Hansard

I am pleased to open the debate on behalf of the Finance and Public Administration Committee. I thank my parliamentary colleagues, our excellent clerking team and all of the witnesses who gave evidence to the committee to aid our deliberations.

Today’s debate provides a welcome opportunity to discuss pre-budget findings from Parliament’s committees and how their reports have influenced the Scottish budget 2025-26.

This year’s context for pre-budget scrutiny was one of uncertainty, with no medium-term financial strategy in 2024, due to the imminent United Kingdom general election and emergency in-year budget controls that were in place for a third year running. Key strategic documents, including the infrastructure investment plan pipeline reset and multiyear plans that were expected in late 2023, were again delayed in view of the forthcoming UK Government spending review. In late July, the UK Government announced £8.1 billion of spending cuts and warned of a difficult UK autumn budget ahead.

Most committees reported their findings before or just after the UK budget was published on 30 October and were therefore unable to fully consider ways in which the consequential increases in resource and capital spending for the Scottish budget should be spent, or the potential impact of UK-wide decisions on the Scottish budget, including increases to employer national insurance contributions and how those were funded—an issue that still remains unclear.

Nevertheless, there was much for committees to consider. Before I focus my remarks on the Finance and Public Administration Committee’s findings, I again touch on the common themes across our pre-budget work, as identified by the Scottish Parliament information centre.

Perhaps unsurprisingly, many of the same overarching themes that we explored last year continued throughout our scrutiny this year. Those include: transparency and accountability; the need for multiyear plans and preventative spend; calls for a more strategic, long-term outlook; clearer links between spending decisions and Scottish Government priorities; and properly evidenced decision making. However, this year, SPICe also notes:

“The increasingly strong language used by committees in their pre-Budget reports may reflect their impatience and frustration at seeing little progress in some areas, and the overwhelming message was that committees are looking to the Scottish Government to show leadership and a clear strategic direction.”

Both the Finance and Public Administration Committee’s pre-budget report and our budget report that was published yesterday included elements of frustration, particularly regarding: the lack of medium and long-term financial planning, notwithstanding external factors; repeated delays to publishing key strategic documents; and the need to reiterate recommendations before clear responses are provided.

I will point to some of our more positive reflections, including on transparency. We have encouraged and welcomed the Scottish Government’s efforts to improve the transparency of budgetary information in recent years. That has included, for example, publishing more detailed information with in-year budget revisions, and providing budget data by classification of functions of government—COFOG—to enable comparisons over time, even when ministerial portfolios change.

At the committee’s request, this year’s Scottish budget also includes a comparison with actual spending this year, rather than a comparison with the 2024-25 budget as passed. Importantly, that allows more accurate comparisons of spend, particularly in those years where in-year changes have been substantive. Along with the committee, the Scottish Fiscal Commission and the Fraser of Allander Institute welcomed that development. Nevertheless, both organisations point to where improvements can still be made, and we continue to pursue those with the Scottish Government. For example, we have asked that significant in-year transfers that occur regularly, such as moving social care funding from health to local government, be baselined in the budget for transparency, and that public-private partnership costs included in budget lines are consistently presented across portfolios.

A key focus of our pre-budget scrutiny was the Scottish Government’s approach to growing the economy with a view to increasing Scotland’s overall tax base. To inform our scrutiny, last August, we visited the life sciences department at the University of Dundee, which generates £10 of gross value added for every £1 of investment from the Scottish Government. The university’s regius professor, Sir Mike Ferguson, informed us that £5 million from the Scottish Government for proof of concept investment would generate a return of £200 million.

In response to our recommendations, the Cabinet Secretary for Finance and Local Government committed to supporting research and development, recognising the important role that our universities play in attracting investment, supporting world-leading sectors and building a highly skilled workforce.

We note that the Scottish Government recently set up a Cabinet sub-committee on investment and the economy that will

“help create a business environment that drives investment and growth.”

We have therefore requested regular updates on progress and outcomes of the sub-committee’s new strands of work.

Building on that scrutiny, our budget report repeats our disappointment that the Scottish Government

“continues to hold back from publishing its Infrastructure Investment Plan pipeline refresh until after the UK spending review.”

We strongly agree with the Scottish Fiscal Commission’s position that the 12 per cent increase in capital spending in 2025-26 allows the Scottish Government to

“restart paused capital projects and make some new commitments.”

Although available capital will then slowly decline to 2029-30, the committee has “strongly urged” the Government to set out its priority commitments to ensure that it is in the best position to “hit the ground running” and invest in infrastructure projects at the start of the next financial year.

Next year, alongside the medium-term financial strategy in May, the Scottish Government also plans to publish a fiscal sustainability delivery plan. It would be helpful if the cabinet secretary could provide more detail on the purpose of that new document, the time period that it will cover and how it fits into the wider budget process.

The Scottish Government has also committed to publishing a new public service reform strategy. In light of the announcement of those additional documents, we asked for a progress update regarding the First Minister’s intention to provide

“more concrete actions and fewer strategy documents”,

including any reduction in numbers achieved to date. Disappointingly, the Scottish Government responded that

“There is no central information held on reporting of the number of strategy documents, as decisions of this nature are made by individual cabinet secretaries.”

We therefore ask the Government to conduct an exercise across portfolios to identify the number of live strategies in place, to provide a baseline for numbers to be monitored and reduced wherever possible. Outcomes of that work should be reported back to the committee by the end of June 2025.

More broadly, the committee has also repeatedly asked that the Scottish Government take a longer-term approach to financial planning. We were therefore disappointed at its decision not to publish an MTFS in 2024. Regardless of the context that I mentioned earlier, that made it more difficult for committees to consider how budget priorities sit within the longer-term context.

The Scottish Government’s fiscal update last September, although welcome, focused primarily on the current budget and did not provide the anticipated long-term outlook. We seek assurances that that situation will not be repeated in future years.

The Scottish Fiscal Commission’s first fiscal update, which was published in August 2024, filled in some of the blanks and provided welcome longer-term context for our pre-budget scrutiny. We have asked the SFC to consider publishing a similar update in future years to provide an up-to-date Government funding position and commentary on in-year spending changes. Those have been substantial in recent years.

Another area of our focus in both our pre-budget and budget reports is the sustainability of spending on social security payments and public sector pay. I will focus on social security spending, and the deputy convener of the Finance and Public Administration Committee will return to public sector pay in his closing speech on behalf of the committee.

SPICe explained that

“Scottish Government decisions on social security have cumulatively added significant cost pressures to its budget.”

That is largely because of the introduction of benefits that are unavailable in the rest of the UK, such as the Scottish child payment. Therefore, the Scottish Government is spending more on benefits than it would have done if those benefits had not been devolved. The SFC forecasts that social security payments in 2025-26 will cost £1,334 million more than they would be if benefits remained at UK levels. That figure will rise to £1,463 million in 2029-30, not accounting for inflation.

The rising social security bill reduces the funding that is available for other spending priorities in the Scottish budget, so the committee previously asked the Scottish Government how it would

“assess the long-term affordability and sustainability of its social security policies and their impact on other areas of spend”.

In response, the Scottish Government said that it will

“continue to take a responsible and capable approach to Scotland’s finances as new budget pressures emerge”,

including by

“monitoring all areas of expenditure during the year, prioritising spend, and maximising efficiencies.”

The committee did not consider that to be an adequate response. It asked the Scottish Government to carry out that full assessment, with outcomes included in the MTFS 2025 to inform future budget planning.

The committee considers that more certainty around the timing of UK fiscal events and of the UK spending review that is on the horizon brings welcome opportunities for the Scottish Government to adopt a much-needed strategic approach to budget planning. It would therefore be helpful if the cabinet secretary could update Parliament on when we might expect the next Scottish spending review.

I commend the Parliament’s collective pre-budget work. SPICe has noted that it is growing in strength and involves more engagement activities, more evidence received and fewer but more targeted recommendations.

I move,

That the Parliament notes the pre-budget scrutiny undertaken by the Finance and Public Administration Committee, and other parliamentary committees.