Chamber and committees

I acknowledge the significance of the third sector and its importance in providing support to individuals, which we saw during the pandemic and is ever more necessary now, during the cost crisis.

The sector will be under the same financial pressures that the Government is under. Our ability to support the sector to a greater extent is an issue that we will keep under constant review as we look for ways to maximise the support that is available, to provide resilience and capability in communities to meet the effects of the financial crisis that we face.

The cost crisis illustrates the limitations of this Parliament’s ability to deal with changing and dynamic circumstances. During Covid, we saw the United Kingdom Government extend its financial interventions to a quite extraordinary level. That was welcome. It was necessary in that moment, and it is necessary now. However, it would be better if we were able to take the decisions in this Parliament, as an independent Parliament, about the choices that our people need to face. It would be better if we had those controls at our disposal and did not have to wait for the UK Government to take decisions that we hope will assist us in our endeavours.

I expect all public bodies, including public corporations, to play their part in assisting the Government as we wrestle with the unprecedented situation that we face.

The cost of living crisis represents an unprecedented challenge. Families face a winter when they cannot afford to heat their homes, businesses face energy bills that they cannot pay and parents are struggling to feed their children. That is the reality of the crisis.

Although we are a long way from the full effects being known, last month, the Bank of England set out the reality that the United Kingdom is facing a recession as deep as that in the 1990s and as long as that following the 2008 financial crash.

That is the context within which the First Minister set out the programme for government. She confirmed that we will extend and increase the child payment in November and that we will protect the roofs over people’s heads with a rent freeze and a moratorium on evictions. Free school meals will be rolled out further, the fuel insecurity fund will be doubled, rail fares will be frozen until at least March and the warmer homes fuel poverty programme is being widened. That all comes on top of the almost £3 billion in support that is already budgeted for, and an existing £800 million of reliefs for business in this financial year.

The UK Government holds reserved powers over energy, tax, the bulk of benefits and business support, and over regulation that could help to address the crisis. The UK Government has borrowing powers and the ability to deploy financial instruments that can transform household and business budgets. It has all that, yet, as the crisis has worsened, no substantive action has been taken to help people and business. Urgent action is overdue, so I urge the Prime Minister and the Chancellor of the Exchequer not to waste another day before setting out their plans.

Today, I will update Parliament on the impact of the cost crisis on the public finances, and the steps that we will take to keep them in balance while funding the support that is in our power to provide. The crisis is not just a cost of living crisis, as some characterise it. The costs of doing business, of third sector support and of public services are all rising as well. Indeed, in all my experience, now and during my previous tenure as finance secretary, there has never been a time of greater pressure on the public finances.

Our budget was based on a UK spending review that simply did not foresee the levels of inflation that are now a reality. Last summer, inflation was just 2 per cent. In December, when the budget was agreed, consumer price index inflation stood at just 5.4 per cent. Now, it is more than 10 per cent and is predicted to go higher still. The result is simple: almost every cost that the Government incurs has risen. At the same time, our budget is now worth around £1.7 billion less than it was worth in December.

That alone would require the budget to be revisited, but in times of crisis the job of the finance secretary is not simply to balance the books; it is also to find the money to help families, to back business and to fund the priority projects that improve lives for the long term. Therefore, the emergency budget review must both identify funding to cope with inflation-driven cost increases and aim to support those who most need our help during the crisis.

The review must do so using only the fixed powers of the Parliament. Our total budget is fixed. We cannot vary income tax in-year. Our reserve funding is fully allocated. We have no legal ability to borrow to fund day-to-day spending on things such as pay increases. Our capital borrowing is allocated for projects such as new schools and housing projects that are supporting employment and investing in our recovery. In short, the Scottish budget is at the absolute limits of affordability.

Today, I will set out to Parliament the initial steps that the Scottish Government has taken, and steps that it will take, to manage the nation’s finances while maximising the support that we make available to help those who are in need. First, let me quantify the demand arising from public sector pay. As the First Minister set out to Parliament yesterday, in the midst of a cost crisis, our role in pay negotiations is to maximise the support to the lowest paid as a crucial part of our response to the crisis. My job is not to fight low-paid workers’ pay claims; it is to fund those pay claims. Accordingly, we have seen police officers agree a 5 per cent deal, while in ScotRail, the Associated Society of Locomotive Engineers and Firemen has similarly settled at 5 per cent.

Negotiations with some of the largest workforces, including the national health service agenda for change workforce, are on-going, but the enhanced pay offers that have been made, excluding direct local government contributions, total approximately £700 million. Last week, we also reached a proposed local government pay settlement. As a result of our intervention and the hard work of the unions and their members, the pay rise that is proposed for the lowest paid was significantly increased, with awards in excess of 10 per cent, while the increases for the most well-off were capped at £3,000. That is more money for the lowest paid, funded by the Scottish Government.

The proposed settlement means, however, that we must find additional savings. We said that there was no more money, and there is not. Funding the agreement means taking money from elsewhere.

Pay is not the only cost pressure that we face. We have rightly given a warm Scottish welcome to people who have been displaced from Ukraine as a result of the illegal and on-going Russian invasion. Almost 18 per cent of all displaced Ukrainians coming to the United Kingdom are coming to Scotland. That requires us to find around £200 million, which was not planned for at the time of the budget, just as the invasion began. I hope that no one in the chamber begrudges that support.

Public sector pay and the cost of supporting displaced Ukrainians, along with the rising costs due to inflation, are therefore placing enormous strain on our budget. In addition to those factors, we have a clear determination to support those who will find themselves in difficulty this winter. We have already provided almost £3 billion of support to people and, as the First Minister set out yesterday, we will go further. I have heard and am listening to proposals for further action. We are doubling bridging payments, freezing rail fares until beyond March, giving more help for energy efficiency, providing greater support for businesses and the third sector, and managing the impact of rising energy and food bills on hospitals and schools. None of that can be done without reducing planned spend in other areas and in other programmes.

Difficult choices must be made. There is no unallocated cash. There is no reserve that has not been utilised. Every penny more spent on one policy is a penny less spent on another policy. I have therefore written to the Finance and Public Administration Committee today, setting out around £500 million in reductions in planned spending and forecasting that we have made in recent weeks. Those include a reduction of £53 million in the budget for employability schemes. They include utilising funding of £56 million that has been generated by the ScotWind clearing process—funding that will be reinstated in future years and used, as planned, to invest in the just transition. The reductions include a £33 million deferral of ring-fenced agriculture funds, to be returned in future years and, while not impacting on eligibility, they include taking a risk-based forecasting approach based on demand and making a reduction of £37 million in the budget for concessionary fares.

Throughout the process we have made savings that we consider will have the least impact on public services and on individuals. Still, those decisions have not been easy and—in particular, the reduction in employability funding—they will not be without consequences. Given the circumstances that we face, however, they are unavoidable. At a time of acute labour shortages, historically low unemployment and soaring inflation, we have taken the view that we must prioritise wage increases over spending on employability. That is not a decision that we have taken lightly. It is not a decision that we would have wanted to take.

Any changes to budgets will be formally set out to Parliament in the budget revision process, but it is in the public interest that underlying savings are set out now, so that the scale of the challenge that we face is clearly understood and so that no one in the Parliament, or anyone who is negotiating pay deals, can be unaware of it. Many of the individual savings are small amounts of money, but together they add up to a significant reduction in expenditure, thereby enabling money to be invested in addressing the financial challenges that we face. Last week’s intervention by the Scottish Government in the local government pay dispute demonstrates what we are having to do. In order to shift to full consolidation of the award, further savings had to be made.

I have committed to publishing the outcome of the emergency budget review within two weeks of the UK fiscal event that is planned for later this month. Further savings will be required to balance the budget, especially if inflation continues to rise. The majority of our spend cannot be changed at this stage of the financial year. It is contractually committed or supports vital programmes. In short, what I have set out today is just the beginning of the hard choices.

There is one further point that Parliament must reflect on, and this is why I require time, following a UK fiscal event, before I can set out the results of the emergency budget review. For eight weeks we have heard the new Prime Minister talk of unfunded tax cuts—which will not help the lowest-paid people or those who are reliant on universal credit—and of cutting public sector spending to deliver tax cuts for businesses.

If, in pursuing those policies, the United Kingdom Government reduces the budgets of any portfolios for which we have devolved responsibility, the challenge that we face will become harder, as our budget will become smaller. That is the harsh reality of a fixed budget and limited powers. The Scottish Government simply does not have access to many of the levers that would provide the greatest support in this crisis, such as those relating to taxation of windfall profits, regulation of the energy market and borrowing.

That is why the new Prime Minister and her new chancellor must take action immediately. They have reserved to themselves the powers to deal with this crisis, so my appeal to the United Kingdom Government is to cancel the energy price rises and fund the targeted support that people desperately need; to help families who will struggle to feed their children and heat their homes this winter; and to provide the additional funding that is necessary to meet the impact of higher public sector pay and inflation.

We will do everything that we can. We will make the hard choices, but only the UK Government can act to end this crisis. It should do so, and I encourage it to do so now.

I deeply regret the inconvenience that members of the public in Edinburgh and other parts of the country experienced during the disruption to refuse collection. The ability to address the issue and avoid industrial action would have been helped if, when the Government put more money on the table, Conservative leaders in the Convention of Scottish Local Authorities had not voted to offer workers a 3.5 per cent increase as opposed to the 5 per cent increase that the Government had made it possible to fund. The playing of politics by Conservative leaders in COSLA directly caused the industrial action in the city of Edinburgh, and they should be ashamed of themselves.

On funding, before the additional resources that the Government has provided, the local government settlement for 2022-23 represented an increase of 9.2 per cent in cash terms, or 6.3 per cent in real terms. That is a substantial funding increase for local authorities.

Mr Briggs should know me well enough to know that I would never put myself in the position of misleading Parliament, and it is disgraceful that he has made that suggestion. I will happily put in SPICe the substance of the list of support that the Government is putting in place to assist with the cost of living that is being wrestled with by members of the public. I have it in front of me—it totals £2.968 billion, and I will happily put that information with SPICe. Mr Briggs should be careful about whom he accuses of misleading Parliament.

I am happy to take forward discussions about the funding of local authorities; indeed, the Cabinet has agreed to embark on discussions with local authorities about funding, achievement of outcomes and the role of ring fencing, so that we can engage with them on questions of flexibility.

On the point about employability funding, I was explicit in my statement that I would rather not be making that reduction in public expenditure. However, I have no other choice. The point that I made in my summation to yesterday’s debate, which I make again today, is that we are operating in a fixed budget—we can go to no other pot of money than to take that money from existing commitments, which is why we have taken the decision on employability funding.

We think that the judgment is reasoned and rational, because we are experiencing historically low unemployment, we have significant inflationary pressures and the requirement and demand for employability services is likely to be low for the remainder of this financial year. That situation might not be the case in future financial years, as we look at the impacts. The UK Government could act to stabilise the situation, and I hope that it will.

On the question of the allocated resources for the referendum, my statement is focused on this financial year. The commitment to spend £20 million on an independence referendum—for me, that is necessary to ensure that Scotland can decide its own future and get out of the unhealthy and unsatisfactory arrangements of the UK—is expenditure for next year. If Miles Briggs wants to engage substantively in arguments about the challenges of the financial year, let us talk about this financial year and not about the next one.

Bluntly, no, because most of what Pam Gosal talked about was capital expenditure, and we cannot use capital expenditure to pay folks’ salaries. It is just not possible. I am very happy to answer questions in Parliament, but it would be helpful if they were slightly more relevant to the realities of life.

I have to say that nothing has reached me yet. That is not to say that there have not been approaches about dialogue. However, nothing has reached me at this stage.

As I indicated to Parliament yesterday, the First Minister asked the previous Prime Minister to arrange four-nations discussions on the cost of living emergency. Her request was turned down at that stage. I have been in touch with the former chancellor and I wrote to the new chancellor overnight to request an urgent intervention to address the very issues that Jackie Dunbar has raised.

I would not countenance jeopardising public safety and I do not think that it helps the quality of debate for Mr Findlay to go chucking around accusations like that. I remind Mr Findlay that crime in Scotland is at a 40-year low and that we properly and effectively fund the Police Service.

I am pleased that the Cabinet Secretary for Justice and Veterans has been able to secure a 5 per cent pay increase for police officers. The whole purpose of my statement is to indicate to members that there are limitations on the resources that we have available to us and that we will have to make hard choices. However, as part of those hard choices, I am pleased that our Police Service serves us so well and that we have such low levels of crime in Scotland today.

No money has been taken from the north-east transition fund. Whether all of it will be allocated this year is a matter that will be subject to ministerial decision making in the course of this year, but we want to see that money allocated in full for the remainder of this financial year.

Will Mr Ross place on the record whether he supports the pay deals that have been agreed, which incur greater costs for the Government and go beyond the expectations of public sector pay policy?