Meeting of the Parliament (Hybrid)

Meeting date: Thursday, June 17, 2021

Official Report 1074KB pdf

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Provisional Outturn 2020-21

The next item of business is a statement by Tom Arthur on the provisional outturn for 2020-21. The minister will take questions at the end of his statement, so there should be no interventions or interruptions during it.

14:26  

Thank you, Presiding Officer. I welcome you to your new role.

I welcome the opportunity to update the Parliament on the provisional outturn against the budget for the financial year 2020-21. The provisional outturn demonstrates once again that the Scottish Government is prudently and competently managing Scotland’s finances, even more so in such extremely challenging and uncertain times, taking into account, as it does, all the Covid-19 expenditure up to 31 March.

The financial challenges of managing our response to the pandemic have been unprecedented. There is an economic crisis as well as a health crisis, and the Covid-19 pandemic has been the biggest fiscal and policy challenge that the Scottish Government has faced over the past two decades of devolution.

The pandemic has reached almost every area of our lives, and it has required the Scottish Government to respond quickly and decisively by providing substantial additional funding for public services and support for individuals, business and the economy. Although our collective efforts, in tandem with the success of the vaccination programme, are helping us to win the fight to overcome the virus, that has not come without cost. I thank members of the national health service and the emergency services, and front-line staff across the whole of the public sector, for their amazing work over the past year. I also recognise the sacrifices that businesses and the public have made.

Every penny that has been received by the Scottish Government to tackle Covid-19 has been channelled to where it has been needed the most. To date, we have announced more than 170 Covid initiatives, which have provided bespoke financial support to businesses, individuals and organisations to support them through the pandemic.

In 2020-21, we allocated more than £9 billion to support the health, economic and social challenges that have been created by the pandemic, which is more than the Covid funding that was passed to us by the United Kingdom Government. That includes more than £3 billion to support health and wider public health initiatives; more than £3 billion to support Scottish businesses; £1 billion for local government, to support the welfare and wellbeing of our communities; £850 million to support our rail and bus networks; and £450 million to support education and skills. Those figures demonstrate the scale and breadth of our response to the unprecedented situation, and it is against that extremely challenging financial backdrop that we report our provisional outturn.

Although the path to recovery remains uncertain, the Scottish Government remains committed to ensuring that we as a country get back on our feet and that the right steps are taken to support and guide Scotland’s longer-term recovery.

The pandemic has put a spotlight on the challenges that we face as a result of having such restricted fiscal powers. There is an imbalance between the risks to which the Scottish budget is exposed and the levers that we have for managing those risks. That includes the existence of strict limits on how much and for what purpose the Scottish Government can borrow, which leads to our being overly dependent on UK Government policy; the time lag between the UK Government’s announcements and the confirmation of further devolved funding, which makes real-time response and recovery planning extremely difficult; the uncertainty of the funding and application of certain Covid policies when there needed to be varying local responses to the pandemic, a prime example being the furlough scheme; and the single-year funding model, which means that the ability to carry forward our budget between financial years is extremely restricted. Unfortunately, Covid-19 does not stop at the end of a financial year.

The 2020-21 guarantee on Barnett consequentials that was provided by the UK Government was a welcome development. However, that served only to reduce the risk of late deductions to our budget, which we again face for 2021-22.

What is not in doubt is that significant budget challenges lie ahead, and that those funding challenges will continue as we target our resources at stimulating a safe, swift and sustainable recovery for our communities, our public services and our economy. Significant uncertainty remains over the extent to which the UK Government will support the on-going cost of the pandemic. That is why we have requested a guarantee of future funding similar to that which was given for 2020-21. It is also why I, along with the Cabinet Secretary for Finance and the Economy, will continue to make the case to the UK Government for more proportionate financial powers to help manage the pressures and volatility in Scotland’s financial position and to allow the Scottish Government to respond fully to the crisis. The forthcoming fiscal framework review must take place in that context. A narrow, technical review of the framework will not deliver what the people of Scotland need or want.

I turn to the 2020-21 provisional outturn. Under the current devolution settlement, the Scottish Parliament is not permitted to overspend its budget. At the same time, the carry-forward of budget between financial years is highly restrictive, which means that the phasing of expenditure between financial years is extremely restricted. Therefore, there is a balance to be struck in ensuring that we maintain spending within our budget limits but do not generate high carry-forwards between financial years, which would risk breaching our reserve cap and losing funding.

Once again, we have managed to maintain that balance. I can report that the provisional outturn for 2020-21 is £48 billion, against a total fiscal budget of £48.5 billion.? The remaining budget of £449 million, which represents just 0.9 per cent of our total budget, has been carried forward in full through the Scotland reserve.? That was proactively managed, with £431 million already being anticipated in the 2021-22 budget reserve carry-forward.

It is important to note that there is no loss of spending power to the Scottish Government as a result of that carry-forward. ?Every penny has been allocated in full, allowing us to implement Covid response measures at the optimal time rather than be constrained to a single financial year.?

The sum of £449 million is made up of £374 million of fiscal resource, £8 million of capital and £67 million for financial transactions—which, of course, can be used only for loans or equity investments in entities that are outside the public sector.

The provisional outturn is in line with our strategy to actively minimise the amount of capital that is in the reserve, in order to create headroom for the FT and resource carry-forwards that are required to support the 2021-22 budget position that was agreed by Parliament.

I highlight that the outturn figures for 2020-21 remain provisional, as they are subject to an on-going audit process. Finalised figures will be reported as usual in the annual Scottish Government consolidated accounts and a statement of total outturn for the financial year 2020-21 later this year.

The provisional outturn demonstrates that the Scottish Government has maintained a firm grip on Scotland’s public finances in the context of a year that has presented the most significant financial challenges in the past two decades of devolution. We have demonstrated that, once again, the Scottish Government has effectively managed Scotland’s public finances and maintained the balance of not breaching our fixed budgetary limits and ensuring that the reserve balances will be deployed in full to fund 2021-22 spending priorities.

I commend today’s figures to Parliament.

The minister will now take questions on issues that were raised in his statement. I intend to allow about 20 minutes for questions, after which we will move on to the next item of business. It will be helpful if members who intend to ask a question press their request-to-speak buttons now, or as soon as possible.

I join the minister in thanking the people who are on the front line as we grapple with the pandemic, which is obviously forcing Scotland to face up to very difficult circumstances. It takes just a quick look at the statistics that were published yesterday for us to recognise the scale of the challenges that lie ahead, especially in relation to securing people’s jobs. There are also budgetary challenges.

I have three questions for the minister. I turn first to the underspend and the concern that, in this on-going and serious pandemic, there continues to be a very large sum of public money that many sectors want to be spent on urgent support. For example, in the health budget there is an underspend of £183 million while there are backlogs in treatment. That is very serious.

Will the minister provide Parliament with full transparency on budget lines, regarding exactly how the Covid recovery money, including that which is provided to Scotland by the UK Government, has been spent and how it will be spent, across each sector?

Secondly, I note that transport once again has the largest underspend, which we are hearing just days after the Scottish Government announced that it has missed its climate change targets for the third year running. What money will be given to green transport and infrastructure projects to ensure that the effects of climate change will be mitigated?

Finally, this week the First Minister was accused by members of the national economic forum of not ensuring that enough effort has been made by the Scottish Government to engage meaningfully with the business community on planning for the future. What is being done urgently to address that problem?

I welcome Liz Smith to her new position. I will pick up on the last point and acknowledge the outstanding contribution that our businesses have made throughout the pandemic. I am sure that we can all think of examples from our constituencies of businesses that have gone above and beyond the call of duty. The member is absolutely right to raise the point. I will answer her questions in turn.

The health underspend came about due to consequentials of £200 million that it was judged would not align with public health spending cycles. As I said in my statement, it is better that the money be deployed at the optimum moment rather than to fit within the strictures of a financial year.

On transport, money has been underspent on capital. Ultimately, that is a consequence of restrictions from the pandemic. That will be seen across many capital lines. Restrictions having been in place and construction having been closed for large parts of last year have inevitably led to some slippage in capital spending. However, money has been redeployed from capital for green transport. I will be happy to provide Liz Smith with more detail in writing, if she desires that.

In relation to business support and the overall question of how much money has been deployed, the Scottish Government has received in total £8.6 billion in consequentials, but we have gone further and have spent more than £9 billion on supporting our communities through the pandemic. Specifically in relation to business, the total is more than £3 billion, which includes £2.6 billion that has been spent on various grant schemes that amount to more than 170 bespoke financial support packages for businesses and their communities.

We have also given support on non-domestic rates relief. We are the only part of the UK to give non-domestic rates relief of 100 per cent to the retail, hospitality, leisure and aviation sectors. That is a commitment that we have delivered that will, in total, cost more than £960 million.

I hope that those examples demonstrate to Liz Smith that the Government is committed to business. It has supported business through the pandemic and will continue to do so. However, we could do so much more if we had additional fiscal levers, so I sincerely hope that Liz Smith will use the influence that she has in her party to encourage the Chancellor of the Exchequer to engage constructively in talks with the Scottish Government and the Cabinet Secretary for Finance and the Economy, as we take forward the fiscal framework review.

I thank the minister for early sight of his statement, and I welcome him to his position.

A £449 million underspend while so many businesses are struggling to keep their head above water will seem to many people to be a cruel irony. I understand that the timing of some UK Government funds might have made an underspend unavoidable, but the lack of clarity about what that substantial figure is being used for is not so understandable.

Especially given the extension of restrictions, the deepening cash-flow crisis might prove to be terminal for businesses including taxi drivers, wedding planners and hospitality and tourism businesses. Will the minister provide more detail on how the funds have, apparently, been allocated? Will he confirm that the funds are being spent to support businesses that have been impacted by the extension of restrictions? Can he also set out plans to improve transparency around Covid funds, which the Auditor General for Scotland called for in February?

I come back to health spending. How can the Scottish Government manage to have an underspend in the health budget in the middle of a health crisis?

On Daniel Johnson’s last question about health spending, which I addressed in my response to Liz Smith, the consequentials arrived very late, in February. I am sure that he and every member in the chamber will agree that money should be spent on health in a way that delivers the optimal impact, rather than it having to be spent within the strictures of a financial year. I am sure that Daniel Johnson will, on reflection, come round to that view.

As I explained and set out in my statement, the overall underspend has been managed prudently through the Scotland reserve. Indeed, £431 million of the underspend was anticipated in the budget.

In relation to transparency about how the money is being spent, we took the unprecedented step of carrying out a summer budget revision in the previous financial year. The cabinet secretary has engaged fully with Parliament. She engaged with the Finance and Constitution Committee, and she will write to the newly constituted Finance and Public Administration Committee ahead of the summer recess to illustrate our thinking. We will, of course, all be happy to appear before the committee, in due course.

Quite a number of members are seeking to ask questions, so it would be really helpful if we could have more succinct questions and answers.

I welcome you, Presiding Officer, and the minister to your new posts.

The pandemic has shone a spotlight on the need for additional fiscal flexibilities to be devolved to Scotland on an on-going basis. They include greater borrowing powers, reserve limits and year-end flexibility. Such powers are essential to securing and consolidating a strong recovery from the crisis. The minister mentioned engagement. What engagement has the Scottish Government had, to date, with the UK Government on devolution of future fiscal flexibilities?

Mr Gibson is absolutely correct to raise that issue. The key challenge is the fluidity of the overall funding position. When announcements are made, we do not know when we will receive the consequentials. We had the Barnett guarantee last year, but we currently do not have that, so we do not know about negative consequentials. That would make budget planning extremely difficult in normal times; the situation is compounded in the context of a pandemic. The cabinet secretary has written to the chancellor and is looking to set up a quadrilateral meeting with the other devolved Administrations. I very much hope that the chancellor will take up that offer.

We are looking forward to taking forward the fiscal review next year. It is key that the review’s remit be as broad as possible. I hope that we can work together as a Parliament to ensure that Parliament receives the powers that it needs in order to respond fully to the crisis and to progress Scotland’s recovery.

I refer members to my entry in the register of interests, which shows that I am still a member of Aberdeen City Council. From talking to other local councils, I know that there are still real pressures when it comes to funding in local government. I know that the minister will say that there is more money for local government, but most of it is coming in then going straight back out again for business support and ring-fenced initiatives. Will the minister commit to using some of the underspend to support local government, which is doing so much work in its local communities?

I welcome Douglas Lumsden to the Parliament; this is the first opportunity that I have had to do so. I also join him in acknowledging the extraordinary contribution of local government during the pandemic.

All the money that has been carried forward in the reserve was committed. I note that £430 million of it was anticipated within the budget process, so it forms part of the overall local government settlement that was agreed by Parliament earlier this year.

With regard to local government funding throughout the pandemic, in excess of £1 billion has been given on top of the funding that had been allocated in the budget last year. That funding has been spent on supporting the wellbeing and welfare of our communities—on initiatives to support people who are on low incomes, including free school meals and winter support packages. If Douglas Lumsden would like to discuss those matters further, there will be an opportunity to do so as we go into the budget process later in the year. I am more than happy to engage with him as we go forward.

I commend the Government on being so accurate with its budgeting; it came within 0.9 per cent. Covid is likely to lead to uncertainty around tax, so can the minister say anything about tax volatility?

John Mason is absolutely correct to raise the issue of volatility, which is addressed in the medium-term financial strategy. We have prudently used our resource borrowing powers to mitigate that volatility, but we could do more if we had further powers in the Parliament. I therefore reiterate the calls that I have already made for people across the Parliament to work together ahead of the fiscal framework review to ensure that we have the powers that we require to fully manage volatility.

Last year, the Government gave a £191 million no-strings subsidy to private bus company owners and underspent the transport budget by £343 million. When the Government is carrying forward that money into the reserve, will it consider taking equity stakes in bus companies and other transport firms to extend public ownership across the transport system and better enable us to have an integrated and greener public transport system in Scotland?

I welcome Paul Sweeney to the chamber, and I am happy to reflect on the substantive point that he has raised. In an earlier answer, I referenced the specific issue of money going to bus companies. There was an underspend in the area, but that money has been carried forward as part of the Scotland reserve to be redeployed on front-line spending in this financial year.

I congratulate Tom Arthur on his appointment as a minister. There is no doubt that it is a difficult job, but there is a concern that the Scottish Government, in managing its finances, has put some of the pressure down the chain to local government and arm’s-length bodies such as Glasgow Life. What more does the Scottish Government intend to do to ensure that facilities that are run by those bodies—such as Whiteinch library, on which decisions are being made this afternoon, as well as many other libraries, leisure centres and community centres—are not lost as we see Covid recovery? What more will the Government do to ensure that those services are protected?

I recognise the vital importance of those local services to our communities. As Patrick Harvie knows well, the budget for local government is set as part of the overall budget and it is ultimately a matter for local authorities to decide how they spend those resources, but I am sure that that will be a topic of much discussion as we approach the budget process later this year.

I welcome the minister to his position. He has touched on the fact that the Scottish Government cannot overspend its budget and so must balance it throughout the year. Can the minister provide any details as to how the current percentage of underspend compares to that of other devolved Governments that are required to balance their budgets, such as the Labour Government in Wales?

I am happy to do so. Mr McMillan is absolutely correct to raise the fact that we cannot overspend our budget; indeed, we have a very narrow envelope in which to carry forward additional resource to the following year, and underspend for 2020-21 is in line with comparative years. For example, although the 2020-21 data for the Labour Government in Wales is not yet available, its underspend in 2019-20 was £189 million, which represents 1.3 per cent of its total budget and compares to the underspend of 0.9 per cent in this year’s Scottish budget.

When businesses, especially tourism businesses, are crying out for support, they will find it baffling that millions of pounds of business support is stuck in Government accounts. The minister cutely dodged Daniel Johnson’s question on how the funds have been allocated. Can he tell me how much of the underspend has been allocated to tourism businesses, especially those that depend on international visitors?

We spend every penny of resource that we receive. The £431 million carry-forward was anticipated in the Scottish budget. If I recall correctly, Mr Rennie voted for that budget.

Willie Coffey is joining us remotely.

The economic shock of the pandemic has been compounded by the shock caused by the Tory Brexit disaster. What steps is the Scottish Government taking to mitigate the impact of Brexit on Scotland’s public finances?

Mr Coffey is correct to raise the issue of Brexit. The pandemic is the biggest economic challenge that we have faced in the past decade and it has been compounded by Brexit. As I said in my statement, the provisional outturn shows that the Scottish Government is prudently and competently managing Scotland’s finances, even against that most challenging of backdrops.

We have been clear that we will do all that we can to support businesses throughout the pandemic. We will continue to do that and to support businesses that are impacted by Brexit.

I, too, welcome the minister to his role. The minister said:

“To date, we have announced more than 170 Covid initiatives to provide bespoke financial support to businesses ... to support them through the pandemic.”

The fact is that too many people in the business community are telling us that they are not receiving the support that they need and that it is not clear who can access what. The timescales for business support grants are also not clear. Businesses are complaining about the lack of engagement—

Please can we have a question? We are running short of time.

What is the minister going to do about the lack of engagement and when is he going to do it?

Yesterday morning, along with the First Minister, the Deputy First Minister and the Cabinet Secretary for Finance and the Economy, I engaged extensively with businesses as part of the national economic forum. I will continue that engagement.

I welcome you to your new post, Presiding Officer.

I thank the minister for his clear statement and welcome him to his new role. Can the minister provide any further detail on measures that the Scottish Government is taking to provide certainty for our vital public services during this difficult time?

Due to prudent management of Scotland’s public finances, the Scottish Government was able to protect our most vital public services without overspending our budget. During the last financial year, we have responded to the pandemic by allocating an additional £3 billion to health and wider health initiatives and an extra £1 billion to local government through measures such as our lost income support scheme, winter support packages and free school meals scheme. We have also ensured that our rail and bus networks remain sustainable through an additional £850 million of funding and provided an extra £450 million to education to ensure that extensive support measures could be implemented.

I welcome the minister to his new position. He has rightly identified that the pandemic is as much an economic crisis as a health crisis, which means that how our public funds are used is vital. The most recent minutes that are publicly available on the Scottish Government’s website for a meeting of the First Minister’s Council of Economic Advisers dates from June 2020. Is that the last time that the group met? When will the group next meet and when is the next scheduled meeting of the advisory group on economic recovery? Are there any plans to amend the membership of either of those groups to give a stronger voice to Scotland’s business community?

I thank Jamie Halcro Johnston for his question. I did not catch all of it. The body that he referred to has met since then. I apologise for not picking up the rest of his question. If the member wants to write to me on that, I would be happy to respond.