Meeting of the Parliament (Hybrid)

Meeting date: Tuesday, October 6, 2020

Official Report 888KB pdf

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United Kingdom Budget Delay

We will move on. We will take topical questions after the budget statement. Kate Forbes will speak on the delayed United Kingdom budget: implications for the Scottish budget. The Cabinet Secretary for Finance will take questions after her statement.

Today, my counterparts in Wales and Northern Ireland and I are making statements to our respective legislatures to set out our collective expectations of the UK Government for enhanced Covid support, fiscal flexibilities and proper involvement of the devolved Governments in the UK spending reviews, and a fair deal on replacement European Union funding.

We are doing so jointly, and in relation to a wide range of financial matters, to demonstrate the level of concern that we all share across the different nations of the United Kingdom, across parties and across legislatures. The importance of such issues cannot be overstated, because clarity—or the lack thereof—links directly to our abilities to respond to Covid, to manage the nation’s finances and to serve our communities and businesses.

The Scottish Government’s budget for next year will be set in extremely challenging circumstances. Scotland’s economic output fell by around a fifth in the second quarter of this year. Trading conditions remain extremely challenging for businesses as they adapt to operating in a Covid-safe manner while facing restrained demand and on-going cash-flow problems. Wider indicators of the labour market signal that firms’ head counts have been falling and that demand for staff has been subdued.

We are taking every possible step to protect jobs as we work to rebuild our economy from the Covid crisis, but it remains fragile and our recovery will be slow. Economic activity is not expected to return to pre-crisis levels before the end of 2023. A failure to agree a trade deal with the EU would only further delay an already weak recovery.

More than 217,000 people are still on furlough in Scotland, and our analysis has suggested that 61,000 jobs would be saved if the furlough scheme were to be extended by eight months. As I have said previously, the job support scheme is a poor and narrow substitute for the coronavirus job retention scheme. Her Majesty’s Treasury’s contribution has plummeted, with hard-pressed employers having to provide the majority of such support. In many sectors, that simply will not be possible.

We are keen to work with the UK Government to ensure that any extended or replacement scheme meets the needs of Scottish businesses and workers, but is also flexible enough to respond to the public health measures that are required to control the virus. That is particularly critical in order to support businesses and workers in places where local lockdown restrictions are necessary. There is no flexibility to support local or national restrictions, or those sectors—such as the events sector—that have not yet been able to reopen. Businesses in sectors such as tourism, the arts and recreation have limited opportunity to benefit from the job support scheme, and are likely to cut jobs.

Therefore, today, we—the Welsh Minister for Finance, the Northern Irish Minister of Finance and I—are collectively asking the UK Government to do more to support businesses that have been hit hardest and more on skills and job creation for young people. We are also asking it to continue to provide additional universal credits, which are due to run out in March but which have helped some of the poorest families to weather the storm.

We have welcomed the £6.5 billion in consequentials for Covid-related spending from the UK Government that we have received, and we have made good use of that money. The Scottish Government’s package of economic interventions is worth £3.3 billion. Key measures include: £972 million for a package of rates relief; £1.2 billion in business support grants; £144 million in hardship and resilience funds; £372 million of support for the transport sector; an economic recovery stimulus package worth £230 million for investment in capital projects; and £160 million for a rural recovery package. We have also spent an additional £2.4 billion directly on health.

Although we have yet to formally allocate approximately £500 million-worth of consequentials, which will be done at the spring budget revision, our current funding needs far outstrip the available resources. Every penny has been allocated against the health, transport and economic support measures that have been required as part of our Covid response. If the Scottish Government had the powers to borrow—or at least the very limited fiscal flexibilities that it, the Scottish Parliament and their counterparts in Wales and Northern Ireland have asked for—this statement would be a very different one. However, without further clarity on funding or flexibilities from the UK Government, substantial savings will be required to bring the budget into balance by year end.

Therefore, today, we are also collectively asking the UK Government to provide the full suite of flexibilities that we have asked for and that we need in order to manage the unprecedented on-going uncertainty that we face. The powers that we and the other devolved Governments seek are reasonable and straightforward, and they would not cost the UK Government a penny.?

That brings me to the main focus of my statement, which is next year’s budget. The delay to the UK Government’s budget means that the Scottish Government’s budget for next year will be based on provisional and partial figures and therefore will be subject to unnecessary uncertainty and risk at a time when those factors are not in short supply. We will not know what parameters we have to work with on crucial issues such as health funding or business support. The degree of uncertainty runs into the billions of pounds.

We faced a similar situation last year, which was deeply problematic for our budget setting and scrutiny processes. The situation that we now face is further compounded by the financial challenges of Covid-19 and uncertainty surrounding Brexit and the threat of a potential no-deal or poor deal outcome. We expect that the scale of the potential changes in the UK budget, including those related to taxation, will be far larger due to Covid. If our budget goes first, we will need to respond to tax changes in the UK budget—tax changes that might only be possible in Scotland if the UK changes generate consequential funding. That is especially challenging in relation to income tax and non-domestic rates poundage, because we cannot change those during the financial year.

Our budget process is at the mercy of decisions—or rather indecision, right now—in Westminster. Full financial powers are required to ensure that we can plan independently of the UK’s fiscal policy dysfunction. Today, we—the Welsh finance secretary, the Northern Irish finance secretary and I—are collectively asking the UK Government for urgent clarity about the timing and scope of the comprehensive spending review to allow us to improve our planning assumptions.

The final matter that I want to touch on is the United Kingdom Internal Market Bill, which represents an assault on devolution the likes of which we have not experienced since the Scottish Parliament was established. The UK Government has written provisions into the bill that presume Whitehall control over the delivery of replacements for the EU funding programmes in Scotland—programmes that we have delivered successfully for decades.

The end of the transition period on 31 December 2020 signals the end of funding allocations for certain EU programmes, with no agreed replacements in place from the UK Government. Communities across Scotland have benefited significantly from European structural funds, with the current programme being worth more than £780 million.

Despite the end of EU structural fund programmes in the UK being less than three months away, shamefully little detail about their replacement has been released by the UK Government. We require full engagement in the development of the replacement funding vehicle, and Scotland’s share of the funding must be fully devolved so that we can target it in a manner that suits the needs of Scotland’s people, communities and businesses. In light of the UK Government’s continuing intransigence on that point, we are collectively asking for assurances that the UK Government will provide full replacement funding of EU programmes without detriment to the devolution settlements.

As I draw to a close, I am sure that every member in the Parliament knows how critical the next Scottish budget will be. It will be one of the most important in the history of devolution. It will determine how our economy and public services respond to and recover from Covid-19. Of course, in the on-going grip of a global pandemic, it will also be a budget of unprecedented uncertainty.

In that context, we need as much certainty as possible; we need as much engagement as possible; and we need as much collaboration as possible. We need assurance on what the figures will be so that we can plan our budget and respond to the multiple crises that we face.

The UK Government, as the holder of the key financial and economic powers that will shape the size of that budget, has a responsibility to help to reduce uncertainty, not to compound it. Regrettably, its actions to date have increased the uncertainty, but there is still time to make amends. That is why, today, the finance secretaries of the devolved Governments, representing their three nations, are speaking with one voice in calling on the UK Government to provide the clarity, certainty and flexibility that we require in order to serve the people and the businesses of this country.

I thank the cabinet secretary for advance sight of her statement, although businesses and workers across Scotland will be dismayed that her first thought in this economic crisis is to call for more constitutional upheaval, when the Government should be getting on with the job of using its extensive resources to support those in need.

The current fiscal framework, which the cabinet secretary criticises, was of course negotiated and agreed to by her colleague, the Deputy First Minister, in 2016. What was missing from her statement was a recognition of the substantial value that the fiscal framework has to the Scottish budget, in that it protects spending levels in Scotland in the event of a decline in tax revenues, provided that the decline is in line with the UK average.

Given what is on the horizon, I would have thought that the cabinet secretary would have wanted to recognise the important protection that the fiscal framework provides. Instead, she said that

“Full financial powers are required.”

What is her analysis of the cost of that to the Scottish budget? The Government expenditure and revenue in Scotland figures, which are her Government’s figures, put the gap between income and expenditure in Scotland at £15 billion. Is it not the case that a budget deficit of that scale is the last thing that Scotland needs at this very difficult time?

Considering that the UK Government’s deficit is currently forecast to be in the region of £372 billion, I question the merit of that point.

The calls that we are making today are about setting a budget. The additional flexibilities that we receive through the fiscal framework have helped in part in responding to the pandemic. However, what I am asking for is very simple: I am asking for clarity on our budget position, on the block grant adjustments and on what the forecasts will be in order to allow us to set a budget for next year.

Murdo Fraser will know that income tax needs to be set before the next financial year, that non-domestic rates changes are contingent on consequential funding from equivalent tax changes made by the UK Government and that local authorities are required to set their council tax before 11 March. Even just on those three taxes, we need urgent clarity so that we can set our budget and provide equivalent clarity to businesses and communities.

That is how simple it is. That clarity could be provided, and if it is not provided, which is my fear in light of the UK Government scrapping its autumn budget, I am asking for the equivalent fiscal flexibilities to plan independently. That is not about the constitution; it is about families, households, taxpayers and those who rely on our public services having the clarity that I want to give them, which I can do if it is given to the Scottish Government in the first place.

I share the Scottish Government’s concern about the impact of delays to the UK budget process. Nevertheless, we should afford this Parliament the opportunity to carry out as much scrutiny as possible. Last week, I asked the cabinet secretary about the £537 million to deal with Covid that remained unallocated, and she said that the money had been allocated. Will she publish a list of the specific initiatives that it has been earmarked for?

The cabinet secretary talked about flexibilities from the Treasury and she has our broad support for her request on that. However, it is in her gift to provide flexibility for councils to allow them to balance their budgets over time rather than in year, in order to cope with the extra cost of Covid. Will the cabinet secretary give councils the flexibility that she herself seeks from the UK Government?

I will happily provide a detailed list of the spend and costs, as part of our spring budget revision, which, as Jackie Baillie knows, is the normal point at which such things are confirmed. I clarify once again that the costs and the need far outstrip the funding that has been made available. For example, currently, I require at least £200 million to meet increased transport costs and the costs that local government has identified need to be met. There are existing commitments on payments for those who are self-isolating, which are not in the autumn budget revision and will be in the spring budget revision. There is an element of uncertainty, and there may well be future UK Government announcements that generate consequentials, which will form part of the spring budget revision.

On fiscal flexibilities, the short answer is, in part, yes. We are working with local authorities on a package of fiscal flexibilities for them so that they can free up their spending power and respond to the pandemic. Ideally, we will jointly announce that in the next few days.

The Scottish Government and the Scottish Fiscal Commission need to produce tax revenue forecasts in respect of devolved taxes. If the Scottish budget has to be taken forward in advance of knowing what UK tax policy will be, what will those forecasts be projected against? Will it be the status quo of UK tax policy or some other scenario that is based on expectations of what the UK Government might do?

Unless I misunderstood it, I think that Patrick Harvie’s question would be more appropriate for the Scottish Fiscal Commission, which is the independent forecaster. How we set our budget will depend on how up to date and accurate the block grant adjustments that are published in November are.

Patrick Harvie might recall that figures that were published in December last year were based on the Office for Budget Responsibility’s spring update, so the information was more than six months out of date. I am pressing the Treasury to ensure that the figures that it publishes for the block grant adjustments are as accurate as possible, which will mean that we can plan more clearly.

The SFC must have sufficient time to develop its own robust forecasts, which is why we have the 10-week notification period. There is flexibility, but the integrity of the forecasts will be a critical aspect of the budget.

I assume that we will have to set at least some tax policies before we know what the UK Government’s tax policies will be. The relative performance of our tax is critical to our overall spending envelope. I presume that, for the land and buildings transaction tax, we will have to react to what the UK Government does with stamp duty land tax when it sets its budget. On non-domestic rates, we will be unable to avoid the reverse cliff edge that involves the 100 per cent relief that has been provided to retail, hospitality and leisure businesses without a corresponding UK Government policy or significant Barnett consequentials.

The answer to the question is that we will plan with as much evidence as we have. Right now, that is very little.

I call Willie Rennie, to be followed by Ruth Maguire, who both join us remotely.

The finance secretary complains—not unreasonably—about the uncertainty that the UK Government has caused, which is caused partly by the uncertainty of the pandemic. What will she do about that? What discussions is she having with the UK Government to get more certainty? What does she hear behind the scenes about when certainty will come?

The finance secretary stretches the point by saying that none of this is about the constitution—for the Scottish National Party, it is always about the constitution. I am interested to understand exactly what she is hearing from the UK Government, so that we all have a bit more certainty.

Given that I am making a similar statement to those being made by my Welsh and Northern Irish counterparts, Willie Rennie might also want to ask them whether this is about the constitution. The issue is not even just about the Scottish Government; it is about ensuring that our taxpayers, public services and councils have sufficient and early clarity.

As for what I am doing about the situation, I make two points. We are in discussion with Treasury counterparts at official and ministerial levels. Immediately after the chancellor’s winter economic update, I had a discussion with the Chief Secretary to the Treasury. The three devolved finance ministers have also pressed for an early meeting with the chancellor to confirm our concerns about the lack of clarity.

I am trying to confirm what flexibilities—I am not talking about fiscal flexibilities—might be provided to us. Last year, for example, the Treasury agreed that we could have the option of choosing whether to use the provisional block grant adjustments or the updated block grant adjustments, which are confirmed only at the UK budget. The fact that there was a difference of more than £200 million between the provisional and the confirmed block grant adjustments shows that these things matter. This is not just about boring budgets; it is about what provisions we can put in place to support households, communities and our public services.

Those are the two things that I am actively involved in doing, and I will continue to push to get the clarity that we need in order to be able to set a budget.

When the UK Government decided, earlier this year, to delay its budget until 11 March, the public spending watchdog for local government, the Accounts Commission, described the decision as

“really problematic and kind of unprecedented”.

Our local authorities are big employers in our communities, and they are at the forefront of delivering important services to our citizens. Does the cabinet secretary agree that the UK Government scrapping its latest budget date is similarly problematic and creates untold problems not just for the Scottish Government but for local government funding and flexibility?

That final point is critical, because last year there was a lot of debate, for example, with local authorities having to set their budgets not knowing what their spending envelopes were or what the local government finance settlement would be. Some of them had those debates in advance of hearing what their finance settlement was, and then they had to make updates. Of course, they have to set their council tax in advance of 11 March.

The consideration that I am grappling with just now is how we give local government and others as much clarity and certainty as possible while, at the same time, making sure that we have as much robust information and evidence as possible on which to set our own budget.

The SNP’s £500 million growth scheme delivered half the promised funding. When will businesses receive the missing millions?

Considering that I have just confirmed that we have invested £2.3 billion in our business support packages, ranging from grants all the way through to non-domestic rates relief, the Government is, right now, being as flexible as possible to ensure that every penny that we have at our disposal goes out the door to support businesses or to keep the health service delivering for the people who rely on it, and we will continue to do that. Of course, when it comes to budgets, we have had to be flexible with some budgets, as the autumn budget revision and, indeed, the summer budget revision demonstrated.

Can the cabinet secretary advise the Parliament whether it is an indication from the UK Government that another round of austerity is heading our way that the chancellor has commented that we cannot continue to

“borrow our way out of a hole”?

What impact would further austerity have on Scotland’s employment and economy, bearing in mind that, according to last week’s Economist, the UK economy has shrunk more this year than that of any other country in the developed world?

I think that I also heard the chancellor say that austerity was absolutely the right thing to do, which may be news to those who have suffered at the hands of Tory austerity for the past decade.

Of course, the Scottish Government has not been consulted on the budget, and we found out about the decision at the same time as everybody else, through media reporting.

We have been very clear. Over the past few months, we have set out that we expect the UK Government to continue to respond to the pandemic and to support the people who have been hardest hit by it. Now is not the time to be focusing on getting the public finances back into shape; now is the time to support people, as far as we can, to get through these very difficult months.

Covid has hit some communities harder than others. The west of Scotland has recorded some of Scotland’s highest Covid death rates, and two of our local authority areas have the highest unemployment rates in Scotland. Much of the region has been subject to additional restrictions, and there is a growing number of positive cases. To date, however, no additional resources have been targeted towards the west in a meaningful way.

I am sure that the finance secretary agrees with the principle that the hardest-hit areas of Scotland should receive extra support, so will extra resources go to the hardest-hit places, to help them to recover and rebuild, when the Scottish Government publishes its next budget?

I agree in part with the sentiment of the question. The difficulty is—I say this as carefully as possible—that, when it comes to the distribution of local government funding, we have been very clear with the Convention of Scottish Local Authorities that, if it believes that the money should be distributed through an alternative funding mechanism such as focusing on places that have been hit the hardest, I am very open to looking at how we distribute the available funding to those areas.

I hope to be in a position in the next few days to jointly announce with COSLA significant further support, including the fiscal flexibilities that Jackie Baillie talked about, as well as support through the lost income scheme. That scheme will directly reflect the challenges that councils are facing through lost income, and support will be application based.

In relation to use of the formula, however, if there is a better way of doing it, to ensure that the hardest-hit areas get more, I am very open to considering that.

I find it puzzling that the UK Government is postponing the budget because it feels that it is a major decision and we are in a time of crisis with Covid, but, at the same time, it is not postponing the decision on Brexit for the same reasons. Can the cabinet secretary help me to understand that?

I am afraid that I cannot oblige with an answer to that question. I do not understand it. I think that the decision has been taken with no thought to the fact that other organisations and Governments depend on the clarity provided by the UK Government’s budget in order to be able to respond to their own challenges and the crises that exist in our respective countries.

Here is a question that the cabinet secretary can answer. If, as she has said, every penny of the £6.5 billion extra Barnett consequentials has already been allocated, and given her wish for clarity, why do we have to wait until the spring revision in February to find out exactly where she has secreted those extra consequentials?

It is remarkable that the Opposition is expecting us to have spent every penny at our disposal at this point, in October, when it fully understands that the challenges of responding to the crisis will continue.

In terms of explanation, I was very grateful when the UK Government confirmed that it would provide a guaranteed amount of funding. That is what it announced in July, and I welcomed that. It was a different way of providing Barnett consequentials. It meant that the UK Government provided a fund, which it then said would continue to cover all future announcements of consequentials.

The challenge for us now is that that funding might well be required to cover additional announcements that will be made over the next few months. The UK Government needs to provide a very clear reconciliation of what is covered by the fund that it has already provided. If it fails to do that, that means that all that funding has to cover every new spending request between now and the beginning of the next financial year. That includes transport, local government, shielding support, self-isolation payments and localised lockdowns.

We know that every penny at our disposal is already committed to meeting those challenges, and I know that the challenges and the need far outstrip the funding that we have available.

Does the cabinet secretary agree that the chancellor’s decision not to proceed with a budget at this time suggests, to borrow someone else’s words, that the UK Government is “focused on England” and is treating Scotland and the other devolved nations as an afterthought?

I have never agreed so whole-heartedly with Douglas Ross as I did when I heard those comments. Certainly, the budget scenario proves his point, and it would have been a very fitting example for him to use.

The point of today’s statement is to illustrate something that is not an SNP point, a Scottish Government point or even a Scottish Parliament point. The concern is shared by our counterparts in Wales and Northern Ireland. The lack of engagement demonstrates a complete lack of interest in Scotland and the other devolved Governments.

I very much welcome the fact that the Scottish Government is working with the Administrations in Wales and Northern Ireland. We need to continue to do so.

Does the cabinet secretary agree that it is absolute madness to continue with a bad Brexit deal at this time? Is there still mileage in trying to push the Tories to stop the constitutional upheaval that they are driving across the UK?

Has the UK Government put forward any proposal for the replacement of structural funds that are being administered and spent in Scotland?

It is bizarre that the UK Government does not seem capable of setting a budget that gives us a one-year outlook but seems dead-set on continuing with Brexit, which will have an impact for decades.

On the proposals, we have set out clearly the red lines that we expect to be adhered to when it comes to replacement funding, which includes the fact that there should be no detriment compared to the funding that is available, and the fact that it should be devolved, so that decisions can be made in Scotland to ensure that we continue to deliver for the communities, initiatives and projects that rely on European Union funding.

Throughout the country, MSPs are hearing from businesses that are struggling, particularly in the hospitality, leisure and creative sectors. What effect will the delayed UK budget have on the Scottish Government’s ability to assist them over the coming months, particularly if they are affected by the announcement that the First Minister makes tomorrow?

That is one of the most critical questions, because, to respond to the crisis and to business need and to mitigate some of the effects of the pandemic on business, we have asked for the flexibility to tailor our support to Scottish businesses—particularly those that have been hardest hit in the hospitality, leisure and creative sectors. We have passed on more in funding than the consequentials that we got from business support. I want that funding to go as far as possible but, in the absence of confirmed consequential figures in the UK budget and without fiscal flexibilities, our hands are tied behind our backs when it comes to responding.