Hansard

The Scottish Government’s purpose is to deliver sustainable economic growth and to create the opportunity for all of our citizens to flourish. We believe that, with a relentless focus on tackling inequality and boosting productivity, we can create the foundations for a stronger and more inclusive economy.

However, that aim has to be delivered within a significantly constrained public spending environment. As a consequence of United Kingdom Government austerity, the Scottish budget will continue to fall in real terms, as it has done since 2010, until the end of this decade. The realities of the public finances are such that, if we want to improve our services, we must be prepared to continually reform the way in which we deliver them.

Therefore, this budget is driven by two themes: supporting inclusive growth, and protecting and reforming public services. We will deliver inclusive growth by focusing on investment in innovation, infrastructure, education and skills, and by maintaining a competitive business environment. We will protect and reform public services by delivering on the Christie commission approach of service integration at local level, with a shift to prevention and improving outcomes for individuals.

The tax and spending plans that I am announcing today will equip the country for the future and will lay the foundations for the reforms that will define the next Parliament—reforms that will reshape our health and social care services, deliver a step change in educational attainment, provide greater focus in the innovation system, deliver a fairer system of local taxation and use new powers over tax and welfare in a way that supports our central purpose.

The current financial landscape presents us with a challenge and a choice. Scotland can accept the Tory cuts, or we can rise to the challenge and choose a Scottish alternative to austerity. We choose to rise to the challenge. We choose the Scottish alternative. We choose to put reform and growth at the heart of this budget.

We will build on the Scottish Government’s record of delivering for the people of this country. Our economy has now grown in each and every quarter of the last three years. Over the latest period, employment has risen and unemployment has fallen. We have invested heavily in infrastructure, modernising services and boosting construction. We have invested in Scotland’s national health service and staff numbers are at record levels. We have worked to mitigate the most damaging effects of the UK Government’s welfare cuts. We have delivered curriculum for excellence and a record number of higher and advanced higher passes were achieved in 2015. We have delivered 600 hours of free high-quality early learning and childcare. Our country is safer, with crime at a 41-year low. Further, we are on track to reach our 2020 interim climate change targets. That is a record that we are confident about taking to the people of this country.

This year’s programme for government reaffirmed our commitment to build on those strong foundations. However, our aims are made more difficult to achieve by the UK Government’s continued austerity agenda. By 2020, our budget will be 12.5 per cent lower in real terms than when the Conservatives came to power. That is the equivalent of one pound in every eight that we spend being cut by Westminster by 2020. Even our capital budget will still be more than £0.5 billion a year lower in real terms in 2020-21 than it was in 2010-11.

Although we all recognise that the public finances need to be sustainable, the scale of the cuts is unnecessary even to meet the chancellor’s own fiscal mandate. We laid out clear, detailed plans that reduced the deficit and the debt while allowing public investment in the economy. The Conservatives rejected those plans. Their ideological obsession with austerity is born out of choice rather than necessity. We will not make that same choice. We will not make the poorest in society bear the burden.

That vision—and our commitment to fairness—underpins our approach to taxation. We recognise that, to support the public services that we all rely on, we must ensure that our tax policies are built on the principle that the tax burden should be proportionate to the ability to pay.

Today’s draft budget marks the first time that a Scottish Government will propose a Scottish rate of income tax. From April 2016, the UK Government will reduce the block grant by £4.9 billion with the partial devolution of income tax powers and, at the same time, switch off 10 pence in every £1 of income tax in Scotland. I am now required to set a rate in Scotland.

The current power allows for a single rate to be set in Scotland and applied equally to all three income tax bands: the basic, higher and additional rates. That means that any rate set above 10 pence would increase the tax paid by all Scottish taxpayers. By its nature, exercising that power would have a disproportionate effect on the amount of tax paid by the taxpayers on the lowest incomes. Likewise, although any rate below 10 pence would cut the tax bill paid by all taxpayers, those on the highest incomes would see the greatest benefit.

The simple fact is that the tax power does not enable me to target help to people on the lowest incomes. However, I have the power to ensure that that tax does not inflict an additional burden on people on low incomes. Therefore, I confirm that there will be no change in income tax rates next year. I propose that the Scottish rate of income tax be set at 10 pence in the pound. The rate that people pay this year will be the same rate that they will pay next year.

I hope that, from 2017-18, the Parliament will have more flexibility in setting income tax rates. However, that will depend on reaching agreement on a new fiscal framework and final passage of the Scotland Bill. I confirm that, subject to achieving those outcomes, the Government will set out its longer-term intentions with regard to income tax ahead of the dissolution of Parliament at the end of March.

The setting of the Scottish rate marks the latest tax power to be transferred to Scotland. Since April this year, Revenue Scotland has been responsible for the administration and collection of Scottish landfill tax and land and buildings transaction tax, and we are on track to meet our forecast revenues for the year. Scottish landfill tax returns covering the first six months of this financial year amounted to more than £74 million against a forecast of £117 million for the year as a whole. Land and buildings transaction tax revenues exceeded £218 million for the first seven months of this financial year, which also compares favourably with our forecast revenues of £381 million for 2015-16.

In setting the rates for 2016-17, we have listened to the views of the property industry and other key stakeholders. I plan to maintain the existing rates and thresholds for land and buildings transaction tax for residential, non-residential and lease transactions, thereby ensuring that the system remains progressive. That means that more than 10,000 additional purchases will be taken out of tax compared to the UK-wide stamp duty system that LBTT replaced last year. That will result in a reduced tax charge for more than 36,000 house purchases at or below £330,000. Overall, 93 per cent of house buyers pay no tax or less tax than under stamp duty.

I am conscious of the issue of second homes. We need to ensure that the opportunities for first-time buyers to enter the market in Scotland are as strong as they possibly can be and we need to make certain that tax changes elsewhere in the United Kingdom do not make it harder for people to get on the property ladder. That is why I announce my intention to introduce a supplement to land and buildings transaction tax for people who purchase an additional home for £40,000 or more. Such properties will be subject to a supplement of 3 per cent of the total purchase price, payable in addition to the existing LBTT charge. We will shortly introduce legislation to seek the Parliament’s approval to introduce that supplement to ensure that it takes effect from 1 April 2016. In keeping with the Scottish approach to taxation, we will work closely with stakeholders in developing the specific policy and legislative proposals that will underpin that.

For the Scottish landfill tax, I plan to increase the lower rate of tax to £2.65 per tonne and the standard rate of tax to £84.40 per tonne with effect from 1 April 2016. Last year, I announced my intention to set the credit rate for the Scottish landfill communities fund 10 per cent higher than the UK equivalent for the first three years. However, the UK Government recently announced plans to drop its equivalent credit rate to 4.2 per cent. I believe that that is the wrong decision for our environment. Therefore, we will maintain the existing credit rate of 5.6 per cent, ensuring that landfill site operators contribute more to community and environmental projects than is the case elsewhere in the United Kingdom.

Early this week we received the report of the cross-party commission on local taxation. We welcome the fact that four of the five parties in the Parliament took part and reached agreement on a set of crucial principles: that local tax should be more progressive, broader and more empowering to local government. The Government will now consider the report carefully. In the new year, we will set out plans to reform the council tax in a way that will deliver sustainable council finances and greater fairness for local taxpayers.

I can also announce today that I intend to enter into a consultation with local government about the possible future assignation of a proportion of income tax receipts, thereby giving local authorities an incentive to boost economic growth in their areas.

Taken together, we expect to raise £671 million from the wholly devolved taxes in 2016-17. The forecasts have been assessed as reasonable by the independent Scottish Fiscal Commission, which will publish its own report setting out that assessment today. I am grateful to the commission for its work and for the scrutiny that it has applied over the past 12 months. As it should, the commission’s report challenges us to improve the robustness of our forecasting methodologies and the Government will do exactly that.

For the first time, we are publishing five-year forecasts for the devolved taxes. Those forecasts will aid transparency around the medium-term assessment of Scotland’s devolved public finances.

A strong and sustainable economy lies at the heart of a successful Scotland. Our economic strategy sets out our approach to deliver the dual and complementary objectives of tackling inequality and boosting competitiveness. Let me be clear: economic growth gives us the revenues needed to tackle inequality. We also believe that tackling economic inequality in turn boosts growth, removing a drag on the economy and boosting prosperity.

The draft budget provides the resources to deliver that by supporting innovation, investment, internationalisation and inclusive growth. We will work in partnership with employers, employees and trade unions, through the Scottish business pledge and the fair work convention, to deliver fair work and inclusive growth.

One of our most significant investments in the future of Scotland’s economy is the delivery of 600 hours of free high-quality early learning and childcare for all three and four-year-olds and vulnerable two-year-olds. We are going further. We are committed to the ambitious plan to almost double free nursery provision during the next parliamentary session to 1,140 hours.

In the programme for government, the First Minister set out the priority that we place on educational attainment. Just yesterday the Organisation for Economic Co-operation and Development report examining curriculum for excellence provided real encouragement that Scotland is on the right track in our schools. Just this morning, new figures were published showing record numbers of school leavers in positive destinations: work, education or training.

We have a good education system and we are committed to making it better. We must raise attainment for all and close the gap that has existed for decades between children in our most and least deprived areas. This budget makes provision for that commitment, with £33 million of investment in attainment programmes in 2016-17, which will support the four-year £100 million Scottish attainment challenge. We also intend to maintain teacher numbers this year. That reaffirms our commitment to improving the wider education system.

We will continue to invest in high-quality schools and community health facilities through our new hub programme of revenue-financed infrastructure investment.

In this difficult financial context I have protected college funding, delivering the budget stability that the further education system needs. We will deliver on our promise to expand the education maintenance allowance and modern apprenticeship programmes to help more young people fulfil their potential and enter positive, rewarding employment.

The Scottish Government has placed the principle of higher education based on the ability to learn, not the ability to pay, at the heart of what we believe. I confirm today that we will continue to fund our commitment to free tuition. We have backed up our commitment to keeping our universities world class by investing more than £4 billion in the higher education sector over the past four years. Now we will renew that commitment by investing a further £1 billion in 2016-17 to support the continued success of our world-class universities in delivering high-quality learning and research excellence.

However, we want to go further. We want a new relationship with higher education: a long-term partnership that is underpinned by on-going significant investment to support the delivery of key shared priorities. That is our ambition and we welcome the constructive approach that the universities have taken as we discuss with them how to make that a reality. Critical to that long-term approach is our investment in higher education research. The budget settlement will enable the core research budget for higher education to be protected as a key investment for the future of Scotland.

The Government has always prioritised investment in infrastructure to stimulate the economy. We are on track to build 30,000 affordable homes over the course of the current session of Parliament. We recognize the importance of extending our commitment on housing to create the quality accommodation that people require and to provide continued stimulus to the construction industry. We are committed to building 50,000 new affordable homes during the next session of Parliament, and I am delighted to announce that, as the first step towards that, we will increase the budget for affordable housing next year by £90 million, enabling us to invest around £690 million in housing supply.

On fuel poverty, we will continue to invest to help people have warm, affordable homes, building on our achievements to date through our home energy efficiency programme for Scotland. In total, we will make available more than £100 million to tackle fuel poverty and climate change and to help to improve the condition of Scotland’s homes. The development of energy efficiency as a national infrastructure priority will create transformational change in improving the energy efficiency and heating of homes, businesses and public buildings in Scotland, reducing fuel bills and greenhouse gas emissions.

Our investment in digital connectivity is central to our ambition of harnessing the opportunities for growth and improving public services across all aspects of Scottish life. We will invest £130 million in Scotland’s digital infrastructure next year to help to meet our 2017 target that 95 per cent of premises in Scotland will have access to next-generation broadband, alongside our investment through the emergency services project, which will enhance mobile coverage into the bargain.

We will invest almost £1 billion in transport projects. On rail, that will include the completion of the electrification of the Edinburgh to Glasgow rail line. On our roads, we are making progress on dualling the A9, including the construction of the first section between Kincraig and Dalraddy.

I can announce today that new projects are now also able to proceed. I am authorising the commencement of works in 2016-17 on the Dalry bypass in Ayrshire. In light of the excellent progress on the Aberdeen western peripheral route, I confirm that work will begin in 2016-17 on the improvements to the Haudagain roundabout in the city of Aberdeen. In addition, the Forth replacement crossing is on track to be completed by the end of 2016.

Alongside those major new projects, we will invest in the maintenance and operation of Scotland’s trunk roads and motorways. Significant investment will also be made to support ferry services, with two new 100m vessels earmarked for the Skye and Western Isles connection and the Ardrossan to Arran route. We will continue to support Highlands and islands air travel through the air discount scheme, which offers a 50 per cent discount on core air fares.

We are committed to a significant programme of investment in Scotland’s water and sewerage infrastructure for 2015 to 2021, which is worth £3.5 billion and includes £250 million to upgrade Glasgow’s waste-water infrastructure to improve the environment of the River Clyde and to tackle flooding.

On flooding specifically, there have been a number of incidents this year that have caused enormous distress to members of the public. I can announce that in this financial year we will provide £4 million to the local authority areas that have been most affected by the recent flooding in Hawick, Newcastleton, Dumfries, Alyth and other localities to help with recovery and to help households and businesses to access the support that they require.

Scotland’s businesses are the key to creating jobs and boosting prosperity. The draft budget therefore maintains the small business bonus scheme. Nearly 100,000 firms across Scotland will benefit from reduced or zero business rates. The draft budget again matches the English poundage rate.

In looking forward, I am mindful of the views and representations of many in the business community about the future of business rates in Scotland. I share with Scottish business a recognition that our system of business rates must minimise barriers to investment, be responsive to economic conditions and support long-term economic growth and investment. I can therefore announce that we will launch a review of the non-domestic rates system in Scotland.

Over the past two years, inflation levels, coupled with below-inflation increases in poundage, have generated lower non-domestic rates income than anticipated. Income projections have not kept pace with the benefits to business from the small business bonus scheme. That is why I am today proposing to increase the large business supplement on non-domestic rates and make changes to some other reliefs. Taken together, that will raise around £130 million to fund investment in the economy.

The draft budget also recognises the importance of the third sector and the key role that it plays in supporting communities and social enterprise. I have protected the core budget for the third sector.

Our economy is now in a sustained period of growth and employment is above pre-recession levels. The future health of our economy, however, lies in improving our productivity through greater innovation. We are committing funding of around £345 million to support research and innovation through our enterprise agencies and the Scottish Further and Higher Education Funding Council. The Scottish funding council has committed £124 million of funding over six years to its network of innovation centres, but we believe that our approach to innovation needs greater focus to achieve greater economic impact. The Scottish Government therefore intends to work with our partners, including the enterprise agencies, the Scottish funding council and the universities, to align our approach to innovation, to pool funding and to simplify the innovation landscape. That ambitious reform—the next on our agenda of reform—will help us to create an innovation environment that drives the development of new products, processes and services through improved collaboration.

Those measures capture the agenda of the Government in working to create inclusive growth, which is one of the two key elements of the budget today. The other element is the reform of our public services.

Our public services play a vital role in shaping both our economy and our society by making a major contribution to the wellbeing of our communities, promoting prosperity and enabling people to participate more fully in society.

Having removed the ring fencing of local authority budgets in our first term of office, we have encouraged a greater degree of joint working at local level between public bodies, with a strong focus on meeting the needs of individual citizens. The Christie commission in 2011 reinforced that approach, with its emphasis on integration of public services and a decisive shift towards preventative spending. Since then, we have reformed the delivery of college education and the police and fire services with greater efficiency as a result.

The budget underscores our commitment to continue on that journey of reform. We will take steps to extend digital applications in public services, increase the use of shared services, secure further value from procurement, make more effective use of our public assets and reduce overlap between public services.

Our police service plays a critical role in protecting our communities. In the past few years, our police service has undergone difficult but necessary reform. It is now time to build on that. I am pleased to confirm today that we will provide real-terms protection to the front-line policing resource budget next year and, if we are re-elected in May, for every year of the next Parliament, which is a boost of £100 million over that period.

When the Parliament passed the legislation for a single police force, it agreed that this current financial year would effectively mark the end of the time-limited police reform budget. However, given the challenges facing our police, particularly those arising from the current security situation, I am announcing further support today. Instead of removing the reform budget as Parliament intended, in order to consolidate the reforms and to support the work of the police, I am committing a further £55 million next year to the important task of community safety.

In all of those reforms, our objective is to provide coherent public services underpinned by an approach that is based on partnership. From our earliest reform of removing ring fencing, the Government has invested significant importance in our partnership with local government.

In the period 2012 to 2016, local government funding settlements have been maintained on a like-for-like basis, with extra resources allocated to deal with additional responsibilities. Compare that with local government in England, which faced a real-terms cut in funding of 27.4 per cent over 2011-15 and further reductions this financial year, and faces further reductions in the next financial year.

Local government has been a founding partner with the Government in the reform of health and social care services. Today, the Government is radically reforming the way that social care is paid for. The Government intends to allocate £250 million of new funding support from the health service into social care in 2016-17. That fundamental realignment of resources will build the capacity of community-based services and enact the most significant reform in health and care since the creation of the national health service in Scotland in 1948. It will mean that fewer people need to go to hospital, but it will also ensure that where hospital is necessary, people will return home more quickly. It addresses the underlying reality of social care and health integration. The old boundary between NHS and local government spending—the boundary that has stymied so many attempts to improve care over decades—ceases to exist. [Applause.]

Although this budget delivers a strong but challenging financial settlement for local government, we must recognise that the substantial investment and reform in social care will support the delivery of that essential service. We will now engage in consultation with local government on the terms and implementation of the local government finance settlement in advance of stage 3 consideration in February. The key to those discussions is the focus on reform. Local government is an essential partner in ensuring that the reform agenda leads to the creation of sustainable public services. It is our partner and we will agree with it how best to deliver the realignment of resources.

That brings me to the overall health budget. This Government is absolutely committed to a well-funded national health service. I announce today that I am allocating more than £500 million to NHS budgets, which will result in total planned spending of nearly £13 billion next year—an increase of 6.5 per cent on comparable figures for 2015-16.

Let me make this clear. The nature and scale of the challenges that our NHS faces—in particular the challenge of an ageing population—mean that additional money alone will not equip it properly for the future. To be blunt, if all we do is fund our NHS to deliver more of the same, it will not cope with the pressures that it faces. To really protect our NHS, we need to do more than just give it extra money. We need to use that money to deliver fundamental reform and change the way that our NHS delivers care. That is why the reforms that the additional investment will support are just as important as the scale of it—perhaps more so.

In addition to the fundamental realignment of social care, the new investment will support two further reforms that will reshape our NHS and equip it for the future. First, we intend to transform primary care with an extra £45 million next year to fund improvements and develop new models of care, with multidisciplinary teams working together to meet the needs of their communities. Secondly, we will build additional elective capacity to meet the growing needs of an older population. We will invest £200 million over the next five years in six new treatment centres, which will equip the NHS to carry out increased numbers of hip and knee replacements and cataract operations in a way that does not add pressure to our emergency hospitals.

Investment for reform is how we protect our NHS for the long term and this is a budget that shows, yet again, that our precious NHS is safe in the hands of this Government now and in the future. [Applause.] We are committed to real-terms increases in the NHS budget not just in 2016-17 but for the duration of the next parliamentary session, should we be re-elected in May.

As the UK spending review was delivered much later than normal, forcing the Scottish Parliament to implement a truncated process for review and scrutiny, it is not practical to undertake a full multiyear spending review in the time available. Furthermore, Scottish ministers continue to discuss, as part of the Scotland Bill, the fiscal framework that will underpin future Scottish block grants from the UK. Any agreement will have a material impact on the powers and resources that are available to Scotland.

It is, however, possible to set out our vision and key priorities for future years. We will continue to reject austerity, we will continue to prioritise investment in the public services that people value the most, and we will undertake ambitious reforms to ensure that those services remain sustainable and deliver improved outcomes.

We will invest in our schools, to ensure that every child in Scotland has the opportunity to fulfil their potential. We will support the Scottish attainment challenge and implement the recommendations of the Commission for Developing Scotland’s Young Workforce.

We will create a stronger, more inclusive economy, by investing in innovation, internationalisation and our infrastructure. We will support job creation, encourage employers to move to the living wage and improve the productivity of Scotland’s workforce.

We will tackle inequalities and make Scotland a fairer, more equal country. That will include using our new welfare powers to create a more coherent and responsive package of intervention.

What we will not do is follow in the UK Government’s footsteps and implement austerity and target the poorest and most vulnerable people in our society.

That brings me to the final theme of this budget statement. The UK Government’s welfare reform agenda is presenting real difficulties for hard-pressed families in Scotland and is impacting on some of the most vulnerable people in our communities.

In contrast, the Scottish Government will continue to do whatever it can to protect family incomes. I confirm today that we maintain our commitment to support people in Scotland who are affected by the UK Government’s welfare cuts, through measures that include the allocation of £38 million to the Scottish welfare fund, up to £343 million for the council tax reduction scheme and £35 million to ensure that nobody pays the bedroom tax.

We will continue to help family budgets, through initiatives such as free prescriptions, regular eye checks and free concessionary travel for older, disabled and young people, and we will ensure that free school meals continue for children in primary 1 to P3.

Our public sector pay policy for 2016-17 targets support for people on low incomes, requiring all employers to pay the Scottish living wage, raising to £22,000 the low-pay threshold beneath which employees receive a minimum pay increase of more than 1 per cent, and maintaining the Government’s no compulsory redundancy policy.

Free personal and nursing care, which is a key achievement of the Scottish Parliament, will also be maintained, as a vital part of the reformed community-based health and social care service.

I turn to the council tax. The Commission on Local Tax Reform said in its report this week that the current council tax system is unfair. The commission is right. It also said that many people pay too much. Again, it is right.

This Government is committed to protecting household budgets. In this budget I have already frozen income tax rates. In 2011, we promised to freeze the council tax in every budget of this parliamentary session. I confirm today that we will keep that promise and freeze the council tax next year. That means that council tax will have been frozen for nine consecutive years, saving the average household £1,500 in total on a band D bill.

That means that there is a dual tax freeze, on income tax and on the council tax, which will help families week in and week out, the length and breadth of Scotland.

In this draft budget, the Scottish Government is acting to promote our economy, deliver opportunities for all and protect and reform our public services for the future. In challenging times, it is a budget for growth and reform. It is a budget for Scotland and I commend it to Parliament. [Applause.]