The next item of business is a statement by Shona Robison on the Scottish Government’s medium-term financial strategy and fiscal sustainability delivery plan. The cabinet secretary will take questions at the end of her statement, so there should be no interventions or interruptions.
15:45
Today, I am publishing two documents that broadly set out how public finances will be managed in the next five years—the Scottish Government’s seventh medium-term financial strategy and our first fiscal sustainability delivery plan.
Today, the Scottish Fiscal Commission is also publishing an update to its independent forecasts, which underpin the strategy and delivery plan. I thank Professor Graeme Roy and the Scottish Fiscal Commission for their flexibility in working with us.
With the world facing profound economic uncertainty, this MTFS is being presented in deeply challenging circumstances. Those challenges have been exacerbated by the actions of the United Kingdom Government, whose decisions continue to have serious consequences for the delivery of our public services. For example, the Chancellor of the Exchequer has again failed to provide full funding for the additional costs of employer national insurance contributions, leaving public services in Scotland to face a £400 million shortfall. Furthermore, had the resource funding that is provided to the Scottish Government for day-to-day priorities matched the average increase for UK departments in the UK spending review, we would have £1.1 billion more to spend in the next three years.
Last week, the UK Government set out proposals that will deliver deep cuts to disabled people’s support, which will push more people into poverty, with a real-life negative funding impact in Scotland of £440 million by 2029-30, based on the Office for Budget Responsibility’s estimates.?
Given the situation that is developing in Westminster today, how exactly the UK Government will deliver its intended changes remains to be seen but, for the purposes of today’s publications, I will be using the numbers that the Treasury gave us at the UK spring statement. For Scotland, funding from the UK Government for day-to-day spending is only expected to grow by 0.8 per cent in real terms in the next three years, compared with a 1.2 per cent average growth for UK Government departments. Scotland’s capital block grant will be 1.1 per cent lower in real terms by the end of the UK spending review period.
Those allocations simply do not reflect the unavoidable realities of the demands that will be placed on public services by the demographic challenges that we face, not least through an ageing population. On capital, construction price inflation, which has been turbocharged by Brexit, continues to drive up prices, while the necessity to maintain and invest in new assets remains.
To ensure that public services are there to meet the needs of the people, we are introducing our reform and savings plans. The UK Government is taking similar action. Indeed, the chancellor has set out the approach to achieving fiscal sustainability for the UK, with all departments to deliver at least 5 per cent savings and efficiencies by 2028-29. Within that, there are reductions in administration budgets of at least 11 per cent by 2028-29 and 16 per cent by 2029-30 in real terms. We require to take similar actions as, without our doing so, the forecast gap between funding and spending in Scotland could reach £2.6 billion for resource and £2.1 billion for capital by the financial year of 2029-30.
Managing the impact of Westminster austerity is all too familiar but, in spite of that, we continue to invest in the people of Scotland by supporting a better paid public sector, delivering high quality public services, and providing welfare support that is not available in other parts of the UK. We have done so while delivering a balanced budget every single year since 2007.
We will reform and reshape our public services, using technology to embrace and drive forward new ways of working. That shift is critical to and underpins the first pillar of our strategic approach, which is to continue to increase value for the public purse, maximising the impact that we achieve through our investment. That is why, alongside the budget in December, I will publish a multiyear Scottish spending review and an infrastructure pipeline that will set out affordable and sustainable investment plans for the years ahead. A framework for that spending review is being published in the MTFS today.
As part of the second pillar, we will deliver efficiencies. That means improving productivity and making the most of every pound of public money that is spent on delivery. We will focus on business improvement to drive down the cost of service delivery, not only in corporate functions but across the whole system—as was set out last week by the Minister for Public Finance—while protecting outcomes. Business improvement will include the sharing of services and estates across our public bodies and the driving of efficiencies from collaborative procurement across the public sector.
We will set a managed reduction target for the public sector workforce to reduce staffing levels by an average of 0.5 per cent per year until 2030. That will be achieved through reforms to our public services, as has been set out in our public service reform strategy, through natural attrition and recruitment controls. By taking that action, we will protect valuable front-line services and continue to offer a progressive pay policy that recognises that our public sector workforce is our most valuable asset.
We will focus on how to process and deliver benefits with dignity, fairness and respect, while driving important efficiency savings and ensuring that people access the support they are entitled to. We will continue our targeted programme of efficiency and productivity improvement within the national health service. We will seize the opportunities that are presented by the rise of innovation, digital and advances in treatment. We will commit to working with NHS boards and staff, ensuring that the use of core resource is optimised and that best value is secured across NHS Scotland.
As part of the third pillar, we will drive forward service reform to improve the way in which we deliver services. We must integrate support and empower the front line to bring together all the resources that people and families need to thrive. Lastly, we will focus on prevention, investing in the most impactful preventative spend to reduce demand on services in the medium to long-term. In order to improve lives, we will deliver the technical and cultural change that is needed to go further in tackling the root causes of poor outcomes. For example, through the “Best Start, Bright Futures” breakfast club delivery plan, we will continue to drive forward cross-Government action on eradicating child poverty.
Through the actions to maximise value from public spending and drive efficiency and reform that are presented in today’s delivery plan, we expect to generate total cashable savings of £2.6 billion by 2029-30. That equates to 4.4 per cent of the forecasted resource budget for that year. Growing the economy is a top priority for the Government. By boosting business activity, driving wage growth and creating employment opportunities for more people, we can broaden the tax base, alleviate pressure on public finances and generate income tax revenue to support fiscal sustainability in the medium to long term. That is the focus for the second pillar of our strategy.
Our plan for increasing Scotland’s economic activity centres on creating a dynamic and flexible business environment, improving skills provision and supporting people to secure higher paying jobs, creating opportunity for people to enter or take on more or better work, attracting investment, and promoting entrepreneurship in the industries of tomorrow. However, the levers that are available to us to stimulate economic growth are limited. For example, the UK Government’s current approach to immigration harms Scotland by failing to address our demographic and economic needs, thus exacerbating labour supply issues. Despite those constraints, this Government will continue to take action and make the most of Scotland’s strengths and opportunities to boost our long-term economic prospects.
Our overarching economic strategy sets out our vision for a fair, green and growing economy, and we are prioritising the delivery of the actions that are outlined in our programme for Government to deliver growth that will help people to enjoy more prosperous lives now and in the long term, and protect the public services that we all rely on.
The third pillar of our approach focuses on delivering a strategic approach to tax policy decisions. Despite limited tax powers, we have taken bold, necessary action in recent years to ensure that our vital public services are prioritised.
Our decisions on income tax since devolution are helping to protect investment in public services. Scottish income tax is forecast to raise a record £20.5 billion in 2025-26, with the latest SFC forecast showing a positive contribution to the 2025-26 Scottish budget of £616 million, with the total tax net position to be £2.3 billion by 2029-30.
Our delivery plan sets out further the range of actions to improve the operation and performance of the existing tax system. For example, we are implementing new devolved taxes, including the UK aggregates levy in 2026 and the building safety levy in 2027, and we continue to work in partnership with local government to ensure that local taxes are fair and sustainable. We will also take forward work on considering future reform to the tax system, including through developing our thinking on longer-term issues such as wealth taxation.
Fiscal sustainability is about more than balancing the books: it is about delivering value, driving reform and making strategic choices that support long-term growth. By focusing on efficient public spending, modernising services, growing our economy and taking a strategic approach to tax, we can build a stronger, fairer Scotland. Meeting the challenges that face our public finances will require a collaborative effort across the public sector and beyond any single parliamentary year.
Our strategy and action plan set out a clear path. I invite my colleagues across the chamber to work with me to deliver them and to ensure that our public finances stay on a sustainable footing.
The previous medium-term financial strategy was published just over two years ago. Last year’s was binned, and this year’s was delayed. With the Government slipping out this year’s strategy just before the summer recess, we have no time to properly scrutinise the plan. What we do know is that, without radical action on public sector reform, health and labour force trends, Scots face substantially higher taxes or a state that does less.
The projected £5 billion fiscal gap by the end of the decade is not Westminster’s fault or responsibility; it is the Scottish National Party’s. Today’s 0.5 per cent workforce reduction plan lacks ambition and detail. The tax strategy is wrong, and it is bringing in just £616 million this year, which is £1 billion less as a result of the SNP’s economic performance gap. There is still no credible plan to generate the growth that is needed to pay for it all.
How can we trust the SNP to deliver additional tax receipts of £2.3 billion by 2029-30 when its existing plans bring in only a quarter of that? How do ministers intend to pay for Scotland’s health outcomes? Yesterday’s data revealed that things are still getting worse. How does the Government intend to address alarming and rising levels of economic inactivity, which can no longer be ignored, and how will ministers pay for the year-on-year surge in welfare spending, which is £2 billion, as a result of SNP policy? Is it not the case that the delayed SNP document is too little too late to rescue the Scottish economy or our fragile public finances?
Again we hear hyperbole from Craig Hoy rather than anything about the detail of the plans that I have produced today. [Interruption.] Let me take Craig Hoy through a couple of facts. Our funding is determined largely by Westminster, and I set out the impacts that are driving the gap in 2029-30—there are three in particular. One is the cuts to disability benefits, which will impact the Scottish budget by £440 million. The cost of mitigating the UK Government’s two-child cap could be offset if the UK Government decided to do that. There is also the impact of employer national insurance contributions, with a gap of £400 million. Then, of course, we have the very low rate of funding growth, which is 0.8 per cent lower than the average for UK funding departments.
There were four questions in there, but I have not heard any answers.
Let us hear one another.
It sounds to me like Craig Hoy wants to defend the Labour Government’s spending review instead of defending Scotland’s public finances and funding. That is a political decision for Craig Hoy to make. [Interruption.]
Let me explain—probably for the fourth or fifth time—a point that Craig Hoy seems to have misunderstood. The Scottish Fiscal Commission has produced an illustrative policy-only income tax net position, but that is not supposed to represent what the income tax policy could raise for the Scottish budget—I have told him that time and again. More importantly, Professor Graeme Roy of the Scottish Fiscal Commission has told Craig Hoy that. Perhaps he needs to start listening a bit more, rather than talking.
Today is the day when years of gross mismanagement of the public finances by SNP ministers caught up with them, and the price is being paid by ordinary Scots. Let us be crystal clear: by no definition—other than the SNP’s—can the budget that it receives be described as representing austerity. Scotland’s budget will increase in real terms each and every year of this forecast. There is an additional £9.1 billion for Scottish public services and, by 2029-30, the block grant will be £52 billion. This SNP Government is making cuts because it has spectacularly mismanaged Scotland’s budget. SNP ministers have created a structural deficit of a staggering £2.6 billion as a result of the choices that they have made. The SNP’s cuts plans set out huge reductions in front-line workers and a 12 per cent funding cut to Scotland’s NHS boards.
This comes at a time when, only yesterday, we learned of soaring accident and emergency waiting times and the worst cancer waiting times on record, with SNP ministers admitting that people are dying as a result of the incompetence. Domestic abuse statistics are at record highs and house building rates are plummeting down, down, down. These are cuts to mitigate their incompetence. It has never been clearer that Scotland needs a new direction. This SNP Government has the powers and the money. Is it not right that it is out of ideas, out of excuses and out of time?
Michael Marra has outdone Craig Hoy’s hyperbole as usual. Let me give Michael Marra some facts. First, the Chancellor of the Exchequer is also delivering savings: 5 per cent savings and efficiencies by 2028-29 and an 11 per cent real-terms reduction in administrative budgets by 2028-29, rising to a 16 per cent real-terms reduction by 2029-30. Why is it okay for Michael Marra’s Labour UK Government to make those reductions in corporate costs and back-office costs—[Interruption.]
Let us hear one another.
—but it is not okay for the Scottish Government to make reductions in corporate and admin costs to protect front-line services? Michael Marra needs to explain why it is okay for the Labour UK Government to do that but not okay for the Scottish Government to do that. We will take action on reforms and reduce corporate and back-office costs in order to protect front-line services and welfare spending—something that Michael Marra and his colleagues want to cut. We will protect the priorities of this Government, and we will let Michael Marra defend a UK Government record on disability cuts that is indefensible.
There is a lot of interest in the statement. If we can hear one another, we will be able to include more members.
East Lothian is one of the fastest-growing areas in Scotland, along with the broader south-east Scotland region. Extensive economic and housing opportunities are possible in the region, as is highlighted in the “Strategic Sites Programme October 2024”, which was published by the Edinburgh and south-east Scotland city region deal team. How can the Scottish Government engage with the local authorities in the area in relation to the medium-term financial strategy to maximise opportunities?
Scotland’s regional economies and regional economic partnerships are critical to growing our economy. The strategic sites programme highlights that targeted Government capital and revenue support can help to unlock those strategic sites, which is why we are funding areas such as the Granton waterfront with targeted funding to help to unlock vital investment. We will continue discussions with strategic partners, focusing on emerging business cases such as that for Blindwells, over the next months in order to develop a joint approach to facilitating the progress of these strategic sites.
In May 2022, the then SNP Cabinet Secretary for Finance and the Economy, Kate Forbes, who I do not see in the chamber, pledged that the Scottish Government would reset the public sector, return the size of the workforce to pre-Covid levels and freeze the pay bill. We now know that all three of those promises were broken. The public sector pay bill has ballooned, while the civil service full-time equivalent head count has gone up from 17,700 in 2019 to 27,400, which is a staggering 54 per cent increase. At the rate of reduction of 0.5 per cent a year that has been announced today, how many years will it take to get the public sector workforce back to pre-Covid levels, as promised? I make it 70 years. Does the cabinet secretary agree with my arithmetic?
Murdo Fraser forgot to mention the growth in the areas of welfare spending in which we have devolved powers, which required the establishment of Social Security Scotland.
What I have set out today is an achievable and deliverable workforce reduction plan that can be implemented in a way that focuses on back-office and corporate costs. The plan will make a sizeable contribution to the overall cost reduction that I have set out in my statement, alongside the other work that Ivan McKee set out in his statement.
We will not do what the Tories have done—put forward unaffordable proposals for £1 billion of tax cuts that they have no way of funding. [Interruption.]
Members.
We will set out our spending review at the end of this year. It is up to the other parties in the Parliament, whether the Tories or Labour, to set out their spending plans. The envelope is the envelope, and it will be very interesting to see whether they would divert from our spending plans and, more importantly, what they would cut from those spending plans. We will wait and see what they bring forward.
It would be very helpful if all front-bench members could set a good example to the rest of the chamber.
The UK Government’s decision to cut disability benefits is completely wrong-headed. It is simply unacceptable to try to balance the books on the backs of some of the most vulnerable people in our society. What assessment has been made of the impact that that decision will have on Scotland’s public finances? What steps will the SNP Scottish Government take to protect disabled people from those Westminster cuts?
The Department for Work and Pensions’s own impact assessment highlights that, by 2029-30, 3.2 million families will lose out as a result of those reforms. Ninety-six per cent of those families include a disabled person. The proposed changes will push a further 250,000 people, including 50,000 children, into poverty by 2029-30. The UK Government’s disability benefit reforms will reduce the block grant adjustment funding that we can expect to receive for social security benefits in 2029-30 by £440 million.
The Scottish Government will not let disabled people down or cast them aside, and we will not cut Scotland’s adult disability payment.
As has already been mentioned, the fiscal sustainability delivery plan sets out that the devolved public sector workforce will fall by 0.5 per cent in each of the next five years. Given that the public sector workforce in Scotland consists of 469,000 people, I make it that that will involve a decrease of 2,300 a year, which will result in a cumulative reduction of 11,700 jobs.
Such stark action is perhaps unsurprising, given that the NHS head count has increased by just one third of that, and the numbers of police, fire, local government and college staff have all gone down over the past five years. Can the cabinet secretary confirm that we are looking at a reduction of more than 11,000 full-time equivalent posts? Will NHS and other front-line services be protected? Are those targets compatible with the policy of no compulsory redundancies?
Daniel Johnson asks some very important questions. First, because of the scale of the challenge in recent years and across the medium term, the health service will receive a 3.3 per cent real-terms increase in funding. That is important. However, like the health service in England, the NHS in Scotland will require to undertake reform and make efficiencies. In England, about £9 billion will have to be saved by 2028-29, which is about 4.4 per cent of the NHS budget. We are requiring the health service in Scotland to undertake reform, with a particular focus on back-office and corporate costs, in order to protect front-line services.
I have set out that the no compulsory redundancies policy will be maintained as the default position. However, as a last resort, once all steps have been taken in relation to voluntary severance and redeployment, and there is no other route and no jobs for the people involved, compulsory redundancy can be considered, but only at the end of that process. I have been engaging with the unions and the Scottish Trades Union Congress on that, and we believe that the reductions can be made through natural attrition and voluntary severance. Only in that extreme position would compulsory redundancy be enabled, and we do not see that happening in very many cases.
It is disappointing that the UK Government’s central capital allocation for Scotland in four years will be £163 million less than this year. What will that mean for capital investment in our infrastructure?
The statement mentioned a modest 0.5 per cent annual decline in the public sector workforce, as we have already heard. Will that be concentrated in specific departments or across the board, and how will front-line services be protected?
In response to Kenny Gibson’s final question, we will absolutely focus the reductions on back-office and corporate costs. We believe that, through reform, we can make major changes to the way that back-office and corporate functions are delivered in order to protect the front line. We want to be able to deliver our spending plans and the Government’s priorities of protecting front-line services, eradicating child poverty, growing the economy and reaching net zero by taking the action that is set out in those plans.
Kenny Gibson also mentioned capital. The capital outlook in the UK spending review is very disappointing. We will return to that through our spending review and the infrastructure investment pipeline that we will set out at the end of the year alongside the 2026-27 budget.
The envelope is not fixed. The cabinet secretary’s statement acknowledges that tax policy will have to play a role if we are to avoid damaging cuts to public services. The plan that she has published today commits to ensuring that local taxes are fair and sustainable. Why, then, has the Government continued to oppose Green proposals to revalue council tax, which is the most substantial local tax that exists? Why does the work to replace that broken, outdated and deeply unfair tax seem to have stalled completely?
We continue to discuss with the Convention of Scottish Local Authorities, through the joint working group, potential reforms to local taxation. Of course, some reforms have already happened, with the additional fiscal levers that local government now has.
As I have said at committee and in the chamber, it is important to build a political consensus on what any substantial reform to council tax looks like, otherwise it will not get off first base. That remains my position in relation to not only the parties in the chamber but local government and, importantly, the public.
According to today’s forecast, the bills for health and social care and devolved social security benefits account for more than half of all Government spend, with both bills rising every year for the next five years to the tune of £150 billion. The Scottish Government claims that economic growth is its top priority, but with one in five Scots economically inactive, surely the public sector reform that we need is the sort that will help to get people back into work, reduce the welfare bill and make our nation wealthier, healthier and happier. Does the cabinet secretary not accept that today’s forecasts instead demonstrate an unsustainable budget that achieves none of that?
Let me start on a point of agreement, which is that it is important to get people back to work. Our employability schemes and our investment in employability are important ways to do that.
There is also our focus on growing the economy through investment in the Scottish National Investment Bank, investment through Scottish Enterprise and delivery through our enterprise agencies. We also have incredible levels of direct investment into Scotland. There are some underlying strengths in the Scottish economy.
Yes, there is more to do. We look forward to working with Jamie Greene and his colleagues on some of the additional measures that we can take, particularly around employability and what works to get people back into the labour market.
As the pressure of Labour austerity and inflation continues to attack funding for our public services, and as the increase in employer national insurance continues to bite, ever more will probably fall to be delivered by the third sector—our charities—yet they, too, fall foul of that employer national insurance hike. Does the cabinet secretary agree that charities should be exempt from that job tax, and that it should be fully funded if they are not exempt?
I agree with Christine Grahame on that point. The analysis was, I think, that the national insurance increase would cost the third sector more than £80 million—which will, of course, be a cost to the services that that sector provides. We will work with the third sector, in the absence of UK Government movement on exempting it, to look at multiyear funding, for example, because certainty of funding is something that it would greatly welcome.
In the letter that the convener of the Finance and Public Administration Committee wrote to the cabinet secretary on 14 May, it was made abundantly clear that the committee had significant concerns about the very late publication of the MTFS in the last week of term, which delays the scrutiny process for two months. Does she recognise the serious implications of late publication and its effects on scrutiny, forecasting and policy making?
In my letter to the committee, I recognised that the situation was less than ideal, but it was driven by the fact that we needed to see the numbers in the UK spending review. It is as well that we waited to see those, because, compared with the actuality of the UK spending review, there has been a deterioration on the forecasts that we and the SFC made. That was my whole reason for delaying. I would have thought that it was better to have accurate figures as the number 1 priority.
The cabinet secretary referenced culture change. The permanent secretary gave evidence to the Finance and Public Administration Committee yesterday, during which he confirmed that nearly 50 per cent of all Scottish Government staff are in a management role. That culture must change as part of public sector reforms. Is the cabinet secretary absolutely assured of the complete support of the permanent secretary, as accountable officer, to make that skewed figure into a much more normal distribution?
The permanent secretary agreed that cultural change is required. I therefore believe that we have the leadership in the organisation to recognise that the spending plans , the outlook that I have set out today and the requirements for reform, including doing things differently and head-count reduction, have to be delivered throughout the organisation, starting at the highest level, from the permanent secretary down. He will be working very closely with the ministerial team, including the First Minister, in delivering that.
That concludes the ministerial statement. There will be a short pause before the next item of business. I apologise to members whose questions I was unable to reach.