Chamber and committees

Presiding Officer, I will reiterate what I have said to you privately: at no stage has anybody been authorised to disclose any information that is contained in the budget statement on my behalf.

Inevitably, a large number of people have to be involved in the preparation of a Government statement, from the many officials who are involved to people from a range of organisations. I give you my categorical assurance, as a member of this Parliament since its foundation in 1999, that no individual was authorised on my behalf to disclose any information. [Interruption.]

Presiding Officer, in the light of your understandable concern about this matter, I unreservedly apologise to you for the situation in which you find yourself, in protecting the integrity of Parliament and the ability of Government to explain its policy position to Parliament, which it is in the interests of ministers to make sure that we are able to do.

Before I come to the statement, I will point out that, in relation to the detail that Mr Fraser has just put into the public domain, some of that information was contained in the embargoed statements that I make available in advance to other political parties. [Interruption.]

I simply point out that those factors need to be considered in this whole process.

The Scottish Government budget for 2023-24 takes place in the most turbulent economic and financial context that most people can remember. War is taking place in Europe, which is leading to the suffering and displacement of millions of Ukrainians. As a result of the conflict, energy and fuel prices are surging. Inflation is now corroding our economy, having reached a 40-year high. If those challenges, which are faced by countries around the globe, were not enough, the United Kingdom has added to the turmoil with a disastrous approach to Brexit, which has damaged labour supply, through the loss of free movement of people, and undermined frictionless trade with our nearest markets.

All of those difficulties have been compounded by the utterly catastrophic decisions of the United Kingdom Government in the September mini-budget, which have driven increases in interest rates, saddled the country with much higher debt and undermined the public finances for generations to come.

In short, these are spectacularly difficult times in which to manage the public finances. These times require Governments to lead, make choices and decide what matters, and that is what this Government has resolved to do.

As Parliament knows, those hard realities are not just about future years—I am wrestling with those challenges right now. Before I set out our financial plans for the forthcoming year, I must provide Parliament with an update on this financial year, given the extreme pressure that the Scottish Government budget faces at the present moment.

As a result of soaring inflation, we have faced significant and entirely understandable pay demands from public sector workers. In response, we reallocated over £700 million more than was originally budgeted, in order to enhance pay uplifts to better reflect the increased cost of living and, especially, to tackle low pay.

We continue to deal with the unforeseen, but accepted, costs of resettling refugees who are fleeing the illegal war in Ukraine. We have seen thousands of people in Scotland open their homes in response to war, which is an example of our country at its very best. Scotland will always play our part in supporting those fleeing conflict and persecution. We have made, and are continuing to make, financial provision to support Ukrainian resettlement costs.

The public sector is not in any way immune from the rising costs of energy and inflation, which place additional, real pressures on the value of our budget.

As a result of those factors, in the autumn, the Scottish Government had to make unprecedented reductions to our spending plans, totalling £1.2 billion, midway through the current financial year. We had to do that because, once a financial year commences and in the absence of borrowing powers to address in-year volatility or the ability to alter income tax rates midway through a financial year, we operate a largely fixed total budget unless the United Kingdom Government allocates any additional resources to Scotland. Despite repeated requests, no additional resources have been forthcoming for this year.

The emergency budget review allowed us to meet the costs of increased public sector pay and provide further help to those most impacted by the cost of living crisis. Taken together, in 2022-23, the Scottish Government has allocated almost £3 billion to help to mitigate the cost of living crisis in these difficult days. However, there are two key points that I must advise Parliament about in relation to the budget for this current financial year.

First, despite reductions in spending of £1.2 billion, the financial pressures are so great that I am still working to find a path to fully balance this year’s budget. Secondly, as a consequence of that issue, for the first time since this Government took power, I am announcing a budget today for the next financial year assuming that we will not carry forward any fiscal resources from this year into next. For comparison, our budget for this year was underpinned by £450 million of resources that were carried over from the previous year. The absence of that carryover increases the scale of the financial challenges that we face in the next financial year.

Our budget decisions take place against assessments of deterioration in the economy. I am grateful to the Office for Budget Responsibility and the Scottish Fiscal Commission for their engagement in our budget process. I am, of course, incorporating into the budget the projections made by the Scottish Fiscal Commission.

The UK economy has already begun to contract. The OBR estimates that the UK has entered a recession that will last for more than a year and see gross domestic product fall by 2 per cent. The Scottish Fiscal Commission is expecting the Scottish economy to follow the UK into recession in 2022, with GDP falling 1.8 per cent between quarter 1 of 2022 and quarter 3 of 2023. The commission forecast the recession in Scotland to be similar to that in the rest of the UK. According to the latest data, which was published yesterday, inflation now stands at 10.7 per cent. Last month, we saw inflation in the UK at its highest since 1981. Businesses and households are facing additional pressures from rising interest rates, with the Bank of England base rate reaching 3.5 per cent today following the largest increase since 1989.

Real household disposable incomes are estimated to fall back to 2013 levels, which is the largest fall since records began. To compound matters, our labour market has been experiencing shortages—in part driven by Brexit—as the economy has reopened from the pandemic. As the recession takes hold, unemployment is projected to gradually rise to reach a peak of 4.7 per cent at the end of 2024. In its November economic outlook, the Organisation for Economic Co-operation and Development forecast that the UK will see the worst economic performance in the G20 other than Russia’s in both 2023 and 2024.

The calamitous choices made by successive UK Governments have made our economy weaker and put the public finances under tremendous strain. In November, the UK Government set out revised tax and spending plans in its autumn statement, which was an urgent attempt to repair the damage of the mini-budget. Although that brought some improvements to our resource position for 2023-24 compared with the UK Government’s published plans, our budget will still be lower in real terms than it was in 2021. The outlook for future years is looking particularly bleak in 2025-26 and 2026-27, being the latter two years of the Scottish Government’s resource spending review period.

That is the economic and fiscal context in which the Scottish Government must make our choices for the forthcoming financial year. In formulating this budget, I have reached out to all political parties in this Parliament, to our partners in local government, to trade unions and to many stakeholders in the private, third and public sectors to hear their views. I am grateful to our partners in the Scottish Green Party for their constructive and collaborative approach as we have developed these tax and spending plans in line with our shared commitments in the Bute house agreement.

Four important factors are relevant in considering our decisions. First, the enormous pressures on the public finances mean that, in some cases, it will take the Government longer to deliver on our plans. We will work with partners to minimise that effect.

Secondly, the requirements for public sector reform, which were set out in the medium-term financial strategy and the resource spending review, will be ever more required in this context, and the Government will set out further plans for it in due course. We will take forward an agenda that is consistent with the principles of the Christie commission, with a significant emphasis on early intervention and prevention, as we work to create person-centred public services.

Thirdly, the significant increases in input prices and energy costs mean that our capital budget will be unable to deliver as much as would have been judged possible just a few months ago. The Government will keep these factors under constant review as we take forward the capital programme.

Fourthly, given the uncertain inflation outlook and the need to still conclude some pay deals for the current year, I am not publishing a public sector pay policy for 2023-24 at this stage. We will, of course, continue to collaborate with trade unions and public sector employers on fair and sustainable pay, and will look to say more on our approach for 2023-24 in the new year.

The Scottish Government, like Governments all over the world, is faced with a difficult set of choices. Through this budget, we are facing up to our responsibilities while being open with the people of Scotland about the challenges that lie ahead. To govern is to choose, and the Scottish Government has made its choice. We have chosen not to follow the path of austerity that is the hallmark of the United Kingdom Government—but let me be clear: the choices that we face are all the starker because of the United Kingdom Government.

Within the powers available to us, we will choose a different path—one that sees the Scottish Government commit substantial resources to protect the most vulnerable people of Scotland from the impacts of decisions and policies that are made by the UK Government.

We choose to do everything in our power to eliminate child poverty, because in doing so we improve the lives of children and families in Scotland today while also laying the foundations for a more equal and prosperous country in the future.

We choose to prioritise the transition to net zero, because it is precisely through that transition that Scotland will realise its economic potential, not in spite of it. A stronger, fairer, greener economy benefits everyone.

We choose to stand firmly alongside the Scottish people, investing in our public services and doing everything possible to ensure that no one is left behind. All of us need to know that our public services will be there to meet our needs, and we must invest in them to make sure that that promise can be fulfilled. In particular, we must target investment towards our national health service, which is facing unprecedented pressure following the pandemic.

We do that by choosing a different, more progressive path for Scotland. That is why this budget strengthens the social contract between the Scottish Government and every citizen of Scotland, for the wider benefit of society. That social contract means that people in Scotland will continue to enjoy many benefits that are not available throughout the United Kingdom, including free prescriptions, free access to higher education and the Scottish child payment. It also means that in Scotland families are shielded, as far as possible, from the welfare cuts and austerity policies of the UK Government.

Because we know that this progressive model works, we choose the path where people are asked to pay their fair share, in the knowledge that in so doing, they help to create the fairer society in which we all want to live.

The limited powers that we won after the independence referendum in 2014 enable Scotland to make different choices on tax and on some elements of social security. The Scottish Government has made use of those powers in the past. In total, the decisions that we have taken since the devolution of tax powers and the proposals that I am putting forward today will raise around £1 billion more next year than if we had followed UK tax decisions.

We have also used those powers in creating a social security system that is based on the values of dignity, compassion and respect. This year, we introduced the Scottish child payment—the only measure of its kind available in the United Kingdom—to support children who are living in poverty. It was first introduced at a rate of £10 per week per eligible child under the age of six and it was then doubled to £20 per week from April 2022. In November 2022, it was extended to eligible children under the age of 16 and increased to £25 per week, meaning that the payment has increased by 150 per cent in just eight months. The Scottish child payment is now available to around 387,000 children in Scotland, and I confirm that the payment will remain at that increased level of £25 per child per week.

I am also pleased to announce that all other social security benefits under the control of the Scottish Government will be increased by the rate of inflation in September of 10.1 per cent.

In the face of the extraordinary challenges that we face, we have chosen to use our tax powers again, to protect our country from the harm that is being caused by the turmoil of these times and from the damaging decisions of the United Kingdom Government. Our approach to taxation continues to be guided by our values and by the principle that the tax burden should be proportionate to the ability to pay. That commitment to fairness underpins the choices that we have made throughout this budget, and it underpins our whole approach to taxation.

In this budget, we are asking people on higher incomes to contribute more in taxation than those on lower incomes. The majority of people in Scotland will still pay less in taxation than if they lived in the rest of the United Kingdom. By these decisions, everyone in Scotland will be able to enjoy the benefits of strong public services and a comprehensive social contract.

On income tax, I intend to maintain the thresholds for the starter and basic-rate bands at their current levels. I confirm that I will maintain the higher-rate threshold at its current level and that I will lower the top-rate threshold from £150,000 to £125,140. I also intend to make no changes to the starter, basic and intermediate rates, to protect those on lower incomes.

I have decided to increase the higher and top rates of tax by 1p each to 42p and 47p. As a result, we are asking all those earning more than £43,662 to pay an extra penny in the pound on income tax. I want to be clear that that extra penny is being raised for a specific purpose. We have taken the decision to enable us to exceed the health resource Barnett consequentials from the UK Government with substantial additional investment in the national health service—an investment that will benefit us all. It is, in short, an extra penny to enable spending on patient care in our national health service.

On land and buildings transaction tax, there will be no changes to the main residential and non-residential rates and bands next year. Today, legislation will be introduced to increase the rate of the additional dwelling supplement from 4 per cent to 6 per cent, raising much-needed additional revenue while protecting opportunities for first-time buyers. That change will apply with effect from 16 December to address any potential for forestalling, with a transitional provision in place.

I can also announce today that we will increase the standard and lower Scottish landfill tax rates from 1 April, maintaining consistency across the United Kingdom, guarding against waste tourism and supporting our ambitions for a more circular economy.

The Scottish Fiscal Commission forecasts that the income tax policy changes that I have outlined today will raise £129 million in 2023-24. In addition to that, the Scottish Government estimates that freezing the higher-rate threshold has added £390 million when compared with inflation.

The SFC also forecasts that the changes to the additional dwelling supplement will raise an additional £34 million in revenue in 2023-24. We estimate that, taken together, those changes will provide £553 million in 2023-24 for investment in public services in Scotland.

In the current challenging economic context, I recognise the pressures that businesses face and the difficult conditions that they are working in to create employment and growth in our economy. Sixteen business organisations came together to ask me to take one particular step to support businesses through these tough times. Their number 1 ask was that I freeze the non-domestic rates poundage at 2022-23 levels.

On non-domestic rates, I can confirm that we will protect businesses from the full impact of inflation by delivering a freeze to the basic property rate. That will ensure that Scotland has the lowest poundage in the United Kingdom for the fifth year in a row, and the measure is forecast to save business rate payers £308 million compared with the level of an inflationary increase.

We will reform and extend the small business bonus scheme to improve the progressivity of the relief, while ensuring that it remains the most generous small business relief in the United Kingdom and that it delivers our manifesto commitment that 100,000 properties will be taken out of rates altogether.

By introducing transitional reliefs, we will help to ensure that those properties that see their rates liabilities increase significantly following the revaluation do so in a phased manner. We will use our approach to non-domestic rates to assist the transition to net zero as we incentivise investment in renewables through the introduction of new prescribed plant and machinery exemptions for on-site renewable energy generation and storage.

Investment—whether it be in the low-carbon economy or more broadly—is central to building a strong economy and the fairer and more equal country in which we all want to live. I now turn to that investment.

In formulating a budget in this period of huge challenge, it is vital that the Government sets out its clearest priorities. That is necessary to give clarity to our partners in local government, the private and third sectors and public bodies about our direction—about what matters to the Government.

Through our programme for government and the budget, we are focused on eradicating child poverty, transforming the economy to net zero and creating sustainable public services. We do not view those as three competing objectives; we view them as linked priorities that are a means of supporting families, creating new economic opportunities, protecting our environment, and offering protection and support to every citizen in Scotland through our public services.

Much of what the Government wishes to achieve for Scotland aligns with what local authorities wish to achieve for their communities. However, too often, valuable time and energy are taken up in fractious debates about resources and accountability for spending them. The Government will invite our partners in local government to work with us in building on our jointly produced Covid recovery strategy to create a more effective way of working together that will focus on the outcomes that matter to people, with more flexibility, reduced reporting and greater assurance. We want to enable that new partnership by giving our commitment to the financing of local government, so instead of providing the flat-cash position that is set out in the resource spending review, we are now increasing the resources that are available to local government next year by more than £550 million.

Furthermore, I confirm that the Scottish Government will not seek to agree any phase or cap in locally determined increases to council tax, as requested by the Convention of Scottish Local Authorities and council leaders. That means that each council will have full flexibility to set the council tax rate that is appropriate for its local authority area. I encourage councils, when setting future rates, to consider carefully the cost pressures that members of the public face.

Earlier this year, the Government set out its plan to tackle child poverty in “Best Start, Bright Futures”. The title of the plan says it all. We want to ensure that children get the best start in life and that they are able to fulfil their potential. In this budget, that means: sustaining investment in the baby box; providing 1,140 hours of early learning and childcare to all three and four-year-olds and eligible two-year olds; committing £200 million to Scottish attainment challenge funding to deliver excellence and equity in education; and tackling school holiday hunger with investment of £22 million to provide meals during school holidays to children who need them most.

That builds on our on-going expansion of free school meals to all primary 6 and 7 pupils who are in receipt of the Scottish child payment, and is the next step in fulfilling our commitment to universal provision in primary schools from August 2024.

We recognise that some of the children in poverty whose life chances face the greatest challenges are those who have experience of care. The budget will deliver a further £30 million investment to keep the Promise, and £50 million investment in a whole-family wellbeing programme to provide holistic preventative family support to give our children who face the greatest challenges the greatest opportunity to realise their potential.

A crucial element of helping families out of poverty is provision of the opportunities and integrated support that parents need in order to access, sustain and progress in work. We recognise that some people face greater challenges than others in entering the labour market, so we are increasing investment in the no one left behind strategy and the fair start Scotland programme.

Employment opportunities are crucial, particularly in these difficult economic times, so the transition of our economy to net zero must be undertaken in a just and fair way that enables people, communities and businesses in Scotland to thrive and prosper. Those opportunities must exist in every single part of Scotland. The approach will be delivered through initiatives including the £366 million planned investment in the heat in buildings programme to decarbonise heating, the £34 million Scottish industrial energy transformation fund and the £26 million low-carbon manufacturing challenge fund.

Investment in our natural environment will support the journey to net zero with a £26 million programme of peatland restoration, £77 million for woodland planting and £44 million to help Scotland to become a global leader in sustainable and regenerative agriculture.

We will support the transition to net zero by investing a further £244 million in the Scottish National Investment Bank; by investing £50 million to deliver the next phase of the just transition fund for the north-east and Moray, which will more than double this year’s allocation; and by investing in the tech scaler programme throughout Scotland to support our efforts in innovation.

As the Climate Change Committee recently highlighted, decarbonisation of transport remains one of the key challenges that we face in reaching net zero. We will support those efforts by working with the private sector to extend Scotland’s electric vehicle charging infrastructure with investment of £60 million; with expenditure of £1.4 billion to maintain, operate and decarbonise our rail infrastructure; by investing nearly £200 million in active and sustainable travel; and by providing £15 million as part of our fair fares review for a six-month pilot that will remove peak-time rail fares as a way of making rail travel more affordable and attractive to travellers.

Ferry services are vital in sustaining connectivity with our island communities, so the budget includes £440 million to support lifeline services. I am also allocating £15 million in this financial year and £57 million in the next financial year to support the completion of vessels 801 and 802 at Ferguson Marine (Port Glasgow) Ltd, along with the resources that are required to build the two new Islay class vessels that are under construction, and a further two vessels of the same type that are currently in procurement.

We must have a skills, training and research environment that enables our people and businesses to realise their potential. For that reason, we have increased the resources that are available to the college and university sectors by £26 million and £20 million to support that.

Many of our public services are on a journey to recovery following the acute phase of the pandemic—none more than the justice system. We want people to live in safe communities in which we act early to reduce the potential for harm, support victims of crime and act swiftly to bring the perpetrators of crime and violence to justice. As part of the budget, I intend to increase the resources that are available to the Crown Office and Procurator Fiscal Service by £13 million, and to our wider justice system by £165 million. That will provide resources to tackle court backlogs, to strengthen legal aid provision and to increase funding of police services by £80 million.

The most precious of our public services—the one on which all of us depend—is our national health service. We recognise the challenges that the NHS faces, and the pressures that are borne by the outstanding public servants who work in the NHS. That is why we have offered a formidable pay settlement to staff in the NHS.

Supporting our NHS boards remains a top priority and, in the year ahead, we will invest more than £13 billion to allow them to continue to drive forward the five-year recovery plan. The reform of key services will continue. That will be backed by £2 billion to establish and improve primary healthcare services in the community. In parallel, we will provide £1.7 billion for social care and integration to improve services, while paving the way for the introduction of the national care service.

An additional £100 million will be made available to support delivery of the £10.90 real living wage for adult social care, which will build on the increase that was provided in 2022-23. Social care is vital work, and it is important that people on the front line are supported.

We remain committed to addressing the on-going public health emergencies and reducing the avoidable harms that are associated with drugs and alcohol. By investing £160 million, we will ensure that that important work continues. That is part of our commitment to provide £250 million of additional funding over the course of the parliamentary session to address the drug deaths emergency.

If we want to be able to depend on the national health service, we must be prepared to pay for it. When the UK Government set out its autumn statement, that gave rise to consequential funding for the NHS in Scotland of £291 million. I intend to pass on that funding consequential, but I do not believe that it is nearly enough for the crucial task that we ask our staff in the NHS to do. As a result of the choices that I have made on income tax, I am in a position, in one year, to increase the amount that we spend on health and social care in Scotland by more than £1 billion.

In the resource spending review, the Scottish Government committed to making £20 million available to fund the cost of a referendum on Scottish independence. The Government believed that to be a necessary investment to ensure that the people of Scotland would have the opportunity to express their democratic right to self-government. The Scottish Government respects the decision of the Supreme Court, but it still believes that the people of Scotland must have the opportunity to have their say in a democratic referendum, in line with our clear mandate. When that opportunity is available, the Scottish Government will make financial provisions for that to happen. However, at this moment, I must make full use of the resources that are available to me.

One of the reasons for my believing that Scotland will be a successful independent country is the energy wealth that we enjoy. Scotland is a country with an abundance of renewable energy opportunities, but the travesty is that, despite that strength, too many of our people languish in fuel poverty. In order to help our most vulnerable citizens, I intend to utilise the finance that was earmarked for a referendum on independence to make provision to extend our fuel insecurity fund into next year. That will mean that a further £20 million will be available to address yet another failure of the United Kingdom Government and its policies.

This budget takes place at a time of enormous challenge and difficulty for people and business, due to volatility in the economy and the corrosive effect of inflation. Many people in our communities—the people who send us here—are suffering real and enduring hardship, and all that is happening at a time when our country needs to adapt to the challenges of net zero and face the hard reality of severe constraints in the public finances.

In that context, the Government has decided to use our scope to take distinctive decisions to the greatest extent that we believe is possible at this time. We have chosen to reject the path of austerity. We have chosen a progressive path instead: to invest in our people, to invest in our economy and to invest in our public services. Those are the choices that we have made—the choices for our future—and I commend the budget to Parliament.

I will explore some of the points that Mr Cole-Hamilton put to me about the position on mental health, health expenditure and local government, because that is where we get into dilemmas and into the choices that Parliament must make. In the letter that I received from local government directors of finance, who asked for an uplift of £1 billion for local government—Mr Cole-Hamilton reinforced that figure—they asked for all consequentials from the UK Government to be allocated to local government. That would mean that I could not allocate those consequentials to health, but Mr Cole-Hamilton just made a plea to me to support mental health expenditure and health expenditure.

I have chosen to increase taxation to enable me to invest an extra £1 billion in the national health service, which will ensure that the very priorities that Mr Cole-Hamilton raised with me can be taken forward. I assure him—this comes out of my dialogue with my colleagues in the Scottish Green Party—of the sustained investment that the Government is making in renewable energy, energy efficiency and home insulation. Those programmes are for the long term and must be supported by Government funding. We have made our choices and supported such programmes, which we expect to have an impact on the lives of people in Scotland as a consequence.

The Government is focused on ensuring that we take forward the construction of ferry vessels to meet the needs of island communities. We are taking decisions that are consistent with the approach that is necessary for public procurement projects. We are committed to the investment, and I am glad that, at least in some measure, Mr Sweeney was able to welcome it.

That is the dilemma with which we have to wrestle. I aired that matter in a conversation with COSLA leaders a couple of weeks ago, and I returned to it in a conversation with the COSLA leadership last night. There is very close parliamentary interest in the implementation of a number of key programmes and policy commitments, but, equally, there will be a local desire to have some degree of flexibility about how those priorities are taken forward. We have to create a climate of assurance as we address issues of flexibility, which local authorities are seeking. We have to strike that balance in those discussions and, along with the Cabinet Secretary for Social Justice, Housing and Local Government, I will take those forward as we advance such issues with local government.

The health secretary would be very happy to meet palliative care organisations to address those questions. Obviously, we are giving a very significant generic increase to the health and care budget in Scotland. There will be opportunities for organisations to interact with the health system with regard to how the matter can be taken forward, and I am sure that the issues that Mr Doris raises on behalf of that sector, which plays an invaluable role in the quality of life of our citizens, can be properly and fully considered as part of the budget implementation.

As Mr Kerr will know, the Government looks at its entire capital programme on an on-going basis. We look at the phasing of, and the delivery arrangements for, projects in order to allocate resources accordingly. I thought that, on behalf of the public, Mr Kerr would have said that they expect us to complete the vessels and ensure that the needs of island communities are met, which is precisely what the Government is doing.

We have agreed to put £15 million into the fair fares review, which will specifically focus on taking forward an exercise to reduce peak rail fares. It will operate over a six-month period in the course of the next financial year, and the Government will consider carefully the impact of that measure and the long-term sustainability of such a proposition. If it is successful, the Government will wish to continue it for a longer period.

I am afraid that there is going to have to be an awful lot of basic arithmetic here. I know that Liz Smith is a great fan of basic arithmetic, because she was always telling me that when I was education secretary. I say to her that Mr Kerr needs some assistance with basic arithmetic. He is asking me to increase the budget for Skills Development Scotland at the same time as members on his party’s front bench are telling me not to increase public expenditure as a whole. Just to reassure Mr Kerr—