Budget Outturn 2012-13
The next item of business is a statement by John Swinney on the 2012-13 provisional outturn. The cabinet secretary will take questions at the end of his statement; there should therefore be no interventions or interruptions.
14:41
I am grateful for the opportunity to inform Parliament of the provisional Scottish Government financial outturn for 2012-13.
The Government thinks that it is essential that we maximise the value of every public pound as we take forward programmes to support economic recovery and deliver high-quality, efficient public services. As a demonstration of this Government’s sound financial management, I can report to Parliament that the provisional outturn for 2012-13 is expenditure of £27,908 million, against a fiscal departmental expenditure limit budget of £28,087 million—an underspend of £179 million, which represents some 0.6 per cent of our fiscal DEL budget.
Fiscal DEL is now the key control aggregate used by HM Treasury and is made up of the cash resource and capital budgets. The underspends for the resource and capital budgets were £150 million and £29 million respectively.
On other elements of our budget, there is a forecast underspend on non-cash DEL of around £111 million, on a budget of £892 million. That is the ring-fenced element in the budget that is intended to cover depreciation, some impairments and other technical accounting items. Of that underspend, £65 million relates to a less than anticipated write-down of the current book valuation of the income-contingent repayment student loan book, and a further £22 million is due to lower than anticipated depreciation on the road network. An underspend on the non-cash budget cannot be used to buy goods and services, so it is not a loss in spending power for the Scottish Government.
The 2012-13 public expenditure statistical analyses are due to be published in July by HM Treasury and will place on record the provisional outturn for Scotland against total resource DEL—that includes cash and non-cash—resource cash DEL and capital DEL, which will represent underspends of £261 million, £150 million and £29 million respectively.
The Parliament will want to note that the devolved Administrations budget exchange mechanism, which was agreed with HM Treasury in July 2011, will be utilised for the second year. Post-devolution, the Scottish Government had the facility to carry forward any unspent budget to future years, in a process that was known as end-year flexibility. End-year flexibility was abolished unilaterally as part of the 2010 United Kingdom spending review. The budget exchange mechanism for the devolved Administrations will be in operation over the current spending review period. It allows the Scottish Government limited flexibility to carry forward, from one financial year to the next, up to 0.6 per cent of its resource DEL budget and 1.5 per cent of its capital DEL budget—that equates to a cap this year of £200 million in total.
In 2011-12, we carried forward £179 million fiscal DEL in the budget exchange mechanism for use in 2012-13. This year, we will carry forward the same amount—£179 million—to be utilised in 2013-14. In our budget for 2013-14, we had factored into our plans a carry-forward from 2012-13 of £158 million, which was made up of £150 million resource DEL and £8 million capital DEL. We have delivered that plan. Accordingly, I am pleased to inform Parliament that the balance of the fiscal DEL underspend—£21 million in capital DEL—will be carried forward in full to augment existing spending plans in 2013-14.
The sums to be deployed will be confirmed in the autumn budget revision when the audit of the financial year is complete. However, I wish to confirm some important points to the Parliament today. First, a modest capital DEL underspend emerged in the housing and regeneration programme due to timing differences between demand and the availability of funding in capital budgets. There is a £5.3 million underspend on the joint European support for sustainable investment in city areas—JESSICA—urban regeneration programme, which is a demand-led budget. We have a commitment to provide £26 million of capital DEL over the lifetime of the fund, supported by £24 million of European funding, and we will honour that commitment by carrying the £5.3 million sum forward and deploying it in 2013-14.
Secondly, there is a £7.7 million underspend on the shared equity scheme. That is a demand-led scheme and the underspend represents timing differences between the setting of budgets and the eventual draw down by scheme participants. I confirm that the £7.7 million underspend will be deployed in 2013-14 to support our overall investment in the housing programme. In addition, I intend to earmark a further £5.9 million to give a total of £18.9 million to augment the Government’s housing and regeneration programme in 2013-14.
Capital investment continues to be a central element of our approach to supporting economic recovery, with a focus on priority areas to support output and jobs. I have used budget flexibility to supplement our original spending review 2010 capital DEL budget of £2.475 billion to help to stimulate infrastructure investment. In June 2012, I announced a package of shovel-ready projects totalling £105 million to support new investment and accelerate projects from future years to boost the economy. Six months later, in December 2012, I announced a £205 million capital investment package of construction and maintenance projects.
In addition, in 2012-13, we expanded the infrastructure investment programme by switching £227.6 million from resource budgets to capital budgets. I confirm that I will write to the Finance Committee setting out the full details of the 2012-13 resource-to-capital switches by portfolio and spending programme when details are finalised shortly.
Our budget choices for 2012-13 have enabled the Scottish Government to undertake a range of measures to tackle unemployment, with a particular focus on youth unemployment. They include 25,000 modern apprenticeship opportunities in each year of the current session of Parliament, an additional £30 million for youth employability over the three years to 2014-15, £25 million of European funding refocused to support youth employment and business growth for small and medium-sized enterprises, and the maintenance of the education maintenance allowance, which has now been abolished in England.
We are enhancing economic confidence by encouraging private sector investment and providing security to Scottish households through our actions, which have included supporting growth and exporting companies to access loans through the £113 million Scottish loan fund and providing businesses with the most generous package of rate reliefs that is available anywhere in the UK, which is worth more than £500 million a year over the period 2010 to 2015. Our actions against those priorities are helping to support the Scottish economy during the toughest economic conditions in over a generation.
A clear picture is emerging of the economic journey that Scotland has made since my previous provisional outturn statement. This time last year, output in Scotland was contracting, but the picture is now more encouraging. Scotland’s output picked up towards the end of 2012 and we saw a return to positive growth in the final two quarters of last year. In the latest quarter—quarter 4 in 2012—Scotland’s output grew by 0.5 per cent.
Scotland has also seen an improvement in its labour market. Employment levels have been rising and unemployment levels falling. Compared with the same period last year, there were 43,000 more people employed, 25,000 fewer people unemployed and 25,000 fewer young people unemployed in Scotland in February to April 2013. Scotland is now outperforming the UK on all three of the main labour market indicator rates of employment, unemployment and economic inactivity.
Recent business survey data for Scotland indicates a positive outlook for 2013, with the Bank of Scotland purchasing managers index for May showing private sector activity expanding for the eighth consecutive month, at a rate of 54.4, which is significantly faster than the rate of expansion for the same month last year, which was 50.8.
I will very briefly take this opportunity to confirm to Parliament how I plan to address the challenges that we face with regard to our 2013-14 budget, the timetable for the draft 2014-15 budget and the forthcoming outcome of the UK Government’s 2015-16 spending round.
Once again, on the basis of a UK budget announcement we are dealing with cuts to our budget. The UK budget in March confirmed reductions in our fiscal resource DEL budget for financial years 2013-14 and 2014-15 of £54.8 million and £48.7 million respectively. As previously notified to Parliament, we will seek to minimise the impact of the £54.8 million reduction in our 2013-14 fiscal resource DEL budget on front-line services and public sector employment in Scotland through a number of measures, which will be taken forward through the autumn budget revision process.
I confirm to Parliament that the draft budget for 2014-15 will be presented in September, in line with written agreements.
The outcome of the UK spending round will be announced on 26 June. We have continued to press the Chancellor of the Exchequer and the Chief Secretary to the Treasury to invest in jobs and growth and address the clear criticism of their budget approach by the Organisation for Economic Co-operation and Development and the International Monetary Fund.
From the reports of those UK departments that have agreed settlements with the UK Government, it appears that we should be braced once again for cuts to the Scottish budget. Scotland does not support that approach and, with the tools of independence and the wealth of Scotland’s resources, we would not be pursuing it. This Government wants Scotland to reach its full potential and, to get there, we need the tools to build the better, more prosperous and fairer country that everyone wants to see.
I commend these outturn figures to the chamber. They demonstrate once again the firm grip that this Government has on Scotland’s public finances and the competent financial management of the resources at our disposal.
The cabinet secretary will now take questions on the issues raised in his statement.
I thank the finance secretary for advance notice of his statement. I recognise that we share common ground in opposing the Tory Government’s approach to public finances.
That said, we are here to scrutinise the decisions that have been taken by the Scottish Government. I note that a number of things are omitted from the cabinet secretary’s statement, including any mention of the £333 million underspend in his planned non-profit-distributing programme for 2012-13. I am also disappointed to hear a reference to the Scottish Government’s notorious shovel-ready programme but no update on exactly how many shovels are now in the ground.
I turn to the announcements that the cabinet secretary has made. He points out that he has already committed £158 million of his £179 million underspend. Of the remaining £21 million capital at his disposal, the majority seems to come from an underspent housing budget and is being recommitted to housing, along with an additional £5.9 million, which is to be welcomed. However, given that he revisited his housing budget cuts four times in the last financial year, tried again in the budget this year and is here having a sixth attempt at putting right his original wrong, would it not have been wiser for him to have listened to those in the construction and housing industries in the first place and implemented Labour’s budget for housing? Is he content that the reality of his budget outrun for this year is the lowest number of housing completions since the great depression?
Also, why is there nothing in the cabinet secretary’s statement about the impact of his budget on further education? In particular, will he explain the relationship between his cuts to Scotland’s colleges and the 700 jobs that have been lost in further education in the past year alone?
I welcome Ken Macintosh’s acknowledgement that we have common ground on many of these issues, although that was not immediately obvious from the majority of his contribution.
I confirm to Mr Macintosh that the Government’s NPD programme will be spent in full. As he well knows, the programme spans a five to six-year period. A number of projects are now in procurement, some have reached financial close and some are starting on site, so the programme of NPD interventions is taking its course. That is possible only because of the decisions that we took in light of the reductions in public expenditure that were applied by the UK Government in 2010.
There is an extensive list of shovel-ready projects that are under way, implementing the expenditure announcements that I made during the financial year. I point out to Mr Macintosh that the budget includes additional expenditure that I allocated at the time of the autumn and spring budget revisions, and that the budget is £289 million larger as a consequence of those revisions. We have also delivered an underspend of only £21 million in addition to our planned carry-forward. That should be reassurance enough for him that the shovel-ready projects are being implemented on the ground.
In relation to Mr Macintosh’s point on housing, I can spend only the resources that I have available to me. He should know the financial restrictions within which I must operate as the finance minister in a devolved Scotland. I have taken every available opportunity to expand the resources for housing.
Yes, there have been reductions in the colleges budget. However, the economic indicators that I cited in my statement—the fact that, compared with 12 months ago, 25,000 fewer of our young people are unemployed, 43,000 more people are employed and 25,000 fewer individuals are unemployed—illustrate that the Government’s measures, in addition to modern apprenticeships and places at colleges, are boosting the skills element of our economy. I think that that should be welcomed across the chamber.
I, too, thank the cabinet secretary for advance notice of his statement. I have some specific questions that I would like him to answer. He talked about a £21 million capital underspend and explained how £5.3 million and £7.7 million of that came about, but can he tell the chamber why the rest of that capital underspend happened? What percentage of the total shared equity scheme money is represented by the £7.7 million underspend? What progress has been made on the ground on the £205 million-worth of shovel-ready projects that were announced in December? He said near the end of his statement that he wants the tools of independence. Why did even his back benchers fail to clap at the mention of that?
In the context of a £2.4 billion capital budget, we are talking about very small underspends arising from the crystallisation of payments at the close of the financial year. Our best efforts to predict which sums were likely to crystallise on which side of the financial year end account for many of the small items at the margins of the capital underspend. I cannot give Mr Brown a figure for the percentage that the shared equity element represents, but I will check that for him. It is a bit like Mr Macintosh’s point about the number of housing completions. The programme is demand led, and if the private market is not stimulated sufficiently to construct houses, it is difficult to hold the Scottish Government to account for that. That obviously has a bearing on some of the shared equity issues.
On the question of the tools of independence, I am confident that my back benchers are enthusiastic supporters of having the range of financial levers that would have enabled the Scottish Government to avoid the reductions in capital expenditure that have been set out. [Applause.] I am confident that my back benchers today could generate a great deal more noise than Mr Brown’s solitary back bencher, who does not even seem to be paying much attention to what is going on in the chamber.
As an enthusiastic supporter of independence, I welcome the cabinet secretary’s statement.
Given that the Chief Secretary to the Treasury, Danny Alexander, again cancelled his scheduled appearance before the Finance Committee last month, what explanation has the UK Government provided for its decision to remove £103.5 million of resources from the Scottish budget and replace that with loans less than two weeks before the beginning of the financial year? How has that impacted on the Scottish budget and the Scottish Government’s financial flexibility, notwithstanding what might be announced by the chancellor next week?
The UK Government has explained the reductions in the Scottish budget as part of its long-term deficit reduction programme. That has been set out as a device to create further capital investment resources that could be deployed in future years. We may get a clue about that next Wednesday when the chancellor makes his statement on the 2015-16 budget round to the House of Commons.
On the replacement of loan provision, I set out to Parliament some weeks ago the steps that the Government is taking to allocate loan facilities to housing initiatives and interventions. I make the obvious point that those schemes are demand led; they cannot be driven by Government spending power in the traditional fashion that capital expenditure can be driven. Therefore, we must be very careful in how we consider and assess the impact of the financial transactions that the UK Government has put in place.
I thank the cabinet secretary for an advance copy of his statement.
The cabinet secretary has again lectured us about the need to spend more but, for the second year running, he has taken a nine-figure sum out of his budget and put it into the following year’s budget. That is delayed spending, not accelerated spending.
On capital spend, the Scottish Futures Trust underspent by £300 million. It demanded the fossil fuel levy for energy but then failed to spend that. If any other body did that, it would be accused of sucking money out of the economy. Will the cabinet secretary detail what shovel-ready projects that capital underspend will be spent on?
If Mr Rennie had been paying attention in autumn 2011 when I set out to Parliament the three-year budget process, he would have acknowledged that I made clear that, because of the erratic financial settlement that we had been given by the UK Government, it was essential for us to take a much more orderly approach to public expenditure over the three-year period. I advertised to Parliament that there would be carry-over expenditure to ensure the sustainability of public services and finances. If I had not done that, Mr Rennie would have been at the front of the queue to complain that we were taking an erratic approach to public service support.
I have spent the available capital consequentials in the appropriate financial years to deliver the maximum economic impact. I gently point out to Mr Rennie that, had we listened to all the strictures of the UK Government, we would have had no NPD programme and we would not have been taking forward the projects that are impacting on capital expenditure in the country. Such stewardship of the public finances is essential to deliver the maximum impact for the public of Scotland.
I would appreciate briefer questions and answers from members.
The cabinet secretary referred to the criticism by the OECD and the IMF of the UK Government’s economic strategy and to the fact that the Scottish Government is pressing the UK Government to adopt a strategy other than the austerity agenda, which is suppressing growth and recovery. What response has the cabinet secretary received from the UK Government on that? Can we expect it to change its strategy, or will it be more of the same?
To be fair to the UK Government, it has reduced the scale of our capital budget cut from 33 to 26 per cent. That cut is still far too significant and has been far too damaging to the health of the Scottish economy, but it signals that the UK Government recognises that its original budget propositions were wrong and that they inflicted significant economic damage. If we need to assess the extent of that significant economic damage, we find the answer in the additional amount that the UK Government has had to borrow to take account of low growth in the economy, which it could have avoided if it had invested more heavily in capital expenditure in 2010, when the Scottish Government told it that that was the right thing to do. The message that we set out in 2010 has now been reinforced by the IMF and the OECD, and I hope that the UK Government has listened to it.
The cabinet secretary talked about delivering high-quality and efficient public services, but he did not mention that he has now spent more than £800 million on putting public servants out of work. Does he consider that to be efficient use of public money, or could it have been better spent building our economy and putting people to work?
That raises the question of how we would have paid for those people if we had kept them on the public purse. How would we have paid for them? If we do not have the money to pay for public servants because of reductions in public expenditure, how do we pay for them? We cannot take people on and then not give them a pay cheque at the end of the month. If the Labour Party does not even understand that, its economic credibility is in an even worse state of affairs than I thought it was.
Is the cabinet secretary aware that in 2010 it was said:
“the UK government continues to take Scotland for granted”?
That was in relation to employment. That statement was, of course, made by the gentleman who is now the Chief Secretary to the Treasury. Does the cabinet secretary think that it is time for that gentleman to respond to what he said in 2010 and change his capital spending plans in Scotland but especially in the UK, where unemployment—in contrast to the situation in Scotland—is rising?
I think that the comparative position on employment patterns north and south of the border is instructive. That is why I marshalled information to demonstrate that the different economic strategy that this Government has taken has delivered a different outcome for Scotland. To go back to my answer to Mr Hepburn’s question, the UK Government needs to understand that, without action to remedy the reductions in capital expenditure, the ability of many people in our society to recover from the economic difficulties that we face will be affected and those difficulties will be prolonged.
As a back bencher, I listened to the cabinet secretary’s statement. I know that this is the second year that the new budget exchange mechanism has been used. Does the cabinet secretary feel that the new mechanism delivers for Scotland? What would he like to see being improved?
The budget exchange mechanism that the devolved Administrations were able to negotiate with the Treasury through a combined approach that involved my colleagues in Wales and Northern Ireland has proved to be a very useful mechanism for ensuring that we have an orderly approach to budgeting during years of erratic planning by the UK Government.
The budget exchange mechanism is set at what I consider to be reasonable levels. I do not think that it is appropriate for there to be vast underspends in any given financial year—underspends should be tightly controlled. When I came to office, my predecessors had been unable to spend £1.6 billion-worth of public expenditure. I do not think that that is a desirable situation to be in. Expenditure should be tightly managed. We have demonstrated that we can do that and that the budget exchange mechanism is set at a reasonable level to ensure tight financial discipline and to enable resources to be carried forward, when that is necessary and can be done in a reasonable fashion.
I am grateful to the cabinet secretary for the advance copy of his statement, which he ended by looking to the future. If we face even deeper cuts to the Government’s budget and to household budgets as a result of the UK Government’s approach to the welfare system, will it not become increasingly clear that we can protect public services within balanced budgets only by recognising that taxation must play a role and by empowering local government to make its own decisions about local taxation, based on local democratic mandates?
I agree with Mr Harvie about the position of households, which were under real pressure before this Government came to office as a result of the rise in council tax and have been under real pressure since 2007-08 as a result of rising charges from power companies and other UK Government tax changes. However, what members of the public in Scotland have been able to rely on is this Government’s commitment to freezing the council tax. Before 2007, people told me that that commitment would never be delivered and, indeed, that it was illegal. However, we have delivered on it since 2007 and have every intention of continuing to do so.
We must now move to the next item of business. I apologise to the members I was unable to call.