The next item of business is a statement from John Swinney on the provisional outturn for 2014-15. The Deputy First Minister will take questions at the end of his statement, and there should therefore be no interventions or interruptions.
15:00
I welcome the opportunity to update Parliament on the implementation of the 2015-16 Scottish budget and to provide a statement on the provisional budget outturn for the 2014-15 financial year.
The recently announced additional summer budget, scheduled for 8 July, is expected to set out further information about the United Kingdom Government’s approach to future public expenditure. It will be followed by a comprehensive spending review, conducted by the UK Government, which is likely to report in the autumn.
The Scottish Government’s 2016-17 budget will be presented after the publication of the UK spending review, and I will liaise with the Finance Committee on timings for the announcement of the budget once the date of the UK comprehensive spending review is made clear.
Turning firstly to this year’s budget, I know that many in Parliament share my concern about the impact of the Chancellor of the Exchequer’s announcement on 4 June that he is making further budget reductions in 2015-16. For Scotland, those amount to reductions of £91 million in our resource departmental expenditure limit budget and £16 million in our capital DEL budget, which come to a total of £107 million. Those reductions should be seen in the context of the 9 per cent real-terms reduction that we were already facing in our fiscal DEL budget over the current spending review period.
I have already made it clear that, in my view, it is unacceptable for reductions to be imposed in this financial year to a budget that has already been agreed by the Scottish Parliament. I met the chancellor on 8 June and urged him to reconsider his approach both to the in-year cuts that he has just announced and to his plans for future public spending. In parallel, the First Minister wrote on 4 June to all Scottish party leaders, inviting them to make similar representations to the UK Government.
The Scottish Government will continue to argue for an end to austerity and for a moderate increase in spending on public services of 0.5 per cent a year in real terms between 2016-17 and 2019-20. That would allow us to continue to invest in our public services while ensuring the sustainability of the public finances. However, while we continue to pursue that case, we have to consider how we might meet the challenge that is presented by cuts to our budget this year and the prospect of further cuts to come.
I confirm to Parliament that the Scottish Government will do everything possible to mitigate the impact of those cuts, and all decisions that we take will ensure that we continue to focus on our priorities of growing the economy, protecting public services and tackling inequality.
We await clarity from the UK Government about the detail of its intentions, but the Institute for Fiscal Studies has estimated that future cuts to departmental budgets will amount to around £24 billion, with a further £12 billion in cuts to welfare. The scale of those future challenges could require us to tackle some of the chancellor’s 2015-16 budget reductions during this financial year. Those could be given effect at the autumn or spring budget revision.
I will consider the impact of the reductions in this year’s budget in light of any further information that is provided by the UK budget on 8 July, and I will advise Parliament of the actions that I intend to take to address this issue after the summer recess.
Parliament should also be in no doubt, however, that as we approach the 8 July UK budget I will continue to make the firmest possible representations to the chancellor for a change in the UK Government’s strategy. Furthermore, I will continue to stress the importance of proper and effective consultation with the Scottish Government—and, indeed, other devolved Administrations—ahead of future budget announcements. I would welcome members’ support in those efforts.
I turn to the provisional outturn statement for the financial year 2014-15. Today’s outturn figures must be set in the context of continued UK Government reductions to the Scottish budget. Since 2010-11, the Scottish Government has managed a 25 per cent real-terms cut to the capital budget as part of dealing with the near 9 per cent real-terms decline in discretionary public spending over that period. We have managed that issue while doing all that we can to boost the economy and invest in public services.
Under the current devolution settlement, the Scottish Parliament is not allowed to overspend its budget. Attempting to spend the exact amount that is contained in the budget carries a considerably increased and difficult-to-justify risk of breaching the budget cap.
As a consequence, I have consistently adopted a position of controlling public expenditure to ensure that I live within the budget cap but remain able to carry forward any spending power resources for use in a future year. That is now a common—and, I would argue, prudent—feature of the Scottish Government’s financial strategy that drives the Parliament’s annual budget process.
In 2014-15 the Scottish Government has again demonstrated sound financial management. I can report to Parliament that within the fiscal DEL—the resources over which this Parliament has discretion—the provisional outturn for 2014-15 is expenditure of £28,598 million against a limit of £28,790 million.
That means that there is an overall fiscal DEL cash carry-forward of £151 million in resource spending and £41 million in capital spending. On resource, that reflects the carry-forward of budgets as part of our financial planning over the years 2014-15 and 2015-16. On capital, the £41 million reflects some movements in the profile of capital investment projects in 2014-15, such as the saving of £5.6 million in Glasgow’s fastlink programme and £16 million in housing capital receipts, among a range of other changes. The full £41 million, along with the £151 million in resource spending, will be carried forward for reinvestment in 2015-16.
There is also a provisional outturn of £12 million in respect of financial transactions that are ring fenced for loans and equity investment outside the public sector. That will be carried forward to support the investment programme in 2015-16.
Overall, including the financial transactions, that means that we will be carrying forward 0.7 per cent of the total 2014-15 Her Majesty’s Treasury budgets. My intention is that the full amount will be carried forward, utilising the budget exchange facility that has been agreed by the devolved Administrations and HM Treasury. That will ensure that there is no loss of spending power to the Scottish Parliament.
As I have previously informed Parliament, at this stage £150 million of the 2014-15 resource DEL carry-forward, together with a further £300 million of non-cash budget cover from HM Treasury, has been earmarked as contingency while the outcome of the Office for National Statistics classification review of the Aberdeen western peripheral route non-profit-distributing project is awaited.
The Scottish Government remains committed to the NPD programme, which is supporting additional economic activity and is delivering benefits in communities throughout Scotland. The Scottish Government and the Scottish Futures Trust believe that current project arrangements demonstrate consistency with the relevant classification guidelines, but while the ONS review remains in progress it is prudent to retain the contingency arrangements that are in place. The ONS operates independently, and I am therefore not in a position to advise when the process will finish, although the review is well under way.
Turning to non-cash DEL, based on the provisional outturn position, expenditure is lower than budget by £153 million. As the description suggests, those resources are not cash in nature; rather, they provide budget cover for differences between estimated accounting adjustments and the final amounts that are calculated. For example, £30 million relates to a lower than expected write-down of the carrying value of the income-contingent repayment student loan book. That is essentially an accounting adjustment.
When I reported those figures last year, some parties suggested that that money could be spent at my discretion on Scottish Government responsibilities. I make it absolutely clear to members in the chamber that those non-cash figures are not resources that are available to fund other spending. That is not at my discretion. I wish it were not the case, but it is a basic fact of Government finance that under rules set out by the Her Majesty’s Treasury over many years such budgets cannot be used to fund other services.
Today’s 2014-15 provisional outturn figures demonstrate once again this Government’s firm grip on Scotland’s public finances. As for 2015-16, I have made clear my view that it is unacceptable for reductions to be imposed in this financial year to a budget that has already been agreed by the Scottish Parliament.
The Deputy First Minister will now answer questions on issues raised in his statement. I intend to allow 20 minutes for questions. It would be helpful if members who wish to speak could press their request-to-speak buttons now.
I thank the Deputy First Minister for early sight of his statement.
In 2007, the Scottish budget was over £32 billion, and the current budget sits at £35.4 billion. For eight years now, Mr Swinney on behalf of his Government has stated his commitment to social justice, rightly decrying the failures of previous Administrations and Governments in that regard. Mr Swinney might remember that, in his initial presentation of the 2014-15 budget in September 2013, he made no specific mention of inequality and, at stage 1 of the budget bill, he failed to mention the term again, even though Iain Gray and Michael McMahon highlighted the absence of a discernible long-term plan or strategy to reduce inequality and eradicate poverty. Indeed, Mr Gray pointed out, unchallenged, that a £1 billion anti-poverty programme had been missing since 2007.
In that light, the report in today’s Herald about the centre on constitutional change’s update for the David Hume Institute makes sobering reading. This morning, Jim Eadie honourably commented from the back benches on the implications of the report—
Can we have a question, please?
—which highlights the gap between the super-poor and the super-rich, and the Government’s statement shows evidence of a lack of ambition in dealing with that matter. Will the cabinet secretary explain why he was unable to better manage Government moneys to ensure that a proportion of his annual DEL underspend, which currently stands at £151 million, was targeted at strategies designed to further protect the poorest in our society?
First of all, I see that Mr Pearson is making an issue of the fact that the accusation that we had somehow abolished £1 billion-worth of anti-poverty programme expenditure went unchallenged. I have to say that I have heard the Government challenge the point on countless occasions. When it came to office in 2007—in fact, in my first budget in the autumn of 2007—the Government devolved to local government programmes that had previously been delivered as part of the fairer Scotland fund, in one of the biggest acts of decentralisation that any Government has presided over. We gave local authorities the ability to adapt that expenditure to meet the challenge of inequality at local level and in our communities. Local authorities might have chosen to act in different ways with that expenditure, but that is a matter for which local authorities are accountable. This Government cannot be accused of not equipping them with the measures and resources to enable them to act at local level to tackle these issues.
On the wider question of the management of the 2014-15 budget, the budget advances a range of different propositions to tackle inequality, not least of which is the £100 million that I have provided for and which the Government is using to ensure that we do what we can—and I stress that phrase “what we can”—to deal with the implications of the UK Government’s welfare reforms. If the Government had not taken the steps that it did, 500,000 low-income households would be paying more council tax as a result of the cut to the council tax benefit scheme that was imposed by the Conservative Government.
I simply ask Mr Pearson to reflect on some of those examples, not least of which is the Government’s economic agenda, which is focused on getting people into employment. I note that Scotland has the highest employment rate of any country in the UK; indeed, we have just seen a 14,000 increase in the number of people in employment, which demonstrates the effect of the Government’s focus on boosting employment in Scotland. The Government will continue to support the agenda at the heart of its programme of encouraging the creation of employment opportunities and tackling inequality.
I thank the Deputy First Minister for the advance copy of his statement.
The £192 million cash underspend that the Deputy First Minister is carrying forward into the current year rather puts into context the in-year budget reduction of £107 million that he is so exercised about—the underspend is nearly twice as much. In all his complaints about UK austerity, there is no mention of the super-austerity that would hit us with the Scottish National Party’s policy of full fiscal autonomy.
I will ask the Deputy First Minister three questions. First, can he confirm that he has had Barnett consequentials totalling £242 million for 2015-16, meaning that, even with a reduction of £107 million, the Scottish budget has seen a net increase of £135 million? Secondly, given that the area with the largest underspend is infrastructure, investment and cities, can he provide more detail of how that sum was arrived at? Thirdly, can he tell us how much was invested under his flagship NPD programme in 2014-15?
I welcome Murdo Fraser to his post as the Conservative finance spokesperson and I look forward to debating these issues with him in the months and years to come.
There is a fundamental difference between the £192 million of resources that the Government is carrying forward into 2015-16 and the reduction in our budget of £107 million that has been applied in year by the Conservative Government. The difference is that we will be able to spend the £192 million that we are carrying forward—that will remain part of our spending power—whereas we have lost the £107 million in spending power. It is a very simple concept to grasp that the sensible management of our public finances to ensure that we comply with the Treasury requirement to live within the budget cap enables the Government to carry forward a limited amount of resources to spend in the current financial year, whereas the Conservative Government has removed £107 million from our budget once and for all—that money will not return, according to the chancellor.
I hear Mr Johnstone muttering about the Barnett consequentials. All the discussions about the Barnett consequentials must be considered in the context of the 9 per cent real-terms reduction in the budget that the Government is wrestling with. It is all very well for Mr Johnstone and Mr Fraser to cherry pick elements of the budget, but it is my duty to inform Parliament of the comprehensive position—as I always do—and not succumb to the Conservatives’ cherry-picking tendency on the issue.
As Mr Fraser will appreciate, there are a number of factors that contribute in different ways to the position of the infrastructure budget. There has been an underspend on rail services given that the costs of mobilisation for the Commonwealth games and the franchise were not as great as we estimated. However, there has been an overspend on the roads maintenance budget to ensure that we did more roads maintenance—I would have thought that that might go down well with Mr Johnstone and Mr Fraser, among others. A variety of other factors also relate to the overall infrastructure budget.
I do not have to hand a precise figure for NPD project expenditure over the course of the year, but I can say that there has been expenditure on the M73/M74/M8 improvements at Raith—which took me on a few detours when I passed through there the other day—and on the Aberdeen western peripheral route, to name just two projects that are on-going. The Scottish National Blood Transfusion Service project is also under way. I will happily write to Mr Fraser providing a comprehensive explanation of the NPD expenditure for this year.
I need to finish this session at 15:30. A number of members wish to ask questions, so I ask for brief questions and fairly brief answers.
Will the budget that is carried forward from the underspend be utilised to fund public services and benefit the people of Scotland? Does the cabinet secretary, like me, find it quite telling that the Conservative Party seems to thinks that it is fine to take money away from public services in Scotland but not so much to invest in those public services?
I assure Mr McDonald that the resources that are carried forward will be used to support public services. A substantial proportion of those resources is already factored into the budget.
To save the cost of a stamp for a letter to Mr Fraser—given that we are being so efficient—I can advise him that £614 million was deployed on NPD programmes and £428 million was deployed on regulatory asset base enhancements for the rail network, giving a total additional capital expenditure, because of those two channels, of more than £1 billion in 2014-15.
I thank the Deputy First Minister for advance sight of his statement. I do not wish to intrude on the private spat between Murdo Fraser and John Swinney, mainly because I do not have to defend these matters any more. However, I observe that a £107 million Westminster Conservative cut is punishment but a figure of almost double that amount is apparently prudent. I observe the contrast between the two.
On the ONS review of the NPD programme—this is a serious question—does the Deputy First Minister have an estimate of the level of contingency that he may require if the outcome is not in his favour? How confident is he that the conclusion of that review will find favour with the Government?
First, I reiterate something that I think needs to be reiterated given Mr Rennie’s comment, although I thought that my explanation to the Conservatives was crystal clear. The difference with the £192 million is that we can continue to spend that money, but we cannot spend the £107 million, because it has been taken away from us. It is as simple as that. The £192 million remains within our control to be deployed on future projects. We have lost the £107 million; we will not get it back unless the chancellor changes his mind, so we cannot spend it.
On the ONS review, my officials have engaged substantively with the ONS in the process that is being undertaken. What we have put in place for 2014-15 is essentially a potential contingency of £450 million—£150 million from the Scottish Government and £300 million in non-cash contingency provision from the UK Government. I say to Mr Rennie in the spirit of openness to Parliament that, at this stage, I do not think that that will be required even if a decision is unfavourable to us. However, as he will appreciate, I have to make provision to enable us to live within the resources that are available to us. I do not think that that level of provision would be required if the decision is unfavourable to us.
I believe that we have taken all considered steps that could be taken to ensure the private sector classification of the Aberdeen western peripheral route project, but I obviously respect the fact that that is ultimately a matter for judgment by the ONS, and its word on this matter is final.
Does the cabinet secretary share my frustration that after he has spent hours and hours setting a budget with an overall budget cut of 9 per cent since 2010 and the Finance Committee has spent hours and hours—as have other committees—looking at it, we face this in-year reduction of £107 million? Surely no organisation, be it a charity, a company or a Government, should be making cuts like that in the financial year.
Bluntly, I think that it is bad practice. It leads to Governments having to review and reconsider priorities that have been carefully evaluated by not just the Finance Committee—I say that with the greatest of respect, because the Finance Committee carries out that process diligently—but other committees, which look at different portfolios into the bargain. I have made it clear that we object to it and I assure Mr Mason that we will do all that we can to mitigate the effects of such actions.
I thank the cabinet secretary for his statement and, indeed, Murdo Fraser and Willie Rennie for pre-empting my questions on the infrastructure budget and the ONS review. I have a particular interest in the latter, as the north-west Edinburgh partnership centre, which will serve my constituency, is delayed by it. As I think that this is the first time that the matter has come up in the chamber, could the cabinet secretary go into a bit more detail about the precise ONS issue and say how the project would have been classified under his assumptions and how it may be classified if the worst comes to the worst?
The issue is the application of new accounting regulations by Eurostat. The European system of accounts 2010—ESA10—is a set of accounting rules that looks at a variety of questions, some of which touch on the classification of projects and how they affect the total volume of debt that is carried by individual member states of the European Union. The process is designed to provide a comparable estimate of the level of debt that is carried country by country across the European Union so that the levels of debt can be assessed on a comparable basis. Frankly, those definitions are constantly changing and are also then the subject of reinterpretation.
The issues broadly relate to the governance of projects and whether they are controlled by the public sector or the private sector, and the acceptability of the approach to profit capping that is implicit in the NPD programme. Those are the issues that are being explored. That is part of the Government’s efforts to put in place a more fiscally sustainable approach to investment in our public estate that is more affordable and efficient than private finance initiatives and which strips out what we consider to be the unhealthy profits that were implicit in PFI. That is the Government’s approach to tackling that issue and securing investment in our public estate.
In the cabinet secretary’s statement, he mentioned that he met the chancellor and asked him to reconsider his approach to in-year cuts and his plans for future public spending. I commend the cabinet secretary for securing a £70 million reduction in the proposed cuts. He added that, on 4 June, the First Minister wrote to all Opposition leaders asking them to make similar representations.
I need a question, Mr Gibson.
What has been the response to that?
I am not aware of responses to that point from Opposition leaders, but I can certainly assure Mr Gibson that the Government will be very clear in articulating its concerns and its opposition to the changes.
Somebody ought to point out that being within 0.7 per cent of a budget is not only prudent but extraordinarily good cash management. On the other hand, my constituents will be very concerned to know—
I need a question, Mr Don.
I am sorry—the question is coming. My constituents will be concerned to know what the cabinet secretary is able to do to continue capital expenditure on flood, road and other schemes in my constituency. Could he give me some assurance about what we will be able to do in the future?
The capital budget for 2014-15 from the UK Government totalled £2.778 billion. That will decrease to £2.693 billion in 2015-16. However, as a consequence of the additional investment streams that the Scottish Government has put in place, the total capital budget for Scotland in 2014-15 was just above £4 billion. In 2015-16, it will be £4.5 billion, despite a reduction from the UK Government. That is because of the investment that we are making through the regulatory asset base, the NPD programme and other measures. Therefore, I can assure Mr Don of the Government’s absolute commitment to maintaining capital expenditure as a central part of how we deliver economic recovery in Scotland.
Given the current pressures on public services, can the cabinet secretary confirm whether the underspend on resource DEL, which he has discretion over, has gone up or down this year?
The resource DEL underspend is slightly higher than it was last year. The figure is £151 million compared with £144 million last year, which is an increase of £7 million since 2013-14.
Can the Deputy First Minister confirm that the Scottish Government will continue to do all that it can to mitigate the impact of the welfare cuts on the Scottish people?
Yes, we will do all that we can. However, as I said in my original answers, we are now spending about £100 million on welfare reform mitigation measures and, because of the changes in welfare, that requirement will become ever more significant in the years to come. The Government will do all that it can within its budget process to protect individuals, but we have to make those choices within the resources that are available to us.