Meeting of the Parliament

Meeting date: Thursday, June 22, 2017

Official Report 855KB pdf

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Provisional Outturn 2016-17

The next item of business is a statement by Derek Mackay on the provisional outturn for 2016-17. The Cabinet Secretary for Finance and the Constitution will take questions at the end of his statement, so there should be no interventions or interruptions.

I welcome the opportunity to update Parliament on the provisional budget outturn for the 2016-17 financial year—it is always a crowd-puller, as you can see, Presiding Officer. Before I do so, I will address the outcome of the recent United Kingdom general election as it relates to the public finances.

It is important for us to take time to consider and be ready to respond to the opportunities and challenges that flow from the general election. I will urge my counterparts in the UK Government to end austerity, given its impact on our economy, our public services and our communities. There will inevitably be budget implications for us to manage in future years from a new UK Government and not least from the previously announced £3.5 billion of cuts.

I turn to the provisional outturn for 2016-17. The financial year 2016-17 represented the first year of the 2015 UK spending review settlement, which saw the Scottish Government’s discretionary budget continue to fall in real terms. It also represented the first year in which the Scottish Parliament was responsible for setting income tax rates and bands alongside setting rates for landfill tax and the land and buildings transaction tax. The prudent and principles-based approach that my predecessor took to taxation is one that I plan to replicate over this session of Parliament.

Under the devolution settlement, the Scottish Parliament is not permitted to overspend its budget. As a consequence, we have consistently adopted a position of controlling public expenditure to ensure that we live within the budget caps that apply while remaining able to manage a limited carry-forward of some resources for a future year. That prudent strategy has proven to be the right one.

Back in February, I outlined an additional funding package to be made available in 2017-18 that was subsequently approved by the Parliament. At that time, I set out how that package was to be funded, including the use of additional budget exchange. I also made it clear that, as we reached the end of the financial year, the precise figures would become more certain.

I report to Parliament today that the commitments that I made in February have been fully funded. I also report that, within our discretionary budget—the fiscal departmental expenditure limit—the provisional outturn for 2016-17 is expenditure of £29.7 billion against a limit of £29.9 billion. That represents a carry-forward of £191 million into 2017-18.

In total, there is a fiscal DEL cash carryover of £98 million in resource spending and £40 million in capital spending. There is also a provisional outturn carryover of £53 million in respect of financial transactions that, through rules set by Her Majesty’s Treasury, are ring fenced for loans and equity investment outside the public sector.

Overall, including financial transactions, we will carry forward 0.6 per cent of the total 2016-17 cash budget. Those cash sums are carried forward in full using HM Treasury’s budget exchange facility, which ensures no loss of spending power in Scotland. The Scottish Government has again demonstrated our sound grip on the public finances.

I turn to the non-discretionary elements of our budget—the non-cash DEL provision, which, I remind Parliament, is ring fenced for a narrow range of purposes and cannot be used to purchase goods or deliver public services. Based on the provisional outturn position, expenditure is lower than the budget by £108 million, which is consistent with previous years. As the description suggests, those resources are not cash in nature; rather, they provide specific budget cover for differences between estimated accounting adjustments and the final amounts calculated. The budget includes the depreciation and impairment of assets, which have no cash consequences.

Finally, I turn to devolved taxes. I am pleased to inform the Parliament that our tax take is up. A total of £633 million was collected in 2016-17, which represents £61 million more in income—a rise of 10 per cent—than was delivered in the previous financial year, 2015-16. The figure is slightly lower—by £38 million—than the original estimates in December 2015 suggested it would be.

The figures for the devolved taxes, along with other figures that we have reported today, are provisional, and as such they are subject to the final audit process. Revenue Scotland will confirm final figures when it publishes its accounts and the devolved taxes accounts in September.

Members may recall that, at this time last year, I announced £74 million of surplus tax receipts from 2015-16 and said that I had decided to take a prudent view on the deployment of those resources, as I recognised the impact that decisions outwith my direct control can have on property transactions and the need to manage potential volatility in future tax revenues. Since then, we have seen increased volatility brought about by Brexit and recent actions of the Westminster Government. The £74 million will therefore remain held in reserve and will be available for deployment in the future to address any shortfalls in tax receipts.

In accordance with our agreement with HM Treasury, the income tax position has been funded in full in line with the forecast. That represents a transitional arrangement as we move to the full devolution of income tax from 2017-18.

My statement on the provisional outturn for 2016-17 reflects the position against HM Treasury budgetary controls and will be followed by reporting on the final outturn against the Budget (Scotland) Act 2016 limits in a suite of annual accounts that, together, will report on the total Scottish budget approved by the Scottish Parliament. The annual accounts of the Scottish Government and the individual bodies that are funded from the Scottish budget will report on their expenditure compared with the allocations in the 2016 act. The annual Scottish Government consolidated accounts and a statement of total outturn for the financial year 2016-17 against the final budget for the Scottish Administration as a whole will be provided to the Scottish Parliament later this year.

As we work through a period of considerable and sustained uncertainty for individuals and businesses, it is incumbent on the Government and the Parliament to demonstrate strong leadership in managing the public finances. The continuing competence that the Government has brought to the management of the public finances has been demonstrated again in our management of the 2016-17 budget. Our prudent approach has served us well. I therefore commend today’s figures to Parliament.

The cabinet secretary will now take questions on the issues 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.

I thank the cabinet secretary for his statement and for advance sight of it.

In his statement, the cabinet secretary has once again claimed that the Scottish Government’s discretionary spending power, or fiscal DEL, has been cut. That contrasts with the view of the highly respected and independent Fraser of Allander institute, whose analysis shows the total Scottish Government budget being higher now than it has ever been in the past. There has been no real-terms cut to fiscal DEL since the SNP came to power in 2007.

I have two specific questions for the cabinet secretary on the detail of his statement. First, in his final budget for the current financial year, in what was an unprecedented move, he included the figure of £125 million of spending that was drawn from underspends in the previous financial year. Can he confirm that the total cash underspend that he has announced, of £98 million in resource and £40 million in capital, includes the £125 million that has already been announced and committed? If that is the case, does that not mean that there is much less new money available to spend at this stage than there was in previous years?

Secondly, the figure for devolved taxes that have been collected, at £633 million, is some £38 million lower than estimates. How much of that has come from the shortfall in land and buildings transaction tax? Is it not now time for the cabinet secretary to start listening to all the voices that have been telling him for years that LBTT rates for domestic properties are set too high at the upper bands and that he would raise more money and help to stimulate our flagging economy if he was prepared to take action and lower them?

I say to Mr Fraser that we have had a number of disagreements about fiscal DEL and about UK Government support. I, too, can cite the Fraser of Allander institute. I think that that is just a debate that we are going to have repeatedly.

However, I again make a plea to the UK Government to change course on its fiscal policy. The Chancellor of the Exchequer suggested that he would do that, but he already seems to have U-turned on that in a matter of hours, which seems quite popular in the Tory party at the moment.

On the budget exchange, the total figure that I have announced today reiterates the budget exchange position that I outlined during the previous budget negotiations and work in Parliament. The figures are as stated, and they build on the figures that I gave to Parliament previously, although we should recognise that they are provisional.

The figures for devolved taxes are subject to final confirmation by Revenue Scotland, as Mr Fraser will understand. On the subject of U-turns, it is interesting that the Tories appear to be demanding that I collect even more tax from the taxpayers of Scotland, having already increased the tax take through the Government’s policies.

Murdo Fraser criticises the methodology of our forecasting. Forecasts are not a precise exercise, but we have kept within a very accurate range. We have generated more through taxation—£484 million in 2016-17, which was an increase on what we generated previously. The outturn figure for Scottish landfill tax was £149 million. On the modelling, the aggregate forecast over two years was £919 million while the actual outturn was £909 million, which is a variance of 1 per cent. For the equivalent tax in the UK—stamp duty land tax—the variance for the two-year aggregate was around £2.9 billion, or 22 per cent. That shows that the forecast and assessments that the Scottish Government made were very reasonable.

Market share at the upper end of the market for land and buildings transaction tax has been fairly consistent. I have looked at the evidence and come to the conclusion that the behavioural effects that Murdo Fraser talks about are not taking place. However, I will continue to monitor the issue and we will look at the forecasts of the Scottish Fiscal Commission as it takes up that work in its statutory functions.

I thank the cabinet secretary for providing early sight of his statement. I share his desire to see the UK Tory Government abandon its austerity project, as I know the damage that it has done to our communities, public services and economy. What a shame it is that we have spent the past year watching the cabinet secretary pass on that Tory austerity to communities across the country. The outturn statement shows an £85 million underspend in the communities portfolio, through which his Government has the capacity to alleviate austerity, and a £76 million underspend in education and skills, which we are led to believe is the Government’s top priority. Can the cabinet secretary explain to families who are struggling to make ends meet and are watching their kids being taught by volunteers in schools why they are missing out on that much-needed help now?

The Labour Party proposed to pass on austerity to individuals by way of a basic-rate tax increase, and the Scottish Government did not support that position.

The member raises two specific points about the budget exchange and variance. On the communities budget, I make it absolutely clear that the impression that the member gave in relation to support for vulnerable communities and our social security approach is not reflected by the facts. To be helpful, I can give detail on why there is variance. That is not necessarily in the social justice and regeneration area; it is more in the housing lines. That is not because of a lack of resources being spent on housing, as we are meeting our targets for more house building; instead, it is in specific areas.

Some of it is in demand-led areas such as area-based schemes for heat and home energy efficiency applications, which we want to encourage, or the help for homes equity loan scheme and other loan schemes that have been made available but for which, on occasion, we have struggled to attract applicants. We want to do more on that as well as on, for example, the regeneration capital grant, for which we have made resources available. However, local authorities might sometimes not be able to identify the underspend until later in the financial year.

My point is that those resources are not lost but can be carried forward. There is certainly no lack of willingness to spend to support our most vulnerable communities. As I said, it is about specific lines in the housing brief rather than social security, social justice or regeneration. We want to encourage the uptake of those schemes, and we will continue to support that.

The member’s other question was specifically about education. If we look closely at the variance, we see that it is a fraction of the overall spend of more than £2 billion on education. On the individual budget lines, some things are demand led. For example, we have supported the education maintenance allowance, but, if people do not apply for that support, the actual spend and outturn will be less.

There are other areas to look at. We have various attainment funds that involve multi-year spends. We have made a commitment of around three quarters of a billion pounds, which will be spent over the parliamentary session, as set out in the programme for government, and we will achieve that. Some of those schemes have taken time to establish and to deliver an outturn, but we are absolutely committed to spending those resources.

I have touched on other demand-led budgets, such as those within Skills Development Scotland, in which the resource is made available, but spending is based on those who are willing to come forward to secure that funding.

Those are examples of variances. We fund the education system in Scotland as a priority, which is why we made it a priority in the budget to allocate £120 million to the pupil equity fund through the Scottish attainment fund.

We are taking a range of actions to support education.

Ten members want to ask questions, so I will say the usual thing. There should be no preambles to questions, please, and it would be very helpful if the cabinet secretary gave succinct answers. Together, we might all then get through 10 questions. I call Stuart McMillan, who will set an example.

In his statement, the cabinet secretary spoke about the volatility that has been brought about by Brexit.

I said that you will set an example. That means that you will start with a question.

On that volatility, what measures will the Scottish Government take to support economic growth and help Scotland to weather the economic shocks caused by Brexit and failing Tory policies?

We will take a range of actions in our taxation policy, our leadership and our interventions with the UK Government, and in securing the best possible outcome for Scotland in relation to the Brexit negotiations. Other funds have been announced, such as the Scottish growth scheme, and we will continue to support agencies such as Scottish Enterprise in supporting Scottish business.

On the shortfall in LBTT rates, what is the split in the £38 million loss between residential and commercial sales? The cabinet secretary has already once downgraded the amount raised by LBTT. Does he accept that he will be forced to do that again?

I do not have the figures to hand on the split between commercial and residential sales, but Revenue Scotland will report on that, of course, later this week, I think.

I have explained that we have increased the tax take and that the methodology and the forecasting are not an exact science. We have to take into account the economic conditions at the time. We have done that in the budget process, so we can reflect on the forecasts and ensure that we have accurate ones going forward. The process has certainly been robust. I have already given the variance, which compares very favourably with the UK Government’s and the Office for Budget Responsibility’s figures. That will, of course, be a matter for the Scottish Fiscal Commission.

Will the cabinet secretary confirm—yes or no—what he clearly failed to confirm for Murdo Fraser: that the £125 million used in the budget is contained in the £191 million underspend? Given that that is a one-off and is not recurring funding, does that mean that, before the cabinet secretary does anything else, he needs to find £125 million to plug the gap for next year simply to stand still?

I have said that the figures I have announced are from the discussions I had around the budget. I have also pointed out previously that those budget exchange figures are not recurring. We were fully transparent about that in setting the budget for 2017-18. Therefore, that should not come as a surprise to members.

I am grateful to the cabinet secretary for providing an advance copy of his statement.

If we take the statement together with the research on local government finance that the Scottish Parliament information centre published yesterday, is it not clear that although Green pressure successfully resulted in a 1.5 per cent increase in local government funding in the current financial year, that will not be enough to make up for the cuts that came before? Is it not a priority for the Government to move from a position in which councils have had flatline budgets or small increases, to reversing the historical cuts to local government funding?

I suspect that the debate is moving away from the provisional outturn towards wider budget negotiations and wider budget positioning. I believe that the budget settlement for local government was a strong and fair settlement, which gave local authorities the ability to raise taxation at local level. My opinion that it was a strong and fair settlement for local government is evidenced by many of the budget decisions that local authorities were able to take earlier this year.

Does the finance secretary understand that people will be surprised by his two-faced approach? He described a £67 million cut to his budget as “unnecessary and damaging austerity”, yet when he himself cut it by another £191 million, he calls that having a

“sound grip on the public finances.”

How can a £67 million cut be “damaging” and a £191 million cut be “sound”?

I have explained that, taken in context, the carry-forward is reasonable. It is a lower carry-forward, in percentage terms, than that of either the UK Government or the Welsh Government. The approach I have set out is one of sound financial management. We will never be able to get the figure to match the budget cap exactly. What we fail to spend in one year is carried forward to the next, and no resource is lost to Scotland. That was not always the case with previous Scottish Administrations, but this SNP Government does not lose a single penny—we carry forward money that is not spent into the next year.

For the sake of context, can the cabinet secretary tell me what the current percentage underspend is under the Labour Government in Wales and the Tories in England?

Well, I have let it be a wide-ranging debate.

What a timely question.

Our figure represents 0.6 per cent of the budget. In Labour-led Wales, the figure is 0.9 per cent, and in the UK, where the Tories lead, it is 0.7 per cent.

There has been an underspend of £76 million in education and skills. Are the significant cuts in college places that Audit Scotland has highlighted this week another reason for the underspend in education and skills?

No.

Can the cabinet secretary confirm that he is not allowed to overspend, which means that, in effect, he is required to underspend, and that many businesses, charities and other organisations would be delighted if they could come within 0.6 per cent of their budget?

John Mason’s point about my inability to overspend is correct.

I asked for short answers; this is getting better all the time.

Given that the cabinet secretary likes to be precise about figures, how much was the underspend in the housing budget? Does he agree that such an underspend is unacceptable when we have homeless people sleeping rough on our streets?

Earlier, I tried to be helpful to Kezia Dugdale on the communities, social security and equalities portfolio—[Interruption.]

Just a wee minute, cabinet secretary. I cannot hear, because a couple of members are have a wee to-do with each other. I will not name them, but they know who they are.

I tried to be helpful by addressing the variance in the communities, social security and equalities portfolio, in which housing rests. There is no issue with how we are supporting our vulnerable communities; there is an issue with specific housing funds. In particular, I identified that there was an issue with take-up of some of the schemes under the home energy efficiency programmes for Scotland.

It is not the case, as James Kelly has suggested, that there has been a substantial underspend on areas such as homelessness; the variance that has been identified is in other areas. I hope that that allays his concerns.

Does the cabinet secretary agree with me that a carry-forward of only 0.6 per cent represents prudent financial management of the country’s finances?

I am tempted to agree with that; it sounds as if the entire chamber agrees with it. The Auditor General’s report has pointed out in the past that the Government has effective management and

“The Scottish Government has a good record of financial management”,

so I agree with the Auditor General as well.

Thank you. That concludes questions to the cabinet secretary; I thank all members for their efforts.

14:55 Meeting suspended.  

14:56 On resuming—