Meeting of the Parliament [Draft]

Meeting date: Thursday, June 20, 2024

Official Report 1054KB pdf

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Provisional Outturn 2023-24

The next item of business is a statement by Ivan McKee on the 2023-24 provisional outturn. The minister will take questions at the end of his statement, so there should be no interventions or interruptions.

14:54  

I welcome the opportunity to update Parliament on the provisional outturn against the budget for the 2023-24 financial year. The provisional outturn demonstrates once again that the Scottish Government is prudently and competently managing Scotland’s finances while protecting our priorities and ensuring that we have sustained effective delivery of public services.

Managing the financial position for 2023-24 once again represented a significant challenge. The continued impact of persistently high inflation, combined with pressure on public sector pay, backlogs as a result of the Covid pandemic, and the on-going war in Ukraine have placed pressure on the public finances. In addition, inflationary pressures continued to impact households and businesses across the country.

The Scottish Government’s budget must balance each and every financial year. The majority of our funding continues to be tied to the decisions of the United Kingdom Government and, as such, it is subject to high levels of uncertainty until very late in the financial year.

Although the fiscal framework was revised in August 2023 and it offers some additional flexibility, we are still unable to borrow to meet day-to-day costs. Our income tax powers do not allow changes to be made during the current financial year. The only real lever that we have to respond to emerging pressures and ensure that we balance the budget is to reprioritise current year spending plans. No one should underestimate the scale of that challenge. Our spending is committed to supporting vital public services.

The Cabinet Secretary for Finance and Local Government has already made clear to the Parliament some of the difficult choices that had to be taken over the course of this year. With careful management and rigorous reprioritisation, Scottish Government funding has been channelled to where it is most needed.

However, this statement is not just about the challenges that we have had to manage; I also want to underline the positives. We have continued to proactively drive efficiency savings and to maximise income streams. In 2023-24, we supported fair and affordable pay deals for workers who provide our essential public services, thereby avoiding strike action and minimising further disruption for the people of Scotland. Through meaningful engagement with trade unions and employers, the Scottish Government provided a record junior doctor pay deal and an increased agenda for change pay deal. Over the past two years, we have invested an additional £1 billion in national health service agenda for change pay to support staff through the cost of living crisis.

We spent nearly £5.2 billion on social security benefits, including £429 million on the Scottish child payment. That payment, which is unique to Scotland, lifts families out of poverty and helps with the cost of living crisis.

The carer support payment was introduced in pilot areas. Once it is fully rolled out, in 2024, that will allow thousands more unpaid carers to receive the benefit.

During 2023-24, we also widened the eligibility for best start foods. That will mean that an estimated 20,000 people will be able to access money to help to provide milk and healthy food for their children.

In 2023-24, we spent over £160 million on the Ukrainian resettlement programme to ensure that people continued to receive a warm Scots welcome and were supported to rebuild their lives in our communities for as long as they need to call Scotland home.

We continued to support a strong Scottish economy. The 2023 Ernst & Young attractiveness survey showed that Scotland outpaced both the UK and Europe for the second year in a row in attracting inward investment projects. Indeed, Scotland has been the top-performing part of the UK for inward investment projects outside London for the past eight years.

We continue to outperform the UK as a whole in delivering long-term reductions in Scotland’s greenhouse gas emissions in order to achieve net zero emissions by 2045.

Domestically, we have continued support for our multiyear grant funding from the just transition fund, with £16.8 million spent on projects to deliver our just transition aims and positive impacts for the north-east and Moray regions. In addition, in 2023, we committed, allocated and spent another £3 million to support vulnerable global communities to address loss and damage. That brought our total commitment to £10 million.

On rail services, revenue growth exceeded budget forecasts due to effective delivery of services and the benefits of partnership working with the trade unions for the public sector railway. In Scotland, we avoided the costly industrial relations disruption that impacted other rail operators. Enhanced deployment of customer support teams helped to reduce fare evasion and antisocial behaviour, thereby building customer confidence and increasing revenue.

A continued focus on controlling the costs of delivery has contributed to the improvement of the net cost of delivering Scotland’s rail service. The finalisation of the closure of the previous franchise agreement for ScotRail also resulted in a one-off receipt back to the Government from Abellio.

That, and other savings that were generated as part of our work to make our public sector more efficient and to release more funds to the front line, have resulted in savings across a number of portfolios, which have contributed to our underspend in 2023-24. Those savings are welcome, and they are available to support essential services in this financial year.

We will continue to press the UK Government to provide funding to meet pressures and to allow us to deliver a broad range of high-quality public services and to improve the lives of the people of Scotland. The Scottish Government is absolutely committed to delivering on our priorities—priorities that have the most immediate benefits for our people in their everyday lives: eradicating child poverty, growing a thriving economy, ensuring sustainable and excellent public services and tackling the climate emergency.

I now turn to the 2023-24 provisional outturn. Under the current devolution settlement, the Scottish Government is not permitted to overspend its budget. We must therefore operate within a tight margin of just over 1 per cent. The level of volatility in our overall funding envelope continues to increase. Our block grant is not finalised until February each year. We only received confirmation of an additional £500 million of funding just six weeks before the end of the financial year. While we welcome that additional funding, the timing highlights the challenge in managing the financial position.

I am pleased to confirm that, despite that volatility, the Scottish Government has once again delivered a balanced budget, with a provisional fiscal outturn for 2023-24 of £49.3 billion, against a total fiscal budget of £49.6 billion. The remaining budget of £292 million, which represents just 0.6 per cent of our total budget, will be carried forward in full through the Scotland reserve if confirmed at final outturn. That incorporates £162 million of fiscal resource, £130 million of capital and a break-even position in financial transactions.

I must stress that there is no loss of spending power to the Scottish Government as a result of that small underspend. Indeed, £109 million of the capital underspend was anticipated at the spring budget revision and, of the resource position, around £100 million is required annually to manage the post-year-end audit adjustments, with the remainder to be utilised to support the 2024-25 budget.

In setting out his priorities for Scotland to Parliament in May, the First Minister highlighted the enormous financial pressures facing the Scottish Government. As has been said before, we are required to manage our spend against an annual budget that is not confirmed until the final quarter of the financial year. We cannot overspend. Therefore, our financial strategy is to plan a modest underspend to mitigate the risks of post-year-end audit adjustments, as have occurred in previous years. Managing the position to a 0.6 per cent underspend underlines the financial competence of the Government.

I know that colleagues across the chamber follow these matters closely and that, for the most part, they have a robust understanding of the intricacies of accounting standards. I am sure, therefore, that I do not need to remind them that an element of our budget allocation from HM Treasury is non-cash. That is used for accounting adjustments, predominantly depreciation. To reiterate previous references to that ring-fenced budget, it cannot be used to support day-to-day spending, nor does it flow to the Scotland reserve. It is therefore not included in our headline provisional outturn results.

For 2023-24, an underspend of £1.1 billion is shown against a budget of £2.5 billion. A large proportion of that budget, circa £900 million, relates to non-cash consequentials for student loan impairments, which are simply not required at the same level in Scotland because of our policy of free university tuition.

I emphasise that the figures that I am reporting to the Parliament today remain provisional, as they are subject to change pending completion of 2023-24 year-end audits. Finalised figures will be reported as usual in the annual Scottish Government consolidated accounts and a statement of total outturn later this financial year.

I commend today’s figures to the Parliament.

The minister will now take questions on the issues raised in his statement. I intend to allow around 20 minutes for questions.

I thank the minister for prior sight of his statement. He is absolutely correct to say that the Scottish Government cannot overspend its budget, and he is also quite correct to say that any underspend does not equate to funds that are lost to the Scottish Government. What the final outturn statement provides is detail about the choices that are being made by the Scottish Government and the time period in which it is spending the funds that are available to it.

First, will the minister accept the recent Fraser of Allander Institute statistics that show that, excluding the Covid spend, the block grant for the 2023-24 outturn period when measured against current prices was higher than in previous years, which therefore benefited Scottish Government spending? Secondly, does he recognise that there are many in the education sector who might feel very let down by the extent of the underspend in their portfolio when there are so many immediate and pressing issues in our colleges and universities, especially relating to skills and training budgets? Thirdly, on a different but nonetheless related issue, when it comes to spending taxpayers’ money, the Scottish Government has—by its own admission, in some ways—got itself into a complete muddle over what European Union funds were available to spend in a particular time period and what had to be handed back. What is the Scottish Government doing to improve the transparency of public spending, as requested by Audit Scotland?

I thank Liz Smith for her questions, and I appreciate her recognition of the process with regard to these numbers and the fact that the money is not lost. Indeed, it goes back to the Scotland reserve and will be available to spend this year. A significant portion of the headline number is non-cash, which we cannot translate into spending on day-to-day activities. The reality is that Scotland’s budget from the UK has been reduced in real terms. If we look back over the period, we will find that that is indeed the case. That is why we are in the unprecedentedly difficult fiscal position that we find ourselves in.

With regard to spending on education, the Government clearly set out its priorities when it announced its budget. Today, we are going through the outturn numbers that compare against the budget that was laid out by the Government and approved by the Parliament. The Government gives huge priority to our education system, not just for the benefit that it delivers for individuals but for the wider societal and economic benefits that our schools, colleges and universities provide as a consequence of the funding that they receive from the Scottish Government’s budget.

I am committed to ensuring that we are as transparent as possible on the funding that we provide and the way in which that funding is managed. That will be the case as I take forward my work as Minister for Public Finance and the work that I am leading on public sector reform.

I thank the minister for advance sight of his statement. There is wide agreement that the rampant inflation that has been delivered by the UK Tory Government has put great pressure on finances. Unfortunately, the minister appears to believe that an unlimited amount of uncosted Government borrowing is the solution to, rather than the cause of, that chaos. The figures that have been laid before us show that there has been considerable underspend in capital budgets, which is in addition to the hundreds of millions of pounds of EU funds that have been lost due to the Government’s incompetence. We need a long-term commitment to growing our economy and our tax base.

When will the delayed medium-term financial strategy be brought to the Parliament? Can the minister guarantee that the strategy will include a plan to close what was a £1.9 billion black hole between what the Government has promised to do and the mess that it made of public finances? Do ministers understand the fiscal framework, given that, yesterday, the governing party published a disastrous tax policy agenda that independent experts have shown to be completely incompetent?

Wow—where do I start with that tirade? There are a number of inaccuracies that would take me quite a long time to unpick, but I will pick up on some of the issues. Michael Marra should be aware—I am sure that he is—of the very limited borrowing powers that the Scottish Government has at its disposal, which are only there to allow us to smooth out year-to-year resource spending and give us the very limited ability to move funds when necessary from one financial year to the following one. We do not have the ability to borrow significant amounts of cash on the markets in order to be able to invest in capital projects.

If we look at the reasons why productivity in the UK and, indeed, Scotland, is lower than in comparable nations, it all points back to a lack of capital investment, as well as the constraints that are placed on us and the reductions in capital spending that are a consequence of the UK Government’s approach. Those things have significantly held back our ability to grow productivity in Scotland. That said, productivity in Scotland has, over recent years, grown at twice the rate of productivity in the rest of the UK.

I understand that the medium-term financial strategy was not published because of the pre-election purdah period. The cabinet secretary has written to the Finance and Public Administration Committee and will produce that document once we are back in September for FPAC and the Parliament to review.

Michael Marra also mentioned inflation. That is due, in significant part, to the policies of the current Conservative Government. However, it is important to recognise that, were UK Labour to come to power in a couple of weeks’ time, it would, based on its figures, continue with the current UK Government’s investment proposals, and would, as a consequence—as independent experts have recognised—have to find £18 billion of cuts. The impact of that on Scotland would be nothing short of disastrous.

Austerity—the political choice of the Conservatives over many years, and the future direction of a potential Labour Government, as confirmed by the Institute for Fiscal Studies—has had an unacceptable impact on Scotland’s budget. Can the minister outline what impact cuts have had on Scottish public finances? Can he advise what assessment has been made of the impact of the further cuts, as outlined by the IFS, that are likely to be taken forward by a Labour Government?

That question follows on nicely from my previous answer to Michael Marra. As the Institute for Fiscal Studies highlighted recently, no matter who wins the election in the UK, unprotected budgets could face cuts of at least £18 billion, and possibly as high as £20 billion, by 2028-29.

We do not know what that means for our budget—as the IFS has also pointed out, there is zero detail from either the Conservatives or the Labour Party about where those cuts might fall. However, decisions by the current UK Government have already cost Scotland up to £1.6 billion in potential consequentials, and it is clear that any future UK Government is, unfortunately for Scotland, likely to deliver more of the same austerity.

The underspend in capital that was announced by the minister is £130 million—the highest level in five years, and more than four times the level in the previous year. That is against a backdrop in which vital capital projects, such as the dualling of the A9, are not being progressed. How can the minister have any credibility in complaining about a reduction in the capital budget from the UK Treasury when the Scottish Government’s own capital underspend has quadrupled?

I expected better from Murdo Fraser, to be honest; I thought that he would have understood how these numbers work. Out of a total capital budget of more than £5 billion—which is not adequate for the investment that we need to make, and which means that we suffer as a consequence of UK cuts—an underspend of just over £100 million amounts to about one week’s worth of capital works. That underspend has moved into the current financial year and is being deployed to support capital programmes in the current budget period.

The reason for that underspend is a slippage of a few days in a capital project, which would not be unexpected in any scenario. I would have thought that Murdo Fraser would have had a more substantial appreciation of the mechanics of how these numbers work and how they relate to one another.

I congratulate the Government on coming within 0.6 per cent of its budget; I think that many organisations and Governments would be amazed if they could come as close as that. The minister mentioned volatility increasing. I wonder whether that is to do with demand-led social security. Can the minister make any further comments about that increase in volatility?

Yes—there are some demand-led projects, and part of the reason for the underspend in different portfolios has been identified as being that some services are delivered more efficiently. Some of it has been down to a reduced or lower than anticipated take up of demand-led services.

Nevertheless, the biggest area of volatility, and the hardest part of the fiscal position to manage, is the lack of certainty in the consequentials received from the UK Government. As I indicated in my statement, around £0.5 billion of that was firmed up only in the past few weeks of the previous financial year, making it very difficult and challenging to manage the underspend to within those limits. I emphasise that, nevertheless, a good job was done to bring that to within just 0.6 per cent of the total budget position.

I draw members’ attention to my entry in the register of members’ interests in relation to the Scottish Federation of Housing Associations.

On the issue of capital spending and the massive underspend of £130 million, the minister dismissed that as involving a couple of days of work and a late project, but surely that capital spending could have been used. NHS projects are being put on hold, and there is a housing emergency. Surely that £130 million could have been allocated to build urgently needed homes to tackle homelessness and create local jobs. Instead of underspending, can we not just get on with that work now?

I am even more disappointed in Sarah Boyack, who I thought had a better grasp of the matter than Murdo Fraser. It is a £5 billion spend over the year. The money appears in the accounts at the point at which the service—in this case, the construction of a capital investment project—is delivered, not when it is committed. The numbers work out at one week’s worth of work. That money is not lost, so it could not magically appear, in addition to the money that we are spending this year, in order to build additional infrastructure or buildings. That money was spent as soon as we started this financial year at the beginning of April and it will continue to be spent through the course of the year. That amount is a very small part of the total £5 billion budget.

Sarah Boyack would better serve her constituents and the people of Scotland by focusing on the significant cuts—in the capital budget from the UK Government—to the amount of money that is available to the Scottish Government to spend, and on what she is doing to ensure that any incoming Labour Government significantly increases the capital spend that is available for Scotland. There is absolutely no indication of that in the numbers that the IFS has published on Labour’s plans, should the party come into office in a couple of weeks’ time.

Given the delays in the UK Government providing clarity on consequentials, can the minister provide further information regarding the impact that that has had on planning for the Scottish Government? Can he advise what steps the next UK Government could take to avoid the same problems occurring in the future?

That is a good point, which I have covered. The lack of clarity and the late confirmation of consequentials across a range of spending areas make it difficult to manage the budget and to land it within the narrow limits of 0.6 per cent that we have, nevertheless, managed to achieve.

To allow for a more robust process, it would be helpful—indeed, it is essential—for any future UK Government to give the Scottish Government and other devolved Administrations much earlier sight of the impact of consequentials, so that the planning process can be done earlier in the financial year. Not only would that give us more certainty and allow us to manage the position more accurately but, frankly, chopping and changing the numbers through the year is an inefficient way of managing the operational aspects. Everybody would prefer certainty, because it would allow the public sector to plan better, and people would benefit from the money that we pass on to the third sector and elsewhere. Therefore, that would be a significant ask of any incoming UK Government.

The minister will be aware of the concern that I have previously raised about the fact that the education portfolio bears a disproportionate burden of in-year budget balancing exercises because, unlike a lot of other portfolios, it has areas of spending that can be reallocated in year. The cumulative impact of that over the past few years has been disproportionate.

Does the minister recognise that, as much as those in-year exercises get us to the end of the financial year, they need to be viewed in that year-on-year balance, and certain portfolios have borne a disproportionate burden? Those decisions would probably not have been made if they had been looked at in the round, over a three or five-year period.

A lot of that comes back to the issue of certainty. Self-evidently, if we were in the fortunate position of having multiyear budgets from the UK Government, we would be in a position to manage the situation more effectively.

I have already commented on the importance that the Government places on education, for many valid and important reasons. The in-year position is being managed by the cabinet secretary and her team, to ensure that we land a balanced budget with a very slight underspend. That necessitates us taking steps in year, again because of the lack of certainty as we move through the year and because of our unprecedentedly difficult fiscal position.

It is clear that the current UK Government cuts to Scotland’s capital budget need to be reversed with urgency. Will the minister advise whether revised fiscal rules from the next UK Government would help borrowing for capital investment?

The real-terms reductions in our capital budget imposed by the current UK Government are limiting our ability to invest in the vital infrastructure that sustains our public services. A new incoming Administration at UK level must address that as a priority.

We welcome the limited increases in our capital borrowing limits that form part of the revised fiscal framework, but they are still short of what we believe is necessary to allow us to sustainably invest in our essential infrastructure. The revisiting of the current capital borrowing limits will form part of our immediate asks of any incoming UK Administration.

The underspend in finance and economy comes on the back of the recent 8.3 per cent real-terms cut to the economy portfolio in the Scottish Government’s budget, at the very time when Scotland is in urgent need of policies to stimulate economic growth.

Will the Scottish Government now meet the firm promise that it made during yesterday’s debate to place a much greater emphasis on finance and the economy, and ensure that the money that it has available is spent as quickly as possible on boosting jobs, investment and growth?

There is no need to tell me, of all people, about the importance of boosting the economy. That is what the Scottish Government has focused on and the results bear that out. I highlighted the EY inward investment results, which show that Scotland was the best-performing part of the UK outside London for the eighth year in a row. When it comes to attracting inward investment, Scotland outperformed the UK and the European averages for the second year in a row. If we look at the recent growth statistics, in the first quarter of this year, Scotland’s economy grew by 0.7 per cent, which is higher than the growth rate across the UK as a whole.

On the issue of underspends, money is allocated to our very effective economic development agencies, which then spend that money to support the initiatives that have been spoken about. However, as I highlighted, the situation at year end is often uncertain because of the lack of clarity on consequentials from the UK and when those will arrive. As a consequence, there will always be some transfer of funds from one year to the next but, rest assured, those funds are available and have already been deployed to continue to support Scotland’s economic growth ambitions in the current financial year.

In his statement, the minister outlined on-going volatility and uncertainty. Given the UK Tory Government’s chronic economic mismanagement, our public services are facing considerable additional pressure as the resources that are available to support them are eroded. That situation is unlikely to improve under Labour. What steps have been taken to provide certainty to our public services in this very challenging context?

As Kenny Gibson rightly identifies, our current financial situation is among the most challenging since devolution. Scotland has faced a series of economic shocks, with the Covid pandemic, the war in Ukraine, soaring inflation and the impact of Brexit. Added to that long list is the UK Government’s economic incompetence under the Truss Administration.

Persistent high inflation has put significant pressure on public services, and we have consistently called on the UK Government to provide additional support in response. We have made no secret of the challenge that that presents in sustaining high-quality public services that the people of Scotland deserve. We have had to reprioritise to meet that challenge, which has, unfortunately, created some uncertainty. That is likely to continue into the current financial year as we address the on-going impact of inflation; however, we will continue to be transparent about those challenges and the actions that we are taking to manage them.

We have seen the Scottish National Party Government cut the housing budget in the middle of a housing emergency, and cut the mental health budget when people, particularly young people, are waiting an age to be seen or treated. It has cut the drug deaths budget when Scotland has the worst drug deaths crisis in the whole of western Europe, with deaths increasing by 10 per cent in the past year alone. As the Scottish Government rolls over that underspend into the next financial year, will it finally commit to funding those priorities properly?

As Alex Cole-Hamilton knows, the priorities for budget spend are decided during the budget process, and today we are going through the outturn for last year. As I indicated, the funds that were underspent last year—a small amount compared to the total spend of the Scottish Government—are already rolled over into this fiscal year and are being deployed as a consequence of that.

There are a number of inaccuracies in the statement that Alex Cole-Hamilton makes, but rest assured that the priorities of the Government as outlined by the First Minister—growing the economy, eradicating child poverty and improving public services—are what drive the Government and the fiscal choices that we take to deliver on a budget.

That concludes the ministerial statement. Before we move on to the next item of business, there will be a short pause to allow the front-bench members to change position.