Hansard

Three weeks ago, I set out the challenges facing the Scottish budget and the difficult decisions that this Government was taking to balance the budget and deliver on our priorities. I told Parliament that the new United Kingdom Government had made it clear that funding would continue to be constrained, and the Prime Minister has said that this year’s UK budget would be “painful”.

For as long as our budget is tied to decisions that are taken in Westminster, we will not be immune from that pain—just as we were unable to avoid all the damage caused by the years of Tory austerity, the chaos of the Truss mini-budget and, of course, Brexit, which has reduced the size of the UK economy by 2.5 per cent, equating to a £2.3 billion annual cut in revenue in Scotland. The UK budget on 30 October will be an opportunity for us to take a different approach. I want to work with the Chancellor of the Exchequer and the Governments in Wales and Northern Ireland to ensure that the UK budget delivers for all four nations.

Since the new Labour UK Government took office, we have committed to work together constructively. I have written to the chancellor, setting out our priorities and offering to work together to achieve them. I am pleased to have seen a distinct improvement in our relationship with the Treasury since the election, and it is important that that continues. Next month, I will meet the Chief Secretary to the Treasury, along with the Welsh and Northern Irish finance ministers, to discuss Scotland’s priorities for the UK budget. I look forward to hearing from members across the chamber on those issues.

In her July statement, the chancellor set out the pressures on the UK’s public finances. In dealing with those she is constrained by her own fiscal rules, which limit her room to achieve her own ambitions and, with that, damage our plans for Scotland. However, we must be clear that it is a political choice to follow the Tories’ fiscal rules, and there is another way.

We propose that the rule governing net debt should be replaced with a focus on public sector net worth, which would allow for further borrowing for investment to renew public infrastructure and services. It would allow the chancellor to move away from an approach that risks embedding austerity further. That would help to provide the investment that we need, which could boost jobs and ease some of the fiscal pressures that we face. The chancellor’s own spending audit estimated that this year’s departmental spending budgets are at least £15 billion lower in real terms compared with those in the 2021 spending review plans. That means that public services have been consistently short changed over the past few years, so it is no wonder that the Governments of all four nations now face such acute pressures.

It is vital that the chancellor uses her upcoming budget to reset spending plans to take account of the inflation of recent years and to make clear the UK Government’s plans for investing in public services. Those investment plans should include full funding of pay awards on a recurring basis. If they do not, that will leave a substantial gap between the expectations of the workforce and the available funding.

Yesterday, I noted that the Royal College of Nursing in Scotland accepted the national health service agenda for change pay deal in Scotland but rejected the deal that the UK Government had offered in England. My suggestion to the UK Government would be to ensure that, before the budget, it offers to match the NHS agenda for change pay deal here in Scotland. That would see an experienced nurse in England get an uplift of over £3,200 more than the deal that the RCN rejected. It would also mean that, in 2024-25, an experienced band 5 nurse here would take home £2,233 more, after income tax and national insurance, compared with a nurse on the same band in England.

Our public services are knitted into the very fabric of our country and our daily lives. More funding for our schools, hospitals and local government services helps to grow our economy, enhance quality of life and tackle the scourge of poverty. The First Minister has been clear that ending child poverty is a central priority of the Government. For many years we have had to step in to protect the most vulnerable in our society as best we can from the actions of a UK Government that has pushed households into hardship through austerity. We are spending £134 million this year alone to mitigate damaging welfare policies put in place by the previous UK Government, including the benefit cap and the bedroom tax. That is money that could have been spent on services such as health and education, or on further ambitious anti-poverty measures.

We are also investing £457 million this year though our Scottish child payment, helping the families of the more than 325,000 under-16s who currently receive it. However, the impacts of this game-changing payment are being counteracted by policies such as the two-child limit. With a limited, fixed budget we cannot mitigate all the UK Government’s policies while pursuing our own ambitious policy agenda. That is why the new Labour UK Government must act now to reverse the Tories’ welfare decisions and take a different approach, including steps towards delivery of an essentials guarantee. Abolishing the two-child limit should be an easy choice. I know that members will join me in urging the chancellor to consign that dreadful policy to the dustbin. The Institute for Fiscal Studies has calculated that abolishing the two-child limit could immediately lift 360,000 children out of poverty across the UK, rising to 500,000 by the time the policy is rolled out in full.

This is also an opportunity for the Labour UK Government to think again about its decision to restrict the winter fuel payment. The decision has been roundly criticised, and it is not too late to reverse it. I read reporting online in The Guardian yesterday that suggested:

“Scottish Labour believes access to the winter fuel allowance could be widened in Scotland as it tries to fight off its opponents’ attacks before the next Holyrood election.”

It seems that, not content with this Parliament mitigating Labour’s two-child limit, it now expects us to mitigate Labour’s cut to pensioners’ winter fuel payments. The question is: would it not be simpler all round if Labour simply did not cut that funding to the elderly in the first place?

Investing in our vital infrastructure is key to growing our economy and achieving net zero, yet we are dealing with the legacy of years of underinvestment by previous UK Governments and the continuing impact of high inflation. Capital investment needs to grow substantially to renew public infrastructure and deliver on net zero projects, but we are facing an expected real-terms reduction to our UK capital funding of 8.7 per cent over five years. That equates to a cumulative loss of £1.3 billion between 2023-24 and 2027-28.

We have successfully used financial transactions funding to deliver affordable housing, fund our Scottish National Investment Bank and invest through our enterprise agencies. However, that funding from the UK Government has fallen by 62 per cent since 2022-23, and we need it to be replaced if we are to continue to support our businesses and build more of the housing that we so urgently need.

We must also build for the future, investing now to harness the opportunities of a just transition to net zero. We are already ahead of the rest of the UK in renewables, but we need to go further. I am pleased that good progress has been made on a memorandum of understanding with the UK Government on GB energy, which needs to deliver real benefits for the people of Scotland and support a just transition to net zero by 2045. I am pleased to hear that GB energy will be located in Aberdeen—I think that is absolutely the right decision.

I look forward to further discussions with the UK Government on plans for GB energy. I am keen to ensure that Crown Estate Scotland receives equivalent and proportionate benefits to those being granted to the Crown Estate. We also want the UK Government’s new national wealth fund to work with Scottish public bodies and the Scottish National Investment Bank to unlock investment and make our net zero ambitions a reality.

Most of the tax levers that can help address the pressures that we face remain with the UK Government. In Scotland, we have used our tax levers to raise revenue to support investment in our public services. Our progressive decisions on income tax since the devolution of powers will raise up to an estimated £1.5 billion of additional revenue in 2024-25 compared with if we had matched UK Government policy. However, income tax revenues alone are not sufficient to deliver fiscal sustainability over the medium term. The UK Government currently holds wider levers on tax and funding and must consider how they are used to allow necessary investment in public services.