Hansard

Today’s budget comes almost a year after the first case of Covid-19 was notified in Scotland. The pandemic has shaken our society and economy to the core. Every life has been impacted, and every life lost has been a tragedy. Livelihoods have been upended, and front-line services have responded in remarkable ways.

Of course, our collective fight to overcome the virus continues. The exceptional circumstances require an exceptional response. The budget provides for continuity in our urgent work to control the virus and to protect our economy and national health service while the vaccine is delivered as quickly and safely as possible.

It is not just the pandemic that has taken its toll on Scotland’s economy. The wrecking ball of a dismal Brexit deal is compounding matters.

Today’s budget will bring much needed support and stability to ensure that our economy recovers and that we protect those who have been hit the hardest. Our approach continues to target support in the immediate term, as well as tracking a course over the coming year to build a fairer, stronger and greener economy. Fundamentally, it focuses on three key priorities: creating jobs and investing in a sustainable recovery; responding to the health pandemic; and tackling inequalities.

This is a time of great fiscal uncertainty. In the absence of a United Kingdom budget, much of the information that we need in order to plan with certainty is missing. We must persevere with a budget that is based on a partial settlement while we are left waiting until the UK budget to see the full hand that is being dealt to us.

I have repeatedly welcomed the additional—largely borrowed—Covid funding that the UK Government has provided, and I do so again. However, I have a duty as Cabinet Secretary for Finance to make the case forcefully when I believe that more is required. There is £21 billion sitting in the UK Covid reserve. Our share of that funding would help to meet the on-going needs of our businesses and our NHS and other public services.

In the interests of providing certainty, and based on the balance of consequentials that have been received to date, I have made a prudent funding assumption and allocated £500 million against what we expect to flow to us from the Covid reserve next year. That will make the budget process more transparent and aid parliamentary scrutiny of our funding decisions. This week, I have written to the Chancellor of the Exchequer to set out the Scottish Government’s priorities for the UK budget and to seek clarity and flexibility on several matters of importance to Scotland.

Given the particular interaction between this year’s and next year’s budgets, I will touch on the 2020-21 position as we approach the end of the financial year. Last month, I set out how Covid funding was being allocated in full. Following my assessment of the latest position, and confirmation of an additional £400 million of consequential funding, I have already confirmed the following further funding for 2020-21: £300 million for business support, including payments from the strategic framework business fund to the end of this financial year; one-off top-ups to grant support for hospitality, retail and leisure businesses; comparable support for island businesses; and increased funding for the taxi and wedding sector funds. There is also £85 million for education recovery and £30 million to address university student hardship.

On Monday, councils paid out millions of pounds in framework funding and sector top-ups—significantly more than the figures that were published earlier this month. Since boxing day, payments have been made to tens of thousands of businesses. That builds on the 383,000 business awards, valued at more than £2.3 billion, that have been made since the beginning of the pandemic. Alongside that, we are filling the gaps in support through sector-specific funding, with funding now available for taxi drivers, brewers, travel agents, indoor football clubs, events businesses and a variety of businesses in the wedding sector, from florists to photographers.

I know that businesses will continue to need support for as long as they need to close, and they want certainty about the future. I can confirm today that the strategic framework business fund will continue to support businesses beyond the end of this financial year, should funding from the UK Government be forthcoming.

I can confirm two further measures: a doubling of the discretionary fund for local authorities to £60 million—to distribute as they wish—and a commitment to pay February grants at level 4, irrespective of what levels are confirmed during the next month.

Local government has been at the forefront in distributing grants, supporting communities and responding to the pandemic. Last year, the Scottish Government and the Convention of Scottish Local Authorities agreed the details of a scheme, which was then estimated at £90 million, to compensate councils for loss of income from sales, fees and charges due to the pandemic. Today, I am increasing that allocation to £200 million. When added to the £49 million previously announced, the total support for councils’ losses this year is now up to an additional £249 million. I am writing to the Finance and Constitution Committee today with the full 2020/21 allocation details, which confirm that every single penny has been allocated.

Yesterday’s gross domestic product figures show that, as a result of the restrictions that we have had to put in place to control the virus, our economy is now 7.1 per cent smaller than it was pre-Covid, while over the same period the United Kingdom economy has shrunk by 8.5 per cent. We have largely tracked the rest of the UK economy over the course of the pandemic, with a negligible difference in labour market and GDP statistics, but yesterday’s figures suggest a widening gap in the impact on the Scottish and UK economies.

The Scottish Fiscal Commission’s forecast, which was published today, shows a difficult outlook. The current lockdown measures to suppress the new Covid variant will likely reverse some of the fragile economic recovery that was seen during the summer, with GDP forecast to fall by 5.2 per cent in the first quarter of 2021. The vaccine roll-out and the anticipated easing of measures mean that the economy is expected to return to growth across 2021-22 as a whole. However, the commission still expects longer-term damage and does not expect GDP to return to pre-pandemic levels until 2024.

The SFC also forecast unemployment to increase to 7.6 per cent in quarter 2 of this year. In line with current, announced UK Government policy, that forecast is based on the assumption that the job retention scheme ends at the end of April without a replacement. I do not underestimate either the cost or the benefit of the job retention scheme, but that is a stark reminder that if the scheme ends prematurely, the impact on jobs and livelihoods will be severe. The chancellor must extend the job retention scheme, and he must do so before the UK budget in March in order to give businesses sufficient time to plan ahead, because good jobs and viable businesses depend on it.

Members will note that the projections that the Scottish Fiscal Commission published today take into account the current period of lockdown. The most recent UK projection is from November and does not reflect the current lockdowns across the UK. That timing difference will inevitably cause some challenges for our budget through the fiscal framework. However, as Richard Hughes from the Office for Budget Responsibility said to the Finance and Constitution Committee yesterday, UK GDP fell by less than expected in November, which suggests that we have become better adapted to dealing with lockdown conditions.

However, the latest restrictions will inevitably have an impact on the economy. The updated SFC projection for Scotland sees growth fall in the first quarter of this year, whereas the OBR forecast growth in its November publication. That difference does not reflect a difference in our underlying economic performance; rather, it reflects differences in timing. It will likely disappear when new OBR projections are published in March. However, that means that the technical conditions under the fiscal framework for the release of additional reserve and borrowing flexibilities following an economic shock have been met. The UK Government has confirmed that those flexibilities are now available to me, and I will use them to support our recovery from Covid-19.

Those extra flexibilities are welcome, although they are constrained and temporary. They do not change the fact that the Scottish Government cannot borrow at its own hand to fund spending in response to Covid-19 or support the economy in the way that countries around the world have done.

This is a time for certainty and stability, and for helping businesses and households as far as we can. With limited resources, we must target those who need our help most. I am delivering the stability and certainty that taxpayers need, with targeted support for individuals and businesses that are most impacted. This package of tax measures that will support our recovery and renewal.

Significant changes to Scottish income tax were implemented in 2018-19 to deliver a fairer and more progressive five-band system. That structure will remain unchanged, with the starter, basic and higher rates bands all increasing by inflation. The top-rate threshold will remain frozen at £150,000. That will see all Scottish taxpayers pay slightly less income tax next year than they will this year, based on their current income. In addition, a majority will continue to pay less income tax than they would if they lived in other parts of the UK. Alongside record investment in public services, that is a key part of making Scotland an attractive place to live and work.

On land and buildings transaction tax, the temporary change to the residential nil rate band that was introduced in July supported the housing market at a difficult time and contributed to a robust recovery throughout the year to date. The housing market re-opened in June and has continued to operate uninterrupted since then. That change was always meant to be temporary. The ceiling of the nil rate band will return to £145,00 from 1 April, as intended, with no other changes to rates or bands.

However, first-time buyer relief will remain in place, saving first-time buyers up to £600 and meaning that an estimated eight out of 10 first-time buyers will pay no tax at all. The additional dwelling supplement rate will remain at 4 per cent. However, recognising the long-standing calls for change, we intend to consult on reforms to the ADS early in the next session of Parliament.

Non-residential LBTT rates and bands remain unchanged. Finally, the standard rate of Scottish landfill tax will rise to £96.70 per tonne and the lower rate will rise to £3.10 per tonne.

At a time when the people of Scotland are dealing with significant economic and social impacts of the pandemic, those tax policies deliver certainty and stability. Based on the most up-to-date forecasts from the SFC and the OBR, the net contribution from devolved taxes in 2021-22 to the Scottish budget will be £539 million. In addition, we have used our limited borrowing and reserve powers to their maximum effect. In total, that means that the Scottish budget will be more than £1.7 billion bigger than it would otherwise have been.

We have always been rightly proud of the world-class care provided by our national health service, but during the pandemic, in the toughest circumstances imaginable, our inspirational NHS workers have worked tirelessly. When the history of the pandemic is written, our NHS and social care staff will be recognised as the undisputed heroes they are. I am sure that I speak for everyone in the chamber—indeed, everyone in the country—when I offer them our heartfelt thanks.

To support their efforts in 2021-22, we will invest more than £16 billion in the health and sport portfolio, which is an increase of more than £800 million to the core budget. There will be an additional £869 million to support our response to Covid-19, including our vaccination and test and protect programmes; it includes investment in primary care of £1.9 billion; and it will bring our total investment in social care and integration to more than £883 million in 2021-22.

I want to draw attention to two critical elements of the health budget. First, we will provide funding of £145.3 million in 2021-22 for alcohol and drugs, which is an increase of £50 million on this year, specifically for our national mission to reduce drug deaths as part of a five-year £250 million commitment. Secondly, we know that the pandemic has taken a huge toll on mental health, so next year’s investment in mental health will exceed £1.1 billion. That will underpin our continued approach to improving mental health services and support for children, young people and adults, including child and adolescent mental health services.

The social harms of Covid-19 have exacerbated poverty and inequality, highlighting the importance of driving progress towards our statutory targets to reduce, and ultimately eradicate, child poverty by 2030. We are delivering a direct programme of action to meet those targets across the period from 2018 to 2022, backed by the £50 million tackling child poverty fund, which this budget confirms we will deliver in full.

The ambitious use of our new welfare powers to tackle child poverty includes significant investment in our game-changing Scottish child payment of an expected £68 million in 2021-22, with payments starting next month. That is part of a total of almost £3.6 billion for social security.

Our public sector pay policy will continue its progressive and restorative approach, which is focused on addressing low pay. The UK Government’s ill-judged pay freeze has a material impact on our block grant, within which we must balance the reward and affordability of public sector pay. We will continue to adopt the real living wage, applying the increased rate of £9.50 per hour and guaranteeing a minimum 3 per cent increase for people on salaries of up to £25,000 via a £750 cash underpin. People on higher salaries will receive a 1 per cent rise, capped at £800 for those on more than £80,000.

Negotiations are under way in our NHS on the future of agenda for change, and I will work with the Cabinet Secretary for Health and Sport to deliver for our NHS workforce.

The most enduring way to tackle inequality and break the intergenerational poverty cycle is, of course, through education. In 2021-22, we will provide £2.7 billion across the education and skills budget to deliver on that ambition, alongside the significant funding for education that will be delivered through the local government settlement. That includes almost £1.9 billion for the Scottish Funding Council, to fund our university and college sector, with £700 million for colleges and more than £1.1 billion for universities. It is vital that we continue to invest strongly in our world-class institutions and that we provide students with the best opportunities.

On justice, the budget provides significant extra funding to help to deal with the backlog in criminal justice case loads that the pandemic has caused. We will provide a total funding settlement of £1.3 billion for the Scottish Police Authority, including an uplift of £60 million in the resource budget—surpassing our commitment to deliver a £100 million boost by 2021 and eliminating the deficit in the police budget.

Keeping public transport options open remains vital to our recovery and will be backed by investment next year of more than £1.6 billion across bus and rail services. That will help to ensure a viable alternative to private transport for more people, further reducing our reliance on cars, providing a cleaner form of mass transport and promoting the wide benefits of our ambition for 20-minute neighbourhoods. We will also deliver a national concessionary travel scheme of free bus travel for under-19s in the coming year.

We will continue to support transformational change to our streetscapes, with a five-year commitment to maintain the active travel budget at a record high of £100.5 million per year.

I said earlier that local government had been at the forefront of our response to Covid. I remain extremely grateful to local government colleagues, many of whom have worked night and day to manage grant funding and welfare support and to maintain statutory services throughout lockdown. We will make available to local government a total funding package amounting to £11.6 billion for 2021-22, including a £245.6 million increase in core revenue funding and an additional £259 million of non-recurring Covid funding. That is total additional revenue funding of more than £0.5 billion.

Within that, the settlement includes additional funding of £59 million to complete the expansion of early learning and childcare to 1,140 hours; £72.6 million for investment in health and social care; and £7.7 million to support the interisland ferries in Shetland, Orkney and Argyll and Bute, meeting their revenue ask in full as well as extending the timetable and road equivalent tariff on Orkney’s interisland ferries.

This settlement allows councils to join us in financially supporting households, who will undoubtedly be struggling as a result of the social and economic impacts of the pandemic. Just as we have chosen not to increase tax rates, ensuring that people pay no more than last year, I have taken the significant step of offering funding to councils that choose to freeze council tax, thereby providing financial reassurance to families who are struggling. That additional funding is equivalent to £90 million for councils or a 3 per cent rise, with inflation at 0.5 per cent, which more than fully compensates local authorities that choose to freeze council tax.

That takes the increase for core revenue services to £335.6 million and, when added to the non-recurring Covid funding of £259 million, provides a total increase for local government of £594.6 million in 2021-22. I have also confirmed a further increase of £110 million over previously announced plans for the lost income scheme for local government.

While the pandemic’s profound effect on our economy requires constant support, it also requires us to plan and deliver a strong, fair and green recovery in the long term. The future of our public services depends on the resilience and strength of our economy so, if this budget must achieve anything, it must set the groundwork for economic recovery.

Today I set out a plan to deliver that—a plan that provides for on-going business support, tackles unemployment, helps businesses to emerge stronger and invests in long-term growth. Leadership matters, and our enterprise agencies must have the resources that they require to play a leading role in the recovery. The collective resource budget for the three enterprise agencies in the Highlands, the south of Scotland and across Scotland will increase by more than 12 per cent.

The budget builds on the significant package of labour market interventions, with a total investment of £1.1 billion in employability and skills support. That includes an initial additional investment of £125 million for the young person’s guarantee, the national transition training fund and broader skill and employability support. The young person’s guarantee will help to achieve our ambition that, within two years, every young person will have the opportunity to study, to take up an apprenticeship, job or work experience or to participate in formal volunteering.

Today’s budget allocates £230.9 million to Skills Development Scotland to work with partners across that vital agenda, and it marks the launch of the first phase of our five-year £100 million green jobs fund and a commitment to establish a green jobs workforce academy.

Across Scotland, we will invest more than £230 million to ensure that our diverse and evolving cultural heritage is valued, nurtured and celebrated, protecting thousands of jobs in the culture and heritage sectors.

We must invest for growth. The infrastructure investment plan, which will be published in full next week, will outline a pipeline of projects to drive Scotland’s resilience, driving inclusive, net zero and sustainable growth. The plan will be key to the success of the national mission for jobs, offering a robust pipeline of work that will help stimulate the green recovery, providing good jobs, stimulating supply chains and building market confidence.

The capital spending review will set out budgets for five years, confirming that we will deliver our national infrastructure mission in full, increasing annual investment in infrastructure by £1.5 billion by 2025, supporting 45,000 full-time equivalent jobs across the period. Those efforts are enhanced by the work of the Scottish National Investment Bank, which we will capitalise with £2 billion, with more than £200 million for investment in 2021-22.

Next year, we will provide funding of £210 million for cities investment and strategy. That will continue our work with regional partners to progress all deals that are not yet in delivery, with the aim of concluding full deals for all regions, urban and rural, by the end of 2022.

Covid has further underlined the value of a safe, secure and affordable home, and our homes are also now somewhere that many of us work from. We are providing more than £800 million for housing in the budget. Building on our achievement of having delivered almost 97,000 affordable homes since 2007, I am allocating funding of more than £711 million to the affordable housing supply programme.

Capital investment will inject confidence in our economy, and it will help to meet our statutory commitment to be a net zero society by 2045. Our carbon taxonomy shows that nearly 37 per cent—more than £1.9 billion—of our capital investment is low carbon. As we look to Glasgow hosting the 26th conference of the parties—the COP26 summit—in November, we want to inspire global action and demonstrate that Scotland is a world leader in green and renewable technologies.

The programme for government and our recent climate change plan update together outlined a £2 billion low-carbon fund over the next parliamentary session, central to which is investment of almost £1.6 billion in heat and energy efficiency in our homes and buildings. Through the fund, we will also begin a five-year £50 million programme of investment to regenerate Scotland’s vacant and derelict land, which will help put abandoned land to use across our communities. That will include creating community gardens to nurture wellbeing, provide a local food supply and improve biodiversity, and creating space for community renewables projects, low-carbon affordable housing, urban farms, and woodland and green spaces.

I strongly believe in investing in economic recovery in every part of the country, including rural areas. Recognising the acute impact of the pandemic on our rural communities, we will double the rural tourism infrastructure fund, helping tourist attractions and communities to make improvements to cope with increased visitors.

Our £801 million investment in agricultural support will offer much-needed stability to our farmers, crofters and land managers, and help ensure that our agriculture sector plays a leading role in our transition to net zero. Over the next five years, an additional £150 million has been allocated for woodland and forestry through the low-carbon fund, supporting a 50 per cent increase in tree planting and woodland creation, from 12,000 hectares this year to 18,000 hectares by the middle of the decade. Our peatland restoration spend will increase by 10 per cent as part of a 10-year £250 million commitment.

Digital connectivity was important pre-pandemic, but now, as a result of the changes in how we work, shop and socialise due to Covid-19, it is absolutely fundamental to our future prosperity. The review that I commissioned from Mark Logan has provided an industry-led blueprint to establish Scotland as a world-class hub for tech start-ups, and it has rightly drawn wide acclaim.

To help deliver that ambitious agenda, we are providing an additional £7 million next year. To bring more people into the digital world, we will invest almost £100 million in digital connectivity. That includes funding for our reaching 100 per cent programme and for improved mobile coverage through the delivery of 4G and 5G infrastructure, ensuring that no part of Scotland is excluded.

The last piece of the plan to support businesses and drive economic recovery is our policy on non-domestic rates. I know how crucial this year’s targeted 100 per cent relief from non-domestic rates has been to retail, hospitality and leisure businesses. The extension of that relief to avoid a cliff edge in support was the number 1 ask of businesses. The absence of clarity on UK Government NDR policy has undermined our ability to continue that relief. I have been clear that the only way that I can replicate that relief in full is if there is additional funding from the UK Government.

The UK spending review provided £11.5 million as a result of NDR policy decisions. Contrasted with the more than £900 million that it would cost to extend the relief, those consequentials are entirely insufficient. However, I cannot and will not leave Scottish businesses trying to plan without certainty. I therefore commit to extend the 100 per cent relief for retail, hospitality and leisure businesses for a further three months into 2021-22, funded from the money reimbursed by supermarkets and other retailers.

I continue to urge the UK Government to bring forward an extension to its equivalent relief and, should it do so, I will use the funding generated to match its extension. Together with other reliefs, including the expanded fresh start scheme to incentivise the use of empty buildings and the small business bonus scheme, we are offering a total relief package worth almost £1 billion in this budget—and there is still more that I want to do to help our businesses.

The UK and Welsh Governments have frozen their non-domestic rates poundage. I do not intend to do the same; instead, in an unprecedented step in a non-revaluation year, I will reduce it to 49p. That will be the lowest poundage available anywhere in the UK, saving ratepayers more than £120 million compared with previously published plans. Let nobody doubt that this is a Government that listens and acts when it is most needed.

We have been through so much as a country. Our recovery may be long, and it will be hard—and we cannot guarantee that there will not be more tough times ahead. Throughout these dark times, however, we have never given up hope for a better future and for a healthier, greener and fairer society. Now, with large-scale vaccination that focuses firstly on the most vulnerable, there is some light at the end of the tunnel. This budget seeks to build on that hope and, by focusing on how we continue to protect, recover, rebuild and renew our country, to make that light at the end of the tunnel shine that bit brighter.