Hansard

I am pleased to open the debate on the revised fiscal framework agreement.

On 2 August, following a joint review, the Scottish Government and the United Kingdom Government published an updated version of the Scottish fiscal framework, thereby fulfilling a key commitment in the First Minister’s policy prospectus. The Government believes that Scotland’s future lies as an independent country and that it would be best served by the full range of fiscal powers and choices that independence would bring. However, until such a time as the people of Scotland choose a different constitutional path, we are committed to working with the current framework and working to improve on it.

The changes agreed with the UK Government are balanced and pragmatic. The new agreement strengthens the Scottish Government’s financial management levers and provides the Scottish Parliament and Government with greater long-term funding certainty. However, we need to be clear that, despite improvements to the framework, the fiscal position facing the Scottish budget remains extremely difficult.

The situation is, of course, made worse by decisions that were imposed by the UK Government in last month’s autumn statement. Once again, the UK Government has chosen to pursue an austerity budget that will have a profound consequence for Scotland’s public services. As the Institute for Fiscal Studies said of the autumn statement,

“the tax cuts are paid for by planned real cuts in public service spending.”

Even with the fiscal framework in place, levels of funding for the Scottish budget remain closely tied to spending decisions by the UK Government. Decisions to starve services in England hit our budget in Scotland, as the UK Government’s failure to invest in services in England means that the devolved Administrations in Scotland, Wales and Northern Ireland do not receive adequate consequentials.

A cursory look at the UK Government’s autumn statement for 2024-25 shows the devastating impact of Tory austerity being forced on services. Even using lower estimates of inflation, UK front-line resource budgets are being cut in real terms. For example, if planned UK day-to-day expenditure on services for 2024-25 had grown in real terms since 2022-23, health and social care spending would be more than £8 billion higher compared with Conservative plans for England.

The UK Government’s approach means that it has provided almost no funding to cover the cost of this year’s pay deal in 2023-24, never mind the cost of a 2024-25 pay deal. The lack of provision for the cost of national health service pay deals amounts to treating pay increases as though they were one-off costs, which they are not.

Prior to tax and welfare block grant adjustments, Scotland’s resource budget from the UK Government in 2024-25 will be more than £700 million lower than if funding had been in line with real terms over the two years. Changes to the fiscal framework cannot compensate for the scale of the UK Government’s failure to invest in public services at this time.

To return to the fiscal framework review, I make it clear that, although the revised agreement has delivered important improvements, the Scottish Government’s preference would have been for a review that was broader in scope. I also make it clear that, in some places, the agreement does not go as far as we would have wished. The scope of the review and its outcome were, of course, subject to agreement with the UK Government.

I also want to address the timing of the agreement. Throughout discussions with the UK Government on arrangements for the review, my predecessors and I have sought to balance the need to keep the Parliament informed with the need to maintain a confidential space for negotiations. In weighing whether to conclude an agreement during recess, I had to consider the benefits of securing improved borrowing powers in advance of the 2024-25 budget and the fact that we are negotiating with a UK Government that will probably go into election mode soon. Considering those circumstances, I concluded that it was appropriate and prudent to agree the revised agreement when the opportunity arose.

The Scottish fiscal framework plays a central role in determining the funding for the Scottish budget, and it has been key to enabling the devolution of the new tax and social security powers that were provided for in the Scotland Act 2016. The original fiscal framework, which was agreed in 2016, was the product of negotiations between the Scottish and UK Governments. Those negotiations were guided by the principles and recommendations that were articulated by the cross-party Smith commission, which published its findings in 2014. That remains the case for the revised agreement. The Barnett formula continues as the basis for calculating the block grant, and the framework continues to be bounded by the principles that were outlined by the Smith commission, including economic responsibility, sustainability and no detriment as a result of devolution.

Since 2016, the Scottish Government has used the tax and social security powers underpinned by the framework to pursue policies that are better tailored to Scotland’s needs. For example, the Scottish Government has delivered the fairest and most progressive income tax system in the UK, while raising extra revenue to invest in public services and Scotland’s economy. With devolved social security powers, the Scottish Government has ensured additional support for the most vulnerable in our society.