Official Report 279KB pdf
The next item of business is a statement by Hannah Mary Goodlad on the provisional outturn 2025-26. The minister will take questions at the end of the statement, so there should be no interventions or interruptions. I will give the minister and front-bench members the opportunity to take their seats.
15:05
I welcome the opportunity to make my first statement to Parliament as the Minister for Public Finance. I give a commitment to stay on time and—to Willie Rennie, who, unfortunately, is not here—to be boring. Importantly, I also commit to update Parliament on the provisional outturn against the Scottish budget for the financial year 2025-26.
We have, once again, remained within the restricted expenditure limits set by His Majesty’s Treasury and have managed Scotland’s finances responsibly while continuing to protect public services and the delivery of our bold ambitions for Scotland—ambitions that are grounded in equality, hope and fairness.
The provisional fiscal outturn for 2025-26 is £55.9 billion against a total fiscal budget of £56.3 billion. That represents an underspend of £358 million, or just 0.6 per cent of our total budget. It is important to remind Parliament that we absolutely cannot overspend by a penny and that, therefore, we must always generate an underspend in order to guard against any late movements in devolved tax, social security spend and demand-led programmes, as well as to provide contingency against post-year-end adjustments—up to £200 million is set aside for such contingency. The underspend incorporates £312 million of resource, £42 million of capital and £4 million of financial transactions.
In addition, outwith our headline outturn underspend, our provisional non-cash position is an underspend of £249 million against a £4 billion budget. A large proportion of that relates to non-cash funding for student loan impairments, which, of course, are not required at the same level in Scotland because of free university tuition.
It is the headline outturn underspend of £358 million that will be carried forward through the Scotland reserve into future financial years. There is no loss of spending power to the Scottish Government—that is crucial and critical for me to stress—as the underspend supporting the 2026-27 budget is subject to confirmation at final outturn. As the previous Parliament was advised, £150 million of that underspend is already reflected in our funding assumptions for 2026-27. The remainder provides the necessary flexibility at the end of the year.
I must stress that the provisional outturn differs from the annual accounts position that will be published in the autumn following audit. The accounts are based on different reporting boundaries and include ring-fenced, non-cash budget positions such as depreciation, which, of course, cannot be spent on a day-to-day basis. In addition, the outturn incorporates final funding decisions, including on borrowing, that are taken towards the end of the financial year.
Delivering a balanced position has required careful management in the context of ongoing inflationary pressures and global uncertainty. Our budget operates within incredibly tight margins, and we are not permitted to overspend in any year. Any underspend must remain within the Scottish reserve limit of £734 million. Our budget is determined largely by United Kingdom Government spending decisions. We cannot borrow for day-to-day costs, we must operate within fixed annual limits and we face significant uncertainty because our final budget is confirmed only late in the financial year. In many ways, we play a game with two hands behind our back.
Despite those challenges, we have continued to deliver for Scotland, focusing on the key priorities of growing the economy, tackling child poverty and the cost of living, improving the national health service and other public services, and tackling climate change.
Scotland’s economy grew faster than forecast in 2025, at 1.4 per cent, and unemployment remained lower than in the rest of the UK, averaging less than 4 per cent across the year.
Scottish interventions to tackle child poverty are working. Around 320,000 children benefit from the Scottish child payment, with modelling suggesting that that will keep 50,000 children out of relative poverty, which is something to be proud of. Expansion of free school meals reached more than 360,000 pupils in 2025-26, reducing household costs by £450 per child.
Free bus travel for under-22s generated more than 85 million free bus journeys, lowering transport costs, improving access and increasing employment. Again, that is money well spent and there is much to be proud of.
The relative child poverty rate in Scotland remains 6 per cent lower than that in the UK, reflecting the impact of devolved policy interventions.
None of that is accidental. Those are political choices, by design, made by a Government led by the Scottish National Party.
We have continued to deliver the most comprehensive cost of living support package in the UK, with free prescriptions; the abolition of peak rail fares and, in the northern isles, peak ferry fares; no tuition fees for Scottish students; free bus travel for more than 2.4 million people; an NHS that is free at the point of use; baby boxes; and a social security system that is based on dignity and respect.
In the face of UK Government decisions that have increased the pressure on household finances, we have consistently chosen a different path. For example, we have invested almost £150 million to mitigate the impacts of UK Government policies such as the bedroom tax and the benefit cap. That includes activities such as our discretionary housing payments and the Scottish welfare fund. That money could have been spent on services such as health, education or transport, or on further ambitious anti-poverty measures. It would have paid for around 2,000 teachers or almost 3,000 band 5 nurses.
We are committed to delivering a just transition on energy and realising its benefits for this nation, with the opportunity to lower household costs and transport costs, improve energy security and enhance public health. Economic benefits are emerging, with the number of green jobs continuing to grow faster than in other UK regions. Between 1990 and 2024, Scotland’s emissions reduced by more than half while the economy grew by almost 70 per cent, proving that it is absolutely possible to grow an economy and reduce COemissions at the same time.
In June last year, we published our public service reform strategy, setting out a vision for Scotland in which everyone can access public services that are efficient, high quality and effective. The strategy commits us to a preventative, joined-up and efficient system that improves outcomes while remaining financially sustainable. As the Cabinet Secretary for Public Service Reform affirmed last week, transforming public services is essential to keep them effective and focused on people’s needs.
None of this is accidental. There is a reason why Scotland is outperforming the UK at every turn. We are putting business, hope and ambition into every decision that this Government takes, and that is against the backdrop of our very challenging financial fiscal framework, which is dictated to us by the UK Government.
The figures reported today are provisional and subject to change pending completion of the year-end audits. Final figures will be published later this year, once all bodies have completed their audits.
We have an enormous task ahead, but I have been heartened to hear the support for collaboration across the chamber. It is a vital task. In a challenging financial context, we have to redesign the state while ensuring that Scotland becomes a country that completely and wholly eradicates child poverty, a country that remains open for business and growth, a country that celebrates our islands and rural communities, and a country that says that birthplace is a chance but home is a choice.
We, in this chamber, also have the choice to work together on these issues and to resolve them together. One thing is resoundingly clear from the election: Scotland wants and needs us to work together. Willie Rennie said that in the first weeks of the parliamentary session, and I am glad that he has joined us in the chamber now.
My message is this: engage with us and work with us. My door is open, as are those of my colleagues. I commend today’s figures to the Parliament, and I will take questions.
The minister will 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. Members who wish to ask a question should press their request-to-speak button.
I thank the minister for her statement. Given the importance of major infrastructure projects to growing the economy in this seventh parliamentary session, can the minister advise which projects from the current infrastructure plan are taking place, and which have passed the business test and are in the active planning stage?
After the summer recess, we will publish an update on capital spending. Members will get more information post-summer.
I welcome the minister—a fellow newbie—to her position and thank her for her statement.
The Auditor General said of last year’s consolidated accounts that short-term measures do not address the £4.7 billion fiscal gap and that
“The Scottish Government cannot clearly demonstrate that public spending is delivering the intended outcomes”.
What assurances can the Government give to the Parliament and the Auditor General at this provisional outturn stage that things will be different in the next set of consolidated accounts?
Last year was not year zero for public service reform. Today, I received figures from the Scottish Parliament information centre that indicated that, accounting for inflation, the Scottish Government’s operating costs have risen by almost 40 per cent in real terms in the five years up to 2024-25. Does the Government recognise those figures and can it tell us how variance in operating costs contributes to the outturn position? Does it agree that, to make the public finances more sustainable, progressive intent must lead to progressive outcomes, reactive spending must come down and preventative spending must be scaled up? The Scottish Government must work harder to make public money better serve the public interest across Scotland.
I reflect that, only yesterday, we heard from those on the Labour benches that devolution has worked. I would like to see the Parliament go further. We are playing the game of managing our public finances with both hands tied behind our back. That is no normal way to manage a country, a budget and a financial year.
The first principle of any business is that it must make sure that it remains in the green, not in the red. That is exactly what we have managed to do. When it comes to public sector reform, the Government is absolutely committed to doing that. We must make sure that there are efficient, joined-up and more preventative services.
The Scottish Government’s operating cost last year was just under £900 million. That is coming down year on year. Jobs are being frozen and we are making sure that there is a reduction in recruitment towards 2030. Our eye is on the ball when it comes to that. I look forward to working with Mr Fagan on more ideas for how we can further tighten our operating costs in the years to 2030.
I remind members that guidance was recently issued that indicated that questions should take up to about 45 seconds and answers should take up to about a minute. Members should try to keep questions and answers brief.
The high rates of inflation in recent years, which are thanks to Westminster economic mismanagement, have had a huge knock-on effect on the Scottish budget. Does the minister agree that that makes a clear case for the block grant in Scotland to be inflation proofed, to prevent the erosion of Scotland’s funding?
We recognise the significant pressures that inflation has put on public finances in recent years, and we understand the importance of ensuring that Scotland’s funding keeps pace with rising costs.
However, that situation also highlights the wider limitations of our current fiscal framework, which, as I said, does not provide the Scottish Government with the necessary flexibility to respond effectively to economic shocks, especially towards the end of the year. The fact that the block grant remains linked to the UK Government’s spending decisions means that Scotland’s funding can increase or decrease regardless of Scotland’s needs and priorities. I repeat that we are playing the game with both hands tied behind our back.
The minister’s statement highlights the fact that there has been a cash underspend of £358 million, which is substantial compared with previous years. That includes underspends of £83 million on education, £98 million on housing, £35 million on climate and £59 million on transport. In the context of the climate, nature and housing emergencies, and the high barriers and costs that Scots currently face in relation to childcare and bus fares, which have been highlighted in the Parliament, why is the Scottish Government not spending to match the budget allocation in those critical areas?
It is important to understand that what we are discussing today is a half-year outturn statement. That does not mean that funding allocations stop in March. We are not talking about a one-year cliff edge; money will be reallocated when we come to the budget in 2027.
When it comes to climate and energy in particular, the underspend that is evident in those budget lines has been caused by delays and reduced delivery across resource—£14 million—and capital programmes. That is primarily due to delays and underspends in projects relating to Grangemouth, the just transition fund, the offshore wind supply chain project that we put in place and project willow.
I thank the minister for her invitation for us all to work together. I will meet the Deputy First Minister next week to that end. If the new, fiscally prudent, small-state Scottish Government can commit to reducing tax and cutting the benefits bill, we will have a fruitful relationship.
However, today’s statement comes at a time when Scotland’s economy grew by just 0.1 per cent in the first quarter of this year, compared with a figure of 0.6 per cent across the UK. Employment has fallen by 0.8 of a percentage point over the past year, while economic inactivity has risen by 0.7 per cent to 22.7 per cent. What does that tell us about the Scottish National Party Government’s record on financial and economic management?
I thank Craig Hoy for his response to the invitation to work together. Let us hope that that sentiment remains as we progress through the months.
We need to look more broadly at where Scotland has been and where it is going. Scotland is a country that has made reducing child poverty an absolute priority—that is one of its moonshots. With our 6 per cent lower figure, we are leading the UK. That is an absolutely worthy ambition.
Let us dig into the economics a little more. In the past decade, Scotland’s gross domestic product has grown by 10 per cent, whereas the rest of the UK’s GDP has grown by 8 per cent. The Scottish Government has been relentless about ensuring that we prioritise business. We have set up the Scottish National Investment Bank, put £0.5 billion of infrastructure investment into offshore wind and put money behind the Techscaler initiative.
We have put growth and ambition at the heart of everything that we are doing. The member would be well advised to consider that the most attractive part of the UK, outside of London, to invest and do business in is the part of it north of Hadrian’s wall, here in Scotland.
I thank the minister for providing early sight of her statement.
Although I accept that underspend is an inevitable part of ensuring a balanced budget and that the money is protected for future spend, at a time when critical infrastructure is desperately needed across Scotland, £358 million is an alarming sum. That is particularly the case in the area of transport, where there is an underspend of £63 million, which includes a large amount of capital. That follows a similarly large underspend the year before. Why are we seeing such an underspend in areas where key upgrades are desperately needed?
I thank my fellow northern isles member for that question.
Underspend is normal only in the bizarre context of the UK. Every part of the UK is underspending and we are actually the best in class. We have a 0.6 per cent underspend, while Wales is at 1.8 per cent and England is at 1.3 per cent. That is not an easy thing to manage. It is like landing a Boeing 737 on the stamp on a postcard, or trying to land a Singapore Airlines jet on the coastguard helipad at Sumburgh airport: it is absolutely no mean feat.
On transport, lower-than-expected rail costs and improved income have reduced resource spend and there have been delays in capital projects. We have our eye on that and those projects are on our agenda for the rephasing of rail and ferry infrastructure. We have spent a lot of time talking about that in Parliament and will do so in the months to come.
I commend ministers for their incredibly tight fiscal management.
I am particularly interested in the social security and social justice aspects of the figures. Scotland now has 17 devolved benefits. Which of those showed the largest variance between forecast and outturn and what are the minister’s reflections on that, given that, as she acknowledged in her statement, it is difficult to predict those things?
We know that social security expenditure is demand led and that spending is determined by the number of people who are eligible for support and apply for it. Everyone who qualifies must receive the payment that they are entitled to under the relevant policy.
That approach inevitably creates a degree of volatility and forecasting risk within the budget. However, that is a deliberate choice by this Government and reflects our commitment to ensuring that eligible people receive the support that they are entitled to. Once again, that goes back to dignity and respect.
Despite those challenges, financial performance remains strong. The final outturn was within 0.3 per cent of the £6.5 billion budget, demonstrating the overall accuracy of forecasting and the effective management of a large and complex, demand-led, programme.
Will the minister review the complicated and burdensome six-band income tax regime in Scotland, in light of the fact that the Scottish Fiscal Commission says that the system is collecting less money than was forecast and collected £850 million less last year? Forecasting for next year is running at a lower rate and we are raising less money per capita than the UK.
I draw the minister’s attention to a recent report by the Institute of Chartered Accountants of Scotland, which said that a perhaps unintended consequence of the regime is that it is hurting productivity. If the idea is to collect more tax revenue, that should be the most important thing, so, if the regime is actually collecting less tax revenue, can we please review it?
We have a commitment to review the income tax bands within this session of Parliament and I know that we are committed to looking at simplifying the six bands that we have. Regarding tax revenue, Scotland raises an extra £1.8 billion because of the progressive approach that we have taken.
There is a wider point, and I say again that we are playing the game with two hands tied behind our back. I would like more tax-raising powers to be devolved to Scotland. North-west of the islands that I come from, the tiny Faroe Islands has a population of 50,000. Its economy is based only on fish and aquaculture—it does not have energy, oil, whisky or tourism as we do—but the people there are thriving because they take decisions where they matter and they live with those decisions. So, I say, “Yes please,” to having more tax powers in Scotland.
Next week marks 10 years since Scotland was dragged out of the European Union against our will, and the damage to our economy and public finances has been immense. Will the minister provide an update on what assessment has been made of the impact that Brexit is having on Scotland’s finances and on what steps are being taken to mitigate those impacts?
Martyn Day will have been listening with eagle ears to my colleague Mr Gethins, who did a sterling job in outlining in his statement the damage that Brexit has done and will continue to do unless we reverse our course. In its modelling, the National Institute of Economic and Social Research estimates that Brexit resulted in a 3.2 per cent hit to UK GDP in 2025, and it is estimated that that figure will increase to 5.7 per cent by 2035. Indeed, Labour members have had less input than the Conservatives have had in the debate today. In Scotland, the figure that I gave equates to a cut in public revenues of about £3 billion in 2025.
Similarly, the UK’s fiscal watchdog, the Office for Budget Responsibility, estimates that the trade and co-operation agreement will reduce long-term productivity by 4 per cent, relative to the position if we had remained in the EU, because of all non-tariff barriers to UK-EU trade.
We will continue to take a responsible approach to managing the public finances. We will prioritise investment in front-line services and focus on delivering the things that matter most to the people of Scotland.
Further to Laura Moodie’s question, although we are in the middle of a housing emergency, there was a housing underspend of £98 million, which was 13 per cent of what was budgeted for housing in the 2024-25 budget. That figure equates to more than 1,000 homes, given the number of homes that the Government hopes to build using that funding. Given the context of the housing emergency and the fact that the number of housing completions has dipped below 20,000, what is the minister’s explanation for that shortfall?
When it comes to housing, £75 million relates to capital, with the changes being driven mainly by programme timing changes and demand-led constraints in capital programmes, particularly those on energy efficiency and cladding, as we have heard.
The Government has prioritised tackling the housing emergency and will continue to do so. Daniel Johnson should look at the progress that his UK Labour Government has made on housing, in Scotland and in the rest of the UK, before he points the finger.
Labour’s national insurance hike continues to place huge pressures on the budgets of our public services, as it costs them an estimated £400 million per year. I find it unacceptable that our public services are paying the price for that Westminster stealth tax. Will the minister join me in once again calling on the UK Labour Government to fully compensate our public services for that tax hike, so that they can continue to deliver the high-quality services that folk in Scotland deserve?
The UK Government has failed to provide full funding for the additional costs of its increase in employer national insurance contributions. We estimate that the policy will cost public services in Scotland more than £700 million, not £400 million. We have repeatedly called on the UK Government to fund those costs in full, but it has failed to do so. I would really appreciate it if my Labour colleagues were able to help me in calling for that.
The additional £339 million of funding that the Treasury provided last year fell far short of that and left public services in Scotland, including general practices, dental practices, social care services and universities, facing a shortfall. Unless the UK Government changes course, there will be an ongoing additional cost to public services in Scotland that we absolutely do not need.
I am grateful to the minister for highlighting the impact of Green policies such as free bus travel and free school meals. The Scottish Greens have always maintained that progressive public services should be underpinned by sustainable and fair sources of revenue, which is why we have consistently supported changes to Scotland’s income tax regime. Given the increase in the net income tax position, does the minister agree that Scotland’s progressive approach to taxation has been an important factor in strengthening the public finances that help to fund those investments?
I thank Ms Slater for the opportunity to reinforce my agreement with what she asked about in her question. A majority of members have been elected to the Parliament on a mandate for progressive tax policy; the benches are full of us.
It is also worth stating that the ask in this country is great, but the offer is even greater, with free tuition, free prescriptions, the baby box and the child payment, which the UK Government has followed suit on. There is also free bus travel and free interisland ferry travel for under-22s. Therefore, the ask is great, but the offer is greater.
I agree with Ms Slater’s statement.
I thank the minister for her statement, which had business, hope and ambition for all of Scotland—especially rural and island areas such as Argyll and Bute—at its heart.
I note the minister’s comments on the Faroe Islands. I am sure that she will agree that, given the challenging Scottish budget settlement and the economic circumstances, there is a clear case for Scotland to have additional fiscal flexibilities to better manage our budget. Does she agree that Scotland would be far better placed to manage the public finances if it had the full powers of independence?
I am a member of the Scottish National Party, so of course I think that Scotland should be able to free both hands from behind its back and manage its finances and affairs in the way that any normal country does.
With experience of living in the Nordics for many years and working in the Baltic states, I see what small, independent, sovereign nations are able to do when both hands are freed. As I said, the Faroe Islands has a population of 50,000 and has more autonomy than Scotland.
We have had more than a decade of chaos: the financial crash, followed by austerity, Brexit and the pandemic—all of which the UK Government under the representatives in Westminster of parties on both sides of this chamber have failed to manage.
In Scotland, we have stability, reliability and a focus to take decisions on hope, ambition and business growth. Do I think that we should be doing more of that, as my good friend Paul Sweeney said yesterday, and should we have more devolution? I think so.
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