend for 2022-23 is £244 million, which is just 0.5 per cent of the budget. We do not yet have this year’s figures for the other nations in the UK, but if we look at the figures for 2021-22, we can see that the figure for Wales was 2 per cent and the figure for Northern Ireland was 2.1 per cent. I do not make that comparison as part of some sort of competition, but it is illustrative of what is normal and what the normal tolerance levels for underspend are within budgets.

Thank you, minister. That concludes this item of business. There will be a brief pause before we move on to the next item of business.