Chamber and committees

Good morning. I will open with some context about the position in which we find ourselves. Scotland has faced the most challenging financial situation since devolution, caused in large part by the economic damage of Brexit, a global pandemic, the war in Ukraine and, of course, the cost of living crisis. Persistent high inflation, public sector pay deals, the continued cost of living crisis and wider geopolitical events have meant that careful consideration has had to be given to balancing the Scottish budget.

In our fiscal statement to Parliament in September, the Cabinet Secretary for Finance and Local Government set out the savings that the Scottish Government has been required to make to ensure that we can achieve a balanced budget, and the autumn budget revision shows those choices being put into action.

It is important to note that the ABR predates the United Kingdom Government’s autumn budget and that nothing from that budget is included in the ABR. However, I will be clear about the impact of the autumn budget on our financial position. We welcome the additional funding, but that funding is necessary to correct for persistent underinvestment in public services and to address the cost pressures that we face. The amounts provided by way of consequentials arising from the UK autumn budget are broadly consistent with what has been factored into our planning and we are therefore not in a position to reverse the savings that were previously announced.

The Scottish autumn budget revision provides the first opportunity to formally amend the Scottish budget for 2024-25 and to allocate almost £1.1 billion of additional funding to support our public services. It contains the usual four categories of changes. Net funding changes increase the budget by £1,126.6 million. Those changes include providing £1,058 million to health to support services and to fund pay rises and changes to employers’ pension contributions, £155.9 million to local government and £35 million to fund police and fire service pensions.

In order to fund those priority areas, it has been necessary to reprioritise budgets in the way that the cabinet secretary previously outlined. The technical Whitehall and internal transfers are presented in the document in the usual way and the supporting document for the autumn budget revision and the finance update prepared by my officials provide further background on the net changes, as well as updates on information requested by the committee.

I am happy to answer any questions that the committee might have.

It is an unknown, but we work within a range and make estimates based on what we expect will happen. The biggest part relates to pay uplifts. The UK pay review bodies came forward with their recommendations, which the UK Government adopted. In Scotland, we made settlements that were broadly in line with those numbers and the way in which we managed that avoided having damaging strikes in the Scottish health service. We had an estimate of the funding that would be required to support those public sector pay deals.

Another large part of those consequentials is for health spending and we made a commitment to pass health consequentials on to our health service because of the pressures on it for various reasons including health inflation, the cost of medicines and energy, and other financial challenges. We expected that there would be health consequentials of that order.

When you add those things together, that is how we arrived at—

Point taken. As I said, we have a policy of minimising those transfers. As Claire Hughes indicated, another £1 billion of transfers was baselined to take it out of the process this year. We will continue to look at opportunities to do that.

In the autumn budget revision, there was an increase in capital funding of just short of £60 million. As you rightly say, we saw a level of underspend carried forward in the reserve, which allowed us to reverse out a resource-to-capital switch that had occurred previously. That switch was done to enable us to have the capital funding that we required, but because of how the capital budget worked out, the underspend on certain areas allowed us to reverse that, which I think was the right thing to do. You have to remember that the capital budget is about £6 billion, so when we talk about 1, 2 or 3 per cent, it adds up to significant numbers.

If we did not have the ScotWind money?

That is exactly my point.

Do you mean within individual spend portfolios?

Indeed.

Do you want to point to any specific areas?

Those will relate to specific situations that happen within a budget. For example, there might be an underspend in one budget, or there might be scope to move funding because of the way that the spending envelope had developed, with a requirement for the funding in another budget. With regard to the economy portfolio, that spending would have been on Ferguson’s. I will see whether we can pull up the details on net zero.