The next item of business is a statement by Ivan McKee on the 2024-25 provisional outturn. The minister will take questions at the end of his statement, so there should be no interventions or interruptions.
14:57
I welcome the opportunity to update Parliament on the provisional outturn against the budget for the financial year 2024-25. The provisional outturn demonstrates once again that this Government is prudently and competently managing Scotland’s finances while protecting our priorities and ensuring that we have sustained effective delivery of public services.
Once again, managing the financial position for 2024-25 was a challenge. The continued impact of inflation, pressure on public sector pay and wider geopolitical instability meant that careful consideration had to be given to balancing the Scottish budget. As members know, we cannot overspend our budget, even by a single penny, and we cannot underspend in excess of the Scotland reserve limit, which is just over £700 million. Over and above that, we have limited fiscal levers and cannot borrow to meet day-to-day costs. Savings remain our main source of funds for managing emerging pressures. In September 2024, the Cabinet Secretary for Finance and Local Government set out to Parliament the difficult choices that were being taken.
Stronger overall provisional revenue performance from the fully devolved taxes than initially forecast, together with the additional funding that was received from the United Kingdom Government last October and the spending controls that we introduced, enabled us to achieve the cabinet secretary’s stated aim of removing all use of ScotWind revenues to support the wider budget in 2024-25. That has allowed us to target those revenues on investments in a range of net zero projects for the longer-term benefit of Scotland. Resource borrowing was also eliminated, which reduces the cost of borrowing that future budgets will need to fund, while capital borrowing was significantly reduced. All those actions help to ensure that we remain fiscally sustainable.
However, the outlook is still challenging. New threats to economic stability continue to emerge at a global level. We continue to see inflation above the Bank of England target of 2 per cent, which puts pressure on public sector pay deals to ensure that pay remains fair and competitive.
The UK Government spending review, which was announced on 11 June, confirmed that the rate of growth in the block grant had fallen below previous expectations, with the block grant growing by only 0.8 per cent in real terms year on year, which is considerably lower than the 1.5 per cent average growth in UK departmental spending. In addition, changes to employer national insurance contributions have not been fully funded for Scotland, and UK Government changes to benefit policy are expected to have a significant negative impact on funding in future years.
The impact that those changes will have on our financial planning will be set out to Parliament tomorrow in the medium-term financial strategy, but growing pressures in future years mean that we must act prudently and responsibly to remain fiscally sustainable.
Despite those challenges, we have continued to deliver for Scotland. In 2024-25, we supported fair and affordable pay deals for workers who provide our essential public services, thereby securing the continuity of those services and minimising the need for the sort of costly action that we saw in other parts of the UK. As the UK pay review bodies have recently demonstrated, current global socioeconomic pressures mean that Governments must look beyond their original budgeted costs. By using effective financial management, we were able to offer pay deals that were £600 million greater than planned.
In 2024-25, we invested more than £5.9 billion in social security assistance, which directly supported more than 1.4 million people across Scotland. That figure included the allocation of £456 million to the Scottish child payment. That benefit, which is unique to Scotland, helped around 328,000 under-16s and lifted an estimated 60,000 children out of relative poverty in 2024-25.
Following successful pilots, the carer support payment and the pension-age disability payment were extended nationally, ensuring that carers and individuals with disabilities of pension age now receive regular support in all areas. We also introduced the Scottish adult disability allowance, which replaces the UK disability living allowance and benefits more than 430,000 disabled people.
Scotland’s economy and labour market have remained resilient despite challenging economic headwinds. Scotland’s economy grew by 1.2 per cent in 2024, compared with growth of 1.1 per cent in the UK as a whole, and it strengthened from 0.5 per cent growth in 2023. Scotland’s claimant count unemployment rate was 3.5 per cent in May, which remains below the UK rate of 4.5 per cent, and our median monthly pay for payrolled employees in Scotland, which was £2,542 in May, remains higher than the figure for the UK as a whole.
Scotland continues to show the largest long-term reduction in greenhouse gas emissions of all the UK nations, and we are committed to achieving net zero by 2045. In 2024-25, we spent £16.2 million on just transition fund activities, brought the new-build heat standard into force, delivered an additional 1,623 public charging points for electric vehicles and restored 14,860 hectares of degraded peatland. We also passed the landmark Circular Economy (Scotland) Act 2024, thereby establishing the legislative framework to support Scotland’s transition to a zero waste and circular economy. That is complemented by our circular economy and waste route map to 2030, which will help us to achieve our sustainable resource and climate goals.
We have continued to support and deliver genuine efficiencies across the public sector through a range of programmes to save on corporate expenditure, including the national collaborative procurement framework’s commercial value for money and digital programmes, which are securing cost-avoiding and cash-releasing savings that are expected to reach more than £0.5 billion by the end of 2026-27.
In 2024-25, we also launched property controls guidance to support a more efficient approach to public sector property management and to optimise costs and estate footprint. Since 2022, enhanced recruitment controls have controlled growth in the total Scottish Government workforce, reducing it by 5 per cent between March 2022 and March 2025.
Turning to the 2024-25 provisional outturn, I am pleased to confirm that the Scottish Government has once again delivered a balanced budget, with a provisional fiscal outturn of £52.1 billion against a total fiscal budget of £52.7 billion. The remaining £557 million, which represents just over 1 per cent of our total budget, will be carried forward in full through the Scotland reserve if that figure is confirmed at the final outturn. That incorporates £501 million of fiscal resource, £31 million of capital and £25 million of financial transactions.
I again reiterate that there will be no loss of spending power to the Scottish Government as a result, with that funding supporting 2025-26 costs. We cannot overspend. The fiscal rules that we must comply with mean that we must plan for a modest underspend—we must be able to mitigate the risk of post year-end audit adjustments and to manage any late movements in demand-led programmes and fully devolved tax receipts, which have occurred in previous years.
We have already made clear to Parliament our intention to set aside the majority of that underspend as part of our spring budget revision, with £350 million planned to be held within the finance and local government portfolio. Indeed, we operate on an annualised budget, but our activities do not abruptly end on 31 March and then commence anew on 1 April each year. Smoothing through the Scotland reserve over financial years is therefore to be expected. The fact that we have managed the position to a 1 per cent underspend underlines the Government’s financial competence.
I also remind colleagues that there remains a non-cash element of our budget allocation, which is utilised for accounting adjustments, such as depreciation. That element is ring fenced and cannot be used to support day-to-day spending. As non-cash expenditure, it does not flow through the Scotland reserve and is therefore excluded from the headline provisional outturn results. For 2024-25, that shows an underspend of £738 million against a budget of £1.8 billion. A large proportion of that relates to non-cash consequentials for student loan impairments, which are simply not required at the same level in Scotland because of our policy of free university tuition.
The figures that I have reported to Parliament today remain provisional, as they are subject to change pending completion of the 2024-25 year-end audits. Finalised figures will be reported as usual in the annual Scottish Government consolidated accounts and a statement of total outturn later this financial year. I commend today’s figures to Parliament.
The minister will now take questions on the issues raised in his statement. I intend to allow around 20 minutes for questions, after which we will move on to the next item of business.
I thank the Minister for Public Finance for advance sight of his statement. We know that the Government does not like being reminded that, in recent years, it has secured record settlements from Westminster and that it is duty bound to balance its budget. At a time of Scottish National Party cuts—to areas such as colleges and employability schemes—and tax rises, we have found out from today’s provisional outturn report that there is a growing underspend as a result of decisions taken by Scottish ministers.
The SNP has repeatedly underspent its budget, and it has done that this year to the tune of £557 million, which is almost double the figure of the previous year. Ministers could have put that money to good use. It could have met our repeated calls for the passing on of rates relief for retail, hospitality and leisure businesses in full. That would have saved jobs and businesses that are now lost, and delivered tax receipts, which are now faltering. It could have provided support to Scotland’s underfunded councils, which were this year forced to impose double-digit council tax increases. That would have allowed hard-pressed households to save money.
Today’s report also proves that ministers continue to pursue the wrong economic and fiscal priorities, with the Government confirming the Scottish Fiscal Commission’s projection of an £851 million shortfall in Scotland’s tax take. That is a black hole that will have to be reckoned with in 2027 and 2028.
Is it not, therefore, deeply regrettable that money that could have been spent last year on saving jobs, supporting councils and delivering growth to drive much needed tax revenues will now be spent in future years on the negative social and economic costs of those repeated SNP policy failures and misplaced priorities? [Interruption.]
Murdo Fraser is applauding—I thought that he knew better.
It is quite embarrassing to listen to Craig Hoy demonstrate his complete inability to understand the fundamental concepts of today’s statement. He does, or should, understand that that funding is not lost—it simply moves into this year’s budget. He should also understand that the underspend is just over 1 per cent of the total budget that we have to spend. It is actually less than the equivalent underspend of 1.3 per cent in England, where his party was in control for most of that year. He will understand that that money flows into 2025-26 to support the budget that we are taking forward this year.
None of that money is lost. Craig Hoy clearly does not understand how that works or the management that goes into steering the underspend in the budget outturn to within 1 per cent of the total budget. That is just another demonstration of why the Conservative Party, with Craig Hoy pretending to be its finance spokesperson, is not fit for office in this Parliament.
I thank the minister for advance sight of his statement. I must say that I find it increasingly worrying that, over recent weeks, the SNP has opposed above-average increases in spending on defence, given the headlines that we have seen in recent days.
It is thanks to the Labour Government’s record investment that the signs are good and that we will perhaps not have a chaotic in-year emergency budget this year. However, given the SNP’s financial record, who knows? The question is now about delivery. Statistics that came out today—the First Minister is nodding, so he must know what is coming—show that we have atrocious accident and emergency waiting times, the worst cancer waiting times on record, domestic abuse near a 50-year high, and plummeting house-building rates. It is obvious that, under the SNP, Scotland is going in the wrong direction. What is the SNP going to do to turn Labour’s record investment into delivery?
Michael Marra knows that this Government is completely focused on delivery and that we make it our highest priority to meet our objectives. He should know—this was in my statement—that Scotland’s economy grew faster than that of the rest of the UK last year and that Scotland has significantly lower unemployment and higher average earnings than the rest of the UK. The budget is delivering economic growth.
On our other priorities, I have already outlined Scotland’s climate situation compared with that of the rest of the UK. We continue to be a leader in that regard. On public services, we are absolutely focused on tackling those waiting lists, which are too high. The Government has committed to bringing them down significantly over the coming months, and we will continue to focus on that.
On the resources that we have on our plate, the uncertainty that comes with the way that the UK Government operates its budget, with the late adjustments and consequentials, makes things difficult. Despite that, however, we manage to allocate resources as appropriate to deliver for the people of Scotland, and we will continue to do so.
The minister highlighted that Scotland has higher economic growth than the rest of the UK. Can he outline areas of expenditure in the outturn for 2024-25 that have helped to create that competitive economic advantage for the Scottish economy?
Yes, I can. The Scottish Government has sought to secure and leverage competitive advantage for our economy through our budget and priorities for growth. On the offshore wind sector, for example, the 2024-25 outturn shows that we supported the green economy and future jobs by kick-starting our commitment of up to £500 million to anchor a new offshore wind supply chain in Scotland. That has leveraged in private capital investment such as Sumitomo’s £350 million cable factory investment at Nigg. We will continue to build on that to unlock growth and innovation across all sectors of our economy in 2025-26.
We also continue to support the roll-out of improved digital connectivity in Scotland by extending gigabit-capable fibre networks right across the country. We have created the conditions for Scotland to be at the heart of the green technology revolution, as well as better connecting our citizens to one other and to digital public services.
According to the figures that we have just seen from the Government, the underspend in the Deputy First Minister’s economy and Gaelic portfolio is £106 million. That is a staggering 7.4 per cent of the total budget in that department. It is responsible for growing the economy, for the enterprise networks and for VisitScotland, all of which have seen their budgets slashed by the SNP in recent years. If growing the economy is so vital to the Government, how does the minister explain that underspend in that vital spending department?
There are a few technical reasons for that. There is the redress, relations and response underspend of £36 million, which followed a reclassification by the Office for National Statistics post the year end. There is also an underspend of £18 million in relation to the Scottish National Investment Bank. I am sure that Murdo Fraser understands that, when deals are being taken forward at the end of the year, we do not want to rush into them; we want to make sure that we do them properly in the interest of making the investment effective. If such deals slip into the following year, that is absolutely to be understood, because they are significant capital investments.
There was also a slight underspend in relation to the city and regional deals programme. Again, given the nature of those multiple programmes across the country, we would expect there to be potential for some slippage in some of those investments.
I think that that answers the questions that Murdo Fraser raised.
Will the cabinet secretary advise whether revised fiscal rules from the UK Government would help borrowing for capital investment?
It is important that we have the ability to take forward capital investment. The rules that the UK Government has in place can make that a challenge. There have been fluctuations in capital budgets over a number of years, which have involved reductions then reinstatements. That has been problematic for our ability to predict and understand how we can adequately support the programme of investment that we rightly take forward on behalf of the people of Scotland.
It is important that we have stability when it comes to capital budgets and that we are able to plan adequately and securely into the future. The lack of borrowing powers for the Scottish Government makes that difficult. We call on the UK Government to provide additional borrowing powers, to enable us to plan and execute our very important investments.
The finance and local government line shows a £324 million underspend, which represents around 40 per cent of the total cash underspend in the statement. All members will be aware of how hard pressed local services are, the fact that there was a council tax freeze this year, and the requirement to find additional money for pay, especially for social care workers. Three hundred million pounds would have made a substantial contribution towards dealing with those issues, so why is there an underspend of such a substantial sum in that critical area, given the importance of local services?
I would have thought that Daniel Johnson would have taken the time to interrogate the numbers a bit more thoroughly. He would have heard me mention in my statement the £350 million underspend that was planned from the spring budget revision in January and carried forward into next year. That sits in the finance and local government budget line.
In fact, local government overspent by £22 million in 2023-24, as a consequence of the late approval of the relevant local government pay deal. Far from the situation that Daniel Johnson outlined, we have slightly overspent in supporting local government on the pay of its workers. The £350 million that he talked about was identified earlier in the year as part of a planned underspend to support the 2025-26 budget.
Can the minister confirm that the £557 million of resource underspend is only around four days of Scottish Government expenditure, which shows the tight levels of financial management by the Government, for which he should be commended. All of that has rolled forward into the current financial year.
However, capital borrowing was £193 million less than expected, due to emerging underspends. Does the minister agree that having shovel-ready projects in place, such as pothole repairs, which can be undertaken fairly quickly in most places, would help to ensure that capital is fully utilised, should capital underspends emerge in the future?
I thank Kenny Gibson for his kind words about the job that we have done. He is absolutely right: the underspend is only just over 1 per cent of the total spend. As I have said, that is a lower underspend percentage than occurred across the rest of the UK.
On capital projects, I wish it were that easy. Those budgets are allocated to portfolios, then to agencies and projects. Those projects do not stop on 31 March then restart in April. They continue from day to day. There is some slippage in the expenditure on those projects. However, the work does not stop, and the expenditure needs to carry on. The ability to pull that money back in the last few days of the financial year, allocate it to something else then reallocate it in April would be problematic, to say the least. However, I take Kenneth Gibson’s point: the ability to have shovel-ready projects—which we have—that can be brought in when we have additional money to spend is an important step to take.
The minister will be aware of my concern that, because many of the Government’s costs are fixed at the start of the year, the annual path-to-balance reallocation exercises place a disproportionate burden on particular portfolios—primarily health and education. Allowing for the fact that there will be an election before then, will the Government consider publishing alongside next year’s outturn statement a multiyear analysis of the impact of the path-to-balance exercises and in which portfolios they fall, perhaps covering the five financial years of this parliamentary session?
The member will be aware that the health budget is protected and that we pass on all consequentials to health.
Health is of course by far the biggest area of expenditure within the Scottish Government’s budget, and so the focus on managing health budgets in-year is clearly critical to ensuring that we achieve the path to balance and balance our budget as we are required to. Many moving parts, as a result of consequentials or other changes in-year, can influence those budgets. However, in the interests of transparency, we are always keen to make as much information as possible available to Parliament and others.
At some point, we are going to have to have an honest debate in this Parliament about the net income forecast for Scottish income tax, which has reduced by £850 million on outturn versus forecast.
However, there is another line that I was very concerned to read about in this outturn, in relation to carers allowance reduction. There is more than £100 million of underspend in that line, yet so many carers in Scotland are facing the harsh reality of difficult finances due to the cliff edge of earnings in relation to receiving that benefit. Is the Scottish Government willing to look at the thresholds, and at whether any of that underspend could be used in this financial year or ring fenced to support carers in the vital role that they perform, instead of that money disappearing into what is clearly next year’s fiscal black hole, which is sitting in the Scottish Government’s accounts?
First, on the technical point, Jamie Greene is right to identify that carers allowance was underspent by around £100 million. However, if he looks further down the figures, he will recognise that carer support payments were overspent by almost £100 million. The reason for that is that the first of those is a Department for Work and Pensions payment, which was then transferred to Social Security Scotland, which then picked up the payment and incurred that cost as a consequence. It is therefore very far from being the differential that he identifies.
We are proud of the support that we provide to carers in Scotland. However, we are of course always keen to have conversations to see what else we can do to support them in the very important role that they perform.
Will the minister set out the additional flexibilities contained within the fiscal framework and explain whether he believes that they are sufficient to give the Scottish Government the financial levers that it requires?
Under the fiscal framework, the Scottish Government can access limited resource and capital borrowing and has the use of the Scotland reserve. The Scottish Government’s borrowing powers, though improved by the fiscal framework, remain extremely limited. For example, resource borrowing is still limited to addressing forecast errors in tax or social security payments and cannot be used to fund day-to-day expenditure, and the current cap on the Scotland reserve limits our ability to carry forward funds into future financial years.
We want to work with the UK Government to secure greater fiscal flexibilities to support sound financial management and to deal with volatility. The Cabinet Secretary for Finance and Local Government will discuss those issues further at the forthcoming meeting of the UK finance interministerial standing committee.
In relation to the answer that the minister gave to Kenny Gibson when he asked about infrastructure, why specifically is there a £72 million underspend in the transport portfolio when there are so many pressing issues, such as the dualling of the A9 and various other upgrades?
The £72 million capital underspend in transport and the £27 million underspend on the trunk road network reflect forecasts across a range of programmes, including the M8 Woodside viaduct propping project, that are facing a number of challenges through the financial year because of the complexities of those works.
If Liz Smith has not gone to visit those works, I encourage her to do so in order to learn about the challenges that doing that work in a city centre location presents to the excellent teams that are carrying it forward. That work is of course reprogrammed into 2025-26, so whether there is a delay or not, it does not affect the amount of work that gets done.
There is also a rail services underspend: Network Rail has underspent £22 million on operations, maintenance and renewals. That is driven by the rephasing of national Network Rail programmes, where costs are allocated to the Scotland region, although it is obviously something that we carry out ourselves.
The majority of the Scottish Government’s funding continues to be tied to decisions of the United Kingdom Government and is subject to high levels of uncertainty until very late in the financial year. Will the minister give a practical example of the consequences of Scotland’s funding being tied to Westminster?
There is always uncertainty in our funding envelope until quite late in the year, given the way in which the devolved Governments’ finances work. Receiving clarity on the overall funding position from the UK Government as early as possible is beneficial for our planning, to avoid any last-minute budget reductions and reprioritisations. Although, in 2024-25, we received an update on the in-year position as part of the UK Government’s autumn budget process, which was welcome, an element of capital was subsequently reduced in early 2025, only six weeks before the end of the financial year. Therefore, we must always maintain an element of contingency to manage last-minute changes to our overall funding envelope, which consequently reduces investment opportunities.
The building at 48 South Street, Elgin was worth £275,000, yet the minister’s predecessor spent £3.5 million on decarbonising it. That was by no means a lone example of a project that was an utter waste of money, and the minister agreed that that was the case. Therefore, why has phase 2 of the funding been approved? Why is it going ahead? Applications closed at the end of May. Before making any decisions on how to spend that money, will the minister report to the Parliament on how he proposes that it should be spent? Would it not be better to spend it on dualling the A9?
I take on board the point that the member raises. As is the case with all spending, we want to make sure that it is done effectively and efficiently. I undertake to report back to the Parliament on the specific projects that might or might not be taken forward under that funding line.