Chamber and committees

As I set out to the Parliament yesterday, the Chancellor of the Exchequer has caused a great deal of concern across Scotland with her decision in the UK spring statement to short-change public services and deliver cuts to some of the most vulnerable in our society. I called on the UK Government to reject the failed approach of austerity, but, although the UK Government might deny it, for many people, this looks and feels like austerity. We are considering the impacts on Scotland’s public finances, and I will set out more detail in the medium-term financial strategy at the end of May.

Kevin Stewart is absolutely right. We are considering the impact of the UK Government’s planned cuts to welfare policies on Scotland. It is clear from the UK Government’s impact assessment that 250,000 people, including 50,000 children, will be pushed into relative poverty by 2029-30. That is likely to increase inequality, and it is shameful.

As I said to the Parliament yesterday, we will strain every sinew to protect disabled people from this deplorable action by the UK Government. We are committed to eliminating child poverty, but that job is being made harder by the actions of the UK Government.

It is an honour to be able to say a few words about our friend and colleague Christina.

I first met Christina when we both worked in social work in the north of Glasgow. Even then, Christina was a force to be reckoned with and was heavily involved and active in her trade union. She was always campaigning for better, always on the side of those who were less fortunate and always campaigning for fairness. On meeting Christina, I immediately had no doubt that there was a place for her in front-line politics. I also felt that I had met a kindred spirit, which turned out to be true when we met again in this Parliament.

As others have said, there is no doubt that Christina made her mark in this place by campaigning on issues that were close to her heart. I have some cracking and quite ridiculous photos of us as part of the wear it pink campaign. Once Christina set her mind to supporting a cause, that was it—she would give total energy and commitment to that cause. That is why so many people from all walks of life have paid tribute to Christina’s amazing contribution to public life.

My last call with Christina was about a month ago, and I can tell colleagues that she was on great form. As well as talking about time with family and life as a granny, she gave me some very strong views and opinions on the issues of the day. She also spoke about how difficult she had found it to come to the decision not to stand as an MSP again. It was a good call, and I am really thankful for it.

Christina, thank you for being you and for giving everything that you gave to those of us who were lucky enough to know you and regard you as a friend. I offer my deepest condolences to Keith, Jack, Lewis and the whole family. Our thoughts are with you all at this most difficult of times. Rest in peace, Christina, my dear friend. [Applause.]

Why are you saying that when child poverty has gone down?

What the member chooses to ignore is that other EU countries have similarly set aside defence spending outside their debt rules and have managed to do that successfully. Rachel Reeves had choices, and Michael Marra seems to be defending the fact that she has made the choice to fund her programme on the backs of disabled people. Is he comfortable with that?

The Chancellor of the Exchequer’s spring statement, which she delivered last week, seeks to balance the nation’s books on the backs of disabled people. Across the UK, more than 3 million families will be left worse off by the changes to the main health element of universal credit. That is a Labour UK Government seeing existing claimants £500 worse off and new claimants £3,000 worse off. Some 150,000 carers will lose carers allowance or the universal credit care element. By its own assessment, Labour’s welfare cuts will push 250,000 more people, 50,000 of whom are children, into relative poverty. That is nothing short of shameful.

During the UK general election, Anas Sarwar took to the television studios to promise that there would be no austerity under Labour, and he said that we were to read his lips. The people of Scotland will not quickly forget that this promise has been shattered, just like Labour’s promises to Grangemouth, to the women against state pension inequality and to pensioners.

The cuts set out in the spring statement will also have a direct impact on Scotland’s planned budget in the coming years. Initial indications are that the block grant adjustment funding that we can expect to receive for social security benefits in 2029-30 will fall by £408 million as a result of the UK Government’s changes. The Fraser of Allander Institute has estimated further cuts in planned funding for the Scottish budget of £200 million in 2028-29 and £435 million in 2029-30. That is money that will not now be available to spend on public services, and it comes on top of the shortfall of more than £400 million in the public services cost of increased employer national insurance contributions.

Let me be clear: in the Scottish Government, we will strain every sinew to protect disabled people from this deplorable action from the Labour UK Government. However, let me also be clear about how difficult that will be, given the scale of it. Equally, we will continue to tackle child poverty—a job that is made ever harder by the UK Government’s decisions. We will do that in the face of Labour’s austerity on welfare. We as a Parliament must start to plan for and reckon with the impact that those cuts from Labour will have on the sustainability of public finances. As such, I will update Parliament on how we are engaging with the UK Government on its spending review, which will report on 11 June.

In her statement last week, the chancellor confirmed that £4.8 billion would be cut from welfare benefits by 2029-30. Those cuts have been roundly condemned, and the UK Government’s own impact assessments show that they could push a quarter of a million people, including 50,000 children, into relative poverty.

The line that is being pushed by Labour following the publication of the UK Government’s own assessment is that it did not account for other actions that it is taking, including on free school meals. I will be generous of spirit and take Labour at its word, so perhaps Labour members who contribute to today’s debate can outline when the Labour Government will publish a full impact assessment that does account for the actions that it says are not currently factored in. Given that that is the Labour Government’s main excuse, I am sure that it will be keen to publish the evidence as soon as possible.

In her statement, the chancellor further announced that the rate of day-to-day public spending growth would reduce from 2026-27. Economic growth projections have been downgraded from 2 per cent to 1 per cent this year by the Office for Budget Responsibility, and it has further sounded warnings about the high levels of uncertainty that the domestic and global economies still face.

The full details of the chancellor’s spending plans will be revealed in the UK spending review, which will report in June. We know that UK departments have been asked to plan for either a flat cash or 2 per cent reduction in budget. Either way, it will be a real-terms cut.

One area of the chancellor’s statement that I do welcome is plans to increase defence spending. Since the fall of the Berlin wall more than 30 years ago, we have seen what can be described as a peace dividend. Following Russia’s illegal invasion of Ukraine and the shift from the United States, it is clear that this period is over.

That will necessitate, as it will across Europe, sustained investment in building defence infrastructure and in supporting defence personnel. I believe that, to sustain that and other vital public investment, the UK Government should seriously examine the role of wealth taxation to support such endeavours. Without exploring wealth taxation, there remains a danger that funding for necessary defence capabilities will come from yet further cuts to social security, public services or investment in other vital infrastructure. It could not be clearer that the UK Government should ditch Trident and instead invest in deepening conventional defence capabilities.

The chancellor’s decisions in the spring statement will impact on the Scottish economy. Current Scottish indicators are positive: our economy grew by 0.5 per cent in the three months to January, and since 2007, gross domestic product per person in Scotland has grown by 10.3 per cent, in comparison with 6 per cent in the UK. Productivity has also grown, at an average rate of 1.1 per cent per year in Scotland in comparison with the UK average of 0.4 per cent. We also have lower unemployment than in the UK, with a rate of 3.8 per cent in February in comparison with 4.7 per cent for the UK.

We are using this year’s Scottish budget to invest in the foundations of our economy, such as housing, transport and digital connectivity, and in delivering critical infrastructure for a fair, green and growing economy. We are already ahead of England and Wales in building affordable housing. On average, between 2007-08 and 2023-24, affordable housing supply in Scotland has been 73 per cent higher per 10,000 population than in Wales, and 47 per cent higher per 10,000 population than in England.

However, our economy will be affected by the decisions of the UK Government, including the rise in employer national insurance contributions, which is already affecting business confidence and jobs. We also recognise the global pressures that the chancellor has spoken about, with President Trump further increasing tariffs today and the risk to our world-class exports from further trade barriers. The US is Scotland’s second-largest export market for goods and services after the European Union, and it is a key market for important sectors such as food and drink, engineering and advanced manufacturing. All are potentially at risk from an increase in tariffs on the UK. The Scottish Government will analyse the potential impacts on the Scottish economy of any tariff measures that are imposed.

However, what the chancellor does not address is the damage that is caused by Brexit, which has reduced the UK’s GDP by 2.5 per cent. In Scotland, that equates to a cut in public revenues of approximately £2.3 billion in 2023. That is more than £2 billion in annual public revenues lost as a result of a Brexit that the people of Scotland did not vote for. That is funding that could be making our NHS stronger, enhancing our schools, and supporting Scottish businesses to find their next markets and secure high-quality jobs.

Brexit red tape has hit Scotland’s trade with our largest international export market, the EU. It is estimated that in 2023, UK goods exports to the EU were 17 per cent lower, and goods imports from the EU were 23 per cent lower, as a result of Brexit. With a period of uncertainty in trade expected as a result of President Trump’s tariff regime, it could not be clearer that—for the sake of public finances, if nothing else—we should rejoin the EU. Being a member of the European single market would boost trade and give young people more opportunities, and it would improve the public finances dramatically.

The chancellor staked her plans for investment on boosting growth, but if she fails to deliver, we will inevitably see less money for investment in public services and infrastructure. I am particularly concerned about the impacts on rural communities and businesses. I called on the chancellor to pause her widely criticised changes to inheritance tax for farmers, including tenant farmers, and undertake full impact assessments in order to understand what those changes will mean for family farming businesses and the communities that they serve. However, she has failed to do that.

We called on the chancellor to use the spring statement to prioritise investment in public services and infrastructure. I wrote to her, making it clear that the additional funding in last year’s budget, welcome as it was, did not make up for 14 years of underinvestment, and that investment needed to be sustained.

Unlike the UK Government, the Scottish Government must balance our budget every year. That is what we will do, as we have done for every one of the past 17 years, but it will be tough. Members are well aware of the impacts of the UK Government’s increase in employer national insurance contributions. We have estimated that that will add more than £700 million to the cost of delivering public services—for the national health service, schools, local government, universities, social care providers and a wide range of third sector organisations.

I called on the chancellor to use her statement to announce that she will fully fund additional costs arising from the change to national insurance contributions. The chancellor has failed to do that, and—incredibly—she has still not confirmed the funding that we can expect. As members will recall, the current indication is that we will have more than £400 million short of what is needed, and we will need to wait until May—when we will be already two months into the financial year—to see the final numbers. Frankly, that is not good enough, and it puts devolved Governments at the back of the queue.

I stand by the commitment that I made earlier this year to funding 60 per cent of the direct employer costs for Government portfolios and to provide an additional £144 million for local government. However, I cannot go any further than that without additional funding from the Treasury.

I am also concerned about the impact on commissioned services, third sector organisations and charities. We have consistently called on the UK Government to protect them from the impact of the increase, but it has completely ignored the needs of social care providers, general practitioners, dentists, childcare providers and universities—to name but a few—which will bear the full brunt of the UK tax increase.

The constraints that our budget will face in future years mean that it is essential that we continue our work to reform public services, improve productivity and ensure that every pound is spent in line with our priorities. The work that the Minister for Public Finance is taking forward will reduce the costs of service delivery and reduce long-term demand through investment in prevention.

Through programmes on the public sector estate, collaborative procurement and the use of digital, we are making significant savings for the public purse. We have secured cost-avoiding and cash-releasing savings that are expected to have reached up to £280 million over the past two years. To accelerate reform, this year’s budget has up to £30 million for invest-to-save measures. The savings that we will make from these programmes will help us have choices in future years to deal with the cuts to our funding that we know are coming down the track.

I am committed to ensuring that our public finances are on a sustainable footing. I will set out our medium-term financial strategy and the fiscal sustainability delivery plan before the summer recess, which will set out the measures that we are taking to secure fiscal sustainability. Those will be accompanied by updated economic and fiscal forecasts from the Scottish Fiscal Commission, which will take into account the latest economic and fiscal outlook from the OBR.

The Labour UK Government’s planned welfare reforms have caused a great deal of alarm, particularly as sick and disabled people will bear the brunt of the cost savings. For our Government, with its driving ambition to eradicate child poverty, that is absolutely unacceptable. The cuts that were announced last week appear to be driven by a desire to save money and to seek to balance the books on the backs of disabled people.

It is concerning that the Resolution Foundation warned that the full scale of welfare cuts is far greater than the net £4.8 billion in savings. It stated that

“cuts to ill-health, disability and carer’s benefits”

will

“rise to £8.1 billion in 2029-30, and will continue to grow over time.”

Those changes were announced without any consultation with this Government—nor, for that matter, the public at the general election—despite the fact that they will impact on our devolved benefits and our budget. The planned changes to the eligibility criteria for the personal independence payment in England and Wales will impact on the funding that we receive from the Treasury for the adult disability payment in Scotland.

This year, we are already spending £1.3 billion more on social security benefits and payments than we receive in funding from the UK Treasury, and we are also already spending £210 million on measures to mitigate UK Government welfare policies, which now include the cut to the winter fuel payment. I again called on the chancellor to abolish the two-child limit for universal credit, but she again failed to do so. Instead, she has taken action that will put more children into poverty, not lift them out of it. Let me be clear: the Scottish Government will effectively scrap the two-child cap in 2026. That work is under way.

The priority that we have given to social security in Scotland reflects the priority that we have placed on ending child poverty. Figures that were published last week showed that the proportion of children living in relative poverty has reduced in Scotland and that the 2023-24 rate is now the lowest that it has been since 2014-15. The proportion of children living in absolute poverty has also fallen, with the annual figure at its lowest in 30 years. It is a shame that the Labour UK Government does not share that priority.

I am proud of the social security system that we have created and of the difference that it has made by providing money directly to people who need it most. However, I am aware that we face an increasingly challenging situation as we take stock of the impact of the UK Government’s benefit cuts. It is important that we work together as a Parliament to eliminate the scourge of child poverty but ensure that we have a sustainable social security system.

Last Friday, Professor Ruth Patrick of the University of York and the London School of Economics published a report entitled “Cuts can’t fix child poverty: it’s time for a new approach”. The report recognises that the key factor in the reduction in child poverty in Scotland has been the Scottish child payment, and it also highlights feedback from families in receipt of the payment. For example, Lisa said:

“The Scottish child payment ... alleviates some of the financial pressure and gives me and my son more breathing space to enjoy life. The Scottish child payment has been a ‘game changer’ for me.”

The expert report concludes:

“Our new analysis shows that were the UK Government to follow the Scottish Government’s example and make an equivalent per-child investment in social security, the rate of child poverty could drop by 700,000 overnight. Talk of tough choices and fiscal responsibility puts balancing the books ahead of supporting children, who are this nation’s future.”

I agree.

The funding that we have to take forward our work on child poverty, as well as our other priorities, will be determined by the UK spending review, which reports in June and will set out funding from 2026 onwards. We know from last week’s spring statement that the public spending outlook for the period of that spending review, in which resource funding will run up to 2028-29, has been cut from what was previously planned. For capital spending, it will set out budgets to 2029-30, and although the chancellor said last week that she intends to protect capital investment, we still need to see what that will mean for the funding that we have for our infrastructure priorities.

The Scottish Government has been clear that, to support our efforts to deliver economic growth, we need the UK Government to recognise and respect devolved competencies. After all, where we can support growth here in Scotland will contribute to the chancellor’s growth ambitions.

Frankly, we need the investment from the UK Government to match the rhetoric. For example, the UK Government must make a positive decision on awarding the Acorn project and the Scottish cluster as a priority. It is estimated that the Scottish cluster could contribute £17 billion to UK gross value added to 2050, and it is a clear opportunity for the UK Government to work with us to stimulate that investment.

I have been frank with Parliament about the impacts of the chancellor’s spring statement on our economy and on public finances. I will be meeting the Chief Secretary to the Treasury and the Secretary of State for Scotland later this month to set out this Government’s position and the importance of ensuring that the UK spending review delivers for the priorities and needs of Scotland.

We do not yet have full clarity ourselves on all the detail, and much of the detail for future planning will be contingent on the UK Government’s spending review in June. It is now vital that the UK Government engages with us fully as it looks to conclude the spending review. We want to seize the opportunities that it presents for Scotland and support the delivery of economic growth, which is crucial to the chancellor’s plans.

It is clear from the spring statement that the outcome will be very challenging for our public services. This Government will always focus on doing what is best for the people of Scotland, and, as we get to the end of May, we will set out the detail of that in the medium-term financial strategy and the fiscal sustainability delivery plan.

Will the member give way?

The IFRS 16 changes will negatively impact on our available discretionary funding this year. Changes in the profile of leasing requirements against original plans require additional budget cover. In contravention of the agreement with His Majesty’s Treasury that the transition period should be budget neutral, the full additional budget cover has not been provided, so we have no option but to manage the shortfall within our overall funding envelope. The difference between the funding provided by HM Treasury and the budget requirement in the spring budget revision resulted in an increased funding gap of £9 million for resource and £40 million for capital.

Far from doing that, I say to Alexander Stewart that we took on board the comments of the Finance and Public Administration Committee and changed the budget comparisons to meet its requirements. We did so in order to provide that additional transparency, which has received acknowledgement from a number of independent stakeholders and commentators, and we will continue to do that.

The Scottish Government continues to meet the Convention of Scottish Local Authorities and individual local authorities on a regular basis to cover a range of topics, including current and future budget pressures.