Strategic Spending Review
The next item of business is a statement by John Swinney on the strategic spending review. The statement will be followed by a debate, so there should be no interventions or interruptions.
14:03
In this statement, I welcome the opportunity to present to Parliament the Scottish Government’s draft budget for 2012-13 and our spending plans for the subsequent two years.
The spending review falls at a defining moment. It is a moment that is uniquely challenging, with a fragile global economy and savage reductions in the real value of the Scottish budget. At the same time, however, it is a uniquely hopeful moment, in the optimism that exists in our country and the trust that the people have placed in this Government.
Throughout our first term in office, we applied careful stewardship to the public finances. Our public sector efficiency programme has delivered savings above our annual targets for each of the past three years, which have been reinvested to strengthen public services in Scotland and to equip them for the challenges ahead.
Yesterday, I wrote to the convener of the Finance Committee to advise Parliament that, in 2010-11, we have delivered efficiency savings of more than £2.2 billion, which is £673 million more than the target that we set. I would like to pay tribute to staff throughout the Scottish public sector for that sustained achievement.
Over the past four years, our minority Government secured parliamentary support for its budget, balanced the budget in each year, and thereby demonstrated its financial competence. That is a record of which we are proud.
The impact of the recession since 2008 has created a serious economic context for our actions in government. We responded quickly and decisively with a detailed recovery plan, which helped to support 15,000 jobs across Scotland. We have attracted major international companies and new investment to Scotland and supported jobs directly, particularly in the construction sector, through our bold programme of infrastructure investment. We have delivered the small business bonus scheme, which has removed or reduced the burden for tens of thousands of businesses, and established the Scottish Investment Bank, which is now helping Scottish companies to access finance to stimulate business across the country. Those and other measures that we have taken have resulted in a recession that, while damaging, was shorter and shallower than that experienced by the United Kingdom as a whole.
We are making progress towards economic recovery. Over the most recent three-month period—May to July 2011—Scotland was the only part of the United Kingdom with falling unemployment. Over the year, unemployment has fallen by 33,000 in Scotland compared with an increase of 44,000 across the UK as a whole. At the same time, employment levels have increased by 36,000 over the year—12,000 more than the increase for the UK as a whole. Scotland now has the highest employment rate of any UK nation. To those who give out lectures on growth while presiding over stagnation, we say this: learn a lesson from the record of investment, job creation and balanced budgets being delivered in Scotland.
Now we face further financial challenges as the Westminster Government has imposed the most swingeing public spending cuts the country has seen since the second world war. In 2011-12, we have already been forced to reduce public spending by £1.3 billion compared with last year, with an £800 million cash reduction to our capital budget. Under the plans that the UK Government announced in its October 2010 spending review, between 2010-11 and 2014-15 we face real-terms resource budget reductions of 9.2 per cent and a real-terms cut to our capital budget of 36.7 per cent. We have argued consistently that the UK Government is cutting spending too far and too fast and that its actions run the risk of damaging the fragile recovery in both Scotland and the UK.
Against that stark backdrop, we are determined to make the very best use of the constrained resources that are available to us and to build on the progress we have made over the past four years. We in Scotland will steer a distinct course. We are committed to prioritising capital investment, protecting public sector employment and supporting household incomes as key drivers of economic recovery.
The programme for government set out how we want to continue to change our country for the better and how we will take forward the manifesto that secured widespread backing from the people of Scotland. “The Government Economic Strategy” identifies strategic priorities for driving economic growth. It highlights how we will make full use of the economic levers that are currently devolved to the Scottish Parliament, with the aim of improving Scotland’s rate of sustainable economic growth.
Many of the key job-creating powers, particularly in relation to taxation and key elements of economic and fiscal policy, lie outside the remit of the Scottish Government. For example, 90 per cent of Scottish tax revenues are controlled by Westminster and are set with reference to neither the economic circumstances here nor the preferences and needs of Scottish households and businesses.
We have made it clear that our immediate constitutional priority is to see economic teeth added to the Scotland Bill, and we have already made the case for new powers on corporation tax and the Crown estate and for more extensive capital borrowing powers.
With independence, we could do so much more. Independence would provide the freedom to best capture the unique opportunities in Scotland’s economy to maximise our potential and put us on a par with other successful independent nations. However, for the purposes of this spending review, we must work within the existing financial and constitutional framework, and today I set out my financial plans for the future.
Our focus in the spending review is to accelerate economic recovery, deliver an ambitious public sector reform programme, and deliver a social wage for the people. Vital to economic recovery is the size of our capital investment. The Government has agreed to take further decisive action to boost investment in the infrastructure that Scotland needs to prosper, supporting jobs and promoting growth.
The Government is using every available lever to maximise investment. We are taking forward a £2.5 billion pipeline of projects using the non-profit distributing model, including major investments such as the package of improvements to the M8, the Aberdeen western peripheral route, the Balmedie project, and the new Royal hospital for sick children. We are maximising the use of Network Rail’s regulatory asset base to fund new rail projects. We are prioritising key projects such as the new Forth crossing, the new south Glasgow hospitals project and our school building programme. We are funding manifesto commitments to deliver 30,000 new affordable homes over this parliamentary session. We have decided to switch a total of more than £750 million from resource expenditure to our capital programme over the period until 2014-15 .
Alongside that, we are using innovative mechanisms such as the national housing trust and tax increment financing to secure additional funds and maximise investment. Taken together, those steps will ensure that Government-supported investment continues to grow, despite cuts in our capital budget.
I am also delighted to inform Parliament that the Government’s capital programme makes funding available to meet in full the Government’s commitments to upgrade the A82 at Crianlarich and Pulpit Rock, to implement the core phase of the Glasgow fastlink proposal, to construct HMP Grampian and to support the development of the Victoria and Albert museum at Dundee.
We are prioritising our investment in Scotland’s young people to enable them to achieve their full potential. That includes supporting 125,000 modern apprenticeship places during this session—a record level—and delivering on our commitment that every 16 to 19-year-old in Scotland who is not in work, taking part in the modern apprenticeship scheme or receiving education will be offered a learning or training opportunity. We will also ensure that our approach to procurement is used as a lever for job creation by ensuring that recipients of public contract work deliver training and apprenticeship opportunities.
This spending review settlement guarantees that the university sector in Scotland will remain internationally competitive and closes the funding gap with England in full. In addition to keeping our manifesto commitments on free access to higher education, we will also introduce a minimum income for the lowest-income students, as we promised during the election campaign, of at least £7,000.
A priority for the spending review period is to deliver the ambition of next-generation broadband to all by 2020, with a particular focus on rural communities. We expect significant progress by 2015, as set out in “Scotland’s Digital Future: A Strategy for Scotland”. We will also ensure that businesses in Scotland have the skills and aspiration to enable them to innovate and compete in the global digital economy. Over the next four years, the Government will provide more than £62 million for the digital economy and broadband infrastructure and we will lever in a further investment of up to £25.5 million from European Union funds, as well as additional funding from local authorities and the private sector.
In this spending review period, we will continue to provide business with the most generous package of reliefs available anywhere in the UK, worth £2.6 billion. We will continue with the small business bonus scheme, which is helping tens of thousands of businesses in tough economic times.
I will bring forward legislation to reform empty property relief from April 2013, which will introduce incentives to bring vacant premises back into use, reduce the prevalence of empty shops in town centres and support urban regeneration. The Government will embark on a review of the operation of business rates in advance of the next revaluation in 2015.
Key initiatives that are included in the Government’s economic strategy and funded in this spending review include introducing four enterprise areas in Scotland to maximise their economic impact and attractiveness to investment; developing a regeneration strategy that will support more disadvantaged communities; providing advice and support to help small and medium-sized enterprises to grow; promoting Scottish exports to capitalise on opportunities in growth markets—particularly in new emerging markets such China and India—with an ambitious target to deliver a 50 per cent increase by 2017; and increasing our support for the development of the food and drink industry and its exporting potential.
Scotland has a massive competitive advantage in the low-carbon economy. That is why the economic strategy established the transition to the low-carbon economy as a new strategic priority. That reflects the opportunity that we now have to secure further investment and jobs from that growing sector and to ensure that the benefits of this transformational change are shared across the economy and our communities.
The national renewables infrastructure fund will help to leverage private investment into renewables, which will be part of more than £200 million-worth of investment in renewables that we commit to throughout the spending review. We are delivering on our climate change targets, with ambitious annual emissions reduction targets in place to 2022 and further targets that will shortly be in place for up to 2027. Today, we also publish our carbon assessment, which sets out the impact of our spending plans on emissions.
Investment in climate change is helping to deliver jobs and growth as well as bringing down household bills and bringing other benefits for communities. Those are demonstrated through the continuation of the hugely successful climate challenge fund, the work of our energy assistance package, the universal home insulation schemes and our business resource efficiency programme—zero waste—which has helped more than 800 businesses to reduce their waste and make better use of scarce resources.
We will take forward the commitments in our manifesto, which include working to a 70 per cent target for recycled waste and a maximum of 5 per cent to be sent to landfill by 2025. We will press for the Scottish Parliament to take on responsibility for the Crown estate, so that the resources that are generated in Scotland can stay in Scotland for the benefit of our communities and the wider renewables agenda.
Of equal importance to the global agenda is the need to ensure that the action that we take to cut emissions also delivers benefits to the people of Scotland. As I have mentioned, energy and resource efficiency will be a priority; helping people and businesses to use less energy will help them to save money and will be vital in tackling fuel poverty. We are working with the energy companies to strengthen their activities in Scotland, and further announcements in that regard will be made by Mr Neil in due course. We will also act to reduce the impacts from transport by reducing congestion and supporting better public transport, active travel and low-carbon vehicles.
This spending review confirms an ambitious programme of delivery that we will take forward over this parliamentary session. However, the scale and profile of Westminster’s cuts mean that we have been forced to make tough choices. As we have done so, we have given due regard to our equalities ambitions and commitments. The equality statement that is published today sets out the impact of our approach to continue to invest in building a society in which people achieve, regardless of their background, and the barriers to participation and opportunity are removed.
To live within our means and deliver on all our commitments, we must strive for yet greater productivity, reduce further the costs of government, pursue a policy of pay restraint and push forward renewal of our public services. Across government, we have taken a strategic and collective approach to identifying our priorities and savings. We are reducing organisational costs, including a reduction of 18 per cent in core Scottish Government operating costs over three years, and we will require that all public bodies bear down on their own comparable costs.
We will continue our relentless pursuit of further efficiency, taking forward the recommendations in the McClelland review of information and communication technology infrastructure, working with the Scottish Futures Trust to deliver efficiencies in our infrastructure programme and building the approaches that have seen us exceed our efficiency target for 2010-11 by some £600 million. We also need to ensure that we are responding to the public appetite for services to be delivered in ways that are convenient for them. The McClelland review looked at achieving better value for money from ICT investment and using ICT to support and drive multi-agency working and more effective sharing of services.
In setting out the Government’s spending plans today, I expect every public sector organisation to demonstrate how it will contribute to the potential savings identified in the McClelland review report of up to £1 billion in the next five years. I have also considered the options for raising additional income to help support investment. The updated infrastructure investment plan, which will be published later in the autumn, will highlight the range of activities taking place across sectors to improve asset management and release savings. Building on the work of the Scottish Futures Trust, we will take forward an asset management strategy for the central Scottish Government estate to reduce its size by at least 25 per cent over the next five years and to achieve savings of around £28 million a year in operating costs by 2016.
Last year, I had to ask public sector workers to bear some of the burden in dealing with the fall in public spending. We did that to protect employment in the public sector, which is a valuable part of our economy and an essential foundation of our public services. Public sector pay accounts for around 55 per cent of total Scottish resource budget spending, and decisions that we take in the area are vital to our overall financial position. Our public sector pay policies for 2012-13, which are published alongside the spending review today, balance difficult decisions on tight pay restraint with the need to sustain employment opportunities across the public sector. To help to maintain staffing levels, it is essential that we continue to control pay growth and keep pay at an affordable and sustainable level. The pay policy for 2012-13 therefore extends the freeze on basic pay and suspends access to bonuses for a further year.
In implementing a freeze on basic pay for all staff, we have again been able to provide measures to support the lower paid. We will ensure that any employee who is earning less than £21,000 continues to receive at least a £250 rise in their salary, and I announce to Parliament that we will maintain our commitment to the Scottish living wage, which will be uprated to £7.20 an hour. Ministers will also freeze their own pay in 2012-13, for the fourth year in succession.
My aim is that 2012-13 will be the last year of a pay freeze. We might be able to see modest increases in the years that follow. I again express my gratitude to the many thousands of public sector workers whose commitment to their valuable work has continued in spite of tight settlements and action to restrain public sector pay.
Our objective is to protect public sector employment to support economic recovery. One of the threats to that objective comes from the UK Government’s decision to increase employee pension contributions, which directly affects public sector workers in Scotland. The Scottish Government has made it clear that, at a time of pay constraint and pressure on household finances, an increase in employee contributions is unwarranted and disruptive. However, as the First Minister said last week, if the increases are not applied, the UK Government will reduce our budget by £8.4 million per month—£102 million in one year—which would reduce public sector employment and run contrary to the direction of our employment policy.
We think that the UK Government is taking the wrong course of action and we reiterate our call for it to change direction. Should the UK Government refuse to change its position, the Scottish Government will have no choice but to apply the increases in employee pension contributions for national health service, teachers, police and fire schemes in Scotland. We will put in place protection for the low paid and we will leave decision making on the local government pension scheme to the people who manage the scheme. We will not impose on local government in Scotland what the UK Government has imposed on us.
The pensions issue illustrates exactly the need for the Scottish Parliament and Government to become responsible for our own resources and revenue instead of being held to ransom by a UK Government for which the people of Scotland did not vote.
Given the impact of the changes on public sector workers, the Scottish Government makes clear that we will continue in 2012-13 our policy of no compulsory redundancies for areas that are under our direct control. Within that commitment, we will pursue agreements on flexible working practices that reduce costs while maintaining head count and services.
The people of Scotland attach the highest value to their public services and the Government shares their view. We have invested in and improved key services and the public recognise the benefits of our action. As we promised in our manifesto, we are protecting NHS spending by allocating an additional £826 million to the health revenue budget in Scotland over three years. That meets our commitment to pass on in full to the NHS in Scotland the benefit of the Barnett resource consequentials from the UK health settlement. As a result of that commitment—and at a time of significant real-terms reductions in the Scottish Government’s overall budget—the core budgets that our territorial health boards have to spend on delivering front-line health services are protected in real terms in each of the next three years. That will allow us to drive forward continuous improvement in the quality of healthcare services, in the interests of our economy and the health and wellbeing of communities throughout Scotland.
We will continue to work in partnership with local government. We have discussed and agreed with the Convention of Scottish Local Authorities leadership an approach to delivering joint priorities between national and local government. That settlement will enable local authorities to maintain the delivery of shared commitments that impact positively on households throughout the country. Those include freezing the council tax, which is helping families through tough economic times; funding police boards to allow them to maintain 1,000 additional police officers on our streets; maintaining teacher numbers in line with pupil numbers and securing places for all probationers under the teacher induction scheme; and meeting the needs of our most vulnerable and elderly through the NHS and councils working together to improve adult social care.
Local government will be offered a settlement that maintains its 2011-12 level of revenue funding, inclusive of resources to freeze the council tax, but with additional resources to maintain teacher employment. Local government will receive throughout the spending review period a larger share of the funds that the Scottish Government controls—including business rates—than it received in the position that we inherited in 2007-08.
I confirm that, from 2012-13 onwards, the Government will honour its commitment to ensure that no local authority receives less than 85 per cent of the average per capita support of Scottish local authorities. In addition, I have taken a decision on the local government capital settlement that maintains its share of the total capital funding across the period, which will be reprofiled over the remainder of the current session of Parliament. That reflects the Government’s wish to maximise the availability of capital spending and recognises that local government has the power to borrow in order to supplement its capital budgets. We will work with our partners in local government to consider to what extent that can sensibly be used to maximise capital expenditure, which is critical to economic recovery.
The strong support for key public services in local government and the NHS provides the foundation for setting out the way ahead in public service reform. The Government has pursued a vigorous programme of efficiency and public service reform since 2007. We have valued the work of the independent budget review, which was chaired by Crawford Beveridge, and the commission on the future delivery of public services, which was chaired by Campbell Christie. Today, alongside the spending review, I am publishing a response to the Christie commission. Those reviews have informed our decisions for the future.
We will lead an ambitious programme of public service reform that challenges the public sector in Scotland to reshape, integrate and deliver better services to those who use them, consistent with the recommendations of the Christie commission and with the requirement to deliver savings. Ministers have already set out our plans for the creation of a single police service and a single fire and rescue service as the best way to safeguard the vital front-line services on which communities depend.
The case for reform is clear. Single services for Scotland will retain local services for local communities, while giving all parts of Scotland access to national expertise and assets whenever and wherever they are needed. Estimated savings of £130 million per year can be achieved by ensuring that money is spent on the front line and not on unnecessary duplication across eight services.
We have announced a significant programme of reform of post-16 education—putting learners at the centre. That work will reflect our determination to ensure that the whole post-16 education system delivers better outcomes for individuals, employers and ultimately the economy.
A reformed system will prioritise provision for young people, help learners to develop the skills that employers need now and for the future, and support the development of growth businesses and sectors. As part of the public sector reform agenda, we will fully consider local government proposals to deliver savings by removing the need for authorities to advertise public information notices; to strengthen their constitutional role; and to extend the duty of best value across the public sector. We have also made clear our intention to more closely integrate health and social care services to improve outcomes for older people.
There will be four principal themes to our public service reform agenda. First, the focus on improving outcomes for our people will bring about greater emphasis on integration of services driven by better partnership, collaboration and effective local delivery. Building on the progress that has been achieved in the past four years, we will sharpen the focus of public services on place as a magnet for partnership and the basis for stronger community participation in the design of local services. The Government will drive greater collaboration in service design and delivery at local level, which is firmly in line with the focus on improving outcomes that we have progressed since 2007 through joint work with local government, the health service and the third sector.
Secondly, we believe that there should be greater investment in the people who deliver services through enhanced workforce development, and we reject the argument that suggests that public sector employment is a drain on the nation’s resources. We assert that the work done by public sector workers is essential to underpin our national prosperity, confidence and quality of life. We have done our utmost to safeguard front-line posts by pursuing responsible pay restraint. Going forward, we are committed to the further development of the capabilities of the public service workforce and its leadership.
Thirdly, we are committed to creating an open and rigorous performance culture within Scottish public services, to create greater clarity around objectives and to ensure clear lines of accountability that bolster standards of service and improve outcomes.
I am keen to ensure that external scrutiny such as audits and inspections supports public service reform. Such scrutiny can assist local authorities and their community planning partner bodies in working together to deliver even better outcomes. I have therefore written today to the Accounts Commission, asking it to work with others to explore how scrutiny activity can best promote effective practice in community planning partnerships.
Despite the acute financial pressures that we face, we must never lose sight of our duty to equip our country for the challenges that lie ahead. That is why a key feature of the spending review is the setting of a long-term course for our country and its finances.
The decision of the people to give the Government a parliamentary majority provides us with the opportunity to take bold action for the future. I am delighted to announce that the spending review marks a decisive shift towards preventative spending in Scotland, which is the fourth and final element of our public service reform agenda. Focusing on preventing problems by intervening earlier is not just the right approach to many of the social and other issues facing us in Scotland today; it also secures better value for the taxpayer. It will help to tackle persistent inequalities and ensure the sustainability of our public services, as demand for a range of acute services reduces over time.
The Government’s shift to target investment in preventative approaches will deliver better outcomes and value for money, and it respects the parliamentary consensus that exists in that area. Our focus will be on supporting adult social care and the early years, and tackling reoffending, with specific funding that will be available only for joint working across institutional boundaries and sectors. Over the next three years, through the joint priorities work of national and local government, preventative spending initiatives will be boosted by a total of more than £500 million.
I have looked to increase revenue for the purpose of supporting the shift to preventative spending. Scotland’s health and social problems associated with alcohol and tobacco use are well documented and we are firmly committed to addressing them. Those problems not only affect the health of the population but create additional burdens on policing, local authorities and the NHS. I therefore propose that the business rates paid by large retailers of tobacco and alcohol will be increased by a supplement from 1 April 2012. The estimated income that that will raise will be used to contribute to the preventative spend measures that will be taken forward jointly by the Scottish Government, local authorities, the NHS and the third sector. Those funds will be complemented by the launch of the Scottish futures fund that we promised at the election. We will invest more than £160 million over the next three years and a further £90 million in 2015-16 across the five components of the Scottish futures fund to support our key social, environmental and economic objectives.
The move to preventative spending and the launch of the Scottish futures fund are the actions of a Government that is building a nation that is fit for the future.
At the heart of the Government’s work is our partnership with the Scottish people. The social wage is one part of our tangible commitment to building a fair society. It means that, at a time of financial constraint for households, the Scottish Government seeks to give those households a helping hand. It means that, where the council tax is frozen, prescriptions and personal care are free, concessionary bus travel is available and access to higher education is based on the ability to succeed rather than the ability to pay, we all share a part of the Scotland we want to be. Despite the financial pressures that we face, we believe that that is the correct approach for Scotland.
The Government has today published a budget and future spending plans that equip Scotland for the challenges that lie ahead. I stand ready to support Parliament’s detailed scrutiny of these proposals over the months to come. We have set out our response to the challenges that we face, making tough choices where required. Our decisions are designed to equip Scotland for economic recovery, for sustainable public services and for new opportunities for our people.
I commend the budget to Parliament.