Autumn Statement - Scottish Government priorities: Deputy First Minister statement

Tomorrow, the Chancellor of the Exchequer will make his Autumn Statement - setting out the UK Government’s budgetary plans for 2024/25.

The actions taken in his statement will largely set the context for our budget on 19 December.

The disappointing reality is that the amount Scotland has to spend on services is still largely driven by a Westminster wedded to even deeper austerity.

That means that while I will announce our budget in 28 days’ time, I still don’t know the quantum of funding available to support Scotland’s needs.

We’re only a little over a year on from the disastrous Truss ‘mini-budget’ that turbocharged the cost of living crisis, inflicting misery on individuals, communities and businesses.

We have now seen 14 increases to interest rates and stubbornly high inflation.

Even with the recent reduction in inflation, prices are still around 15 per cent higher than at the start of last year. Inflation remains more than double the Bank of England’s target rate.

The Resolution Foundation expects the current UK parliamentary term to be the worst for living standards since the 1950s.

Tomorrow the Chancellor needs to recognise this and change course.

Presiding Officer, our public finances have continued to face significant challenges from inflation, Brexit, the war in Ukraine, the increased costs of public sector pay, and a capital budget that does not come close to what is required.

Despite these challenges, I am pleased that the Auditor General last week gave the Scottish Government’s accounts for 2022/23 an unqualified audit opinion. This for the eighteenth year running.

This year, we have prioritised public services and delivered fair pay deals for our public sector workers. But these come at a cost and we must deliver a balanced budget. 

Pay deals added an estimated £1.26 billion to our recurring pay costs in 2023/24, and £1.75 billion across the public sector. This was around £800 million above the amount budgeted for 2023/24.

We have worked to try and mitigate the impact of Westminster austerity. But without a change in course from Westminster I fear we are now at the limits of what it is possible to mitigate within the powers of devolution.

I have today written to the Finance and Public Administration Committee to outline the measures that I have taken to ensure these costs can be met in this financial year.

These have been exceptionally difficult decisions, but they have been necessary to protect services where they are needed the most.

In total, savings and funding prioritisation of £680 million have been required in year – with £284 million already being expressed in the Autumn Budget Revision and the remaining £396 million that will be set out in the Spring Budget Revision. Of those £391 million are resource and £289 million capital.

These reductions have included:

• £10.5 million from the Future Transport Fund;
• £30 million from Energy Industries capital programmes; savings delivered by the Scottish Funding Council, including £46 million from the withdrawal of the strategic change transformation fund as communicated in May;
• £3 million from efficiencies in Marine Scotland;
• £28 million from agricultural budgets, with a commitment to return this funding in future years; and
• We will also re-deploy £6 million held in reserves by Forestry Land Scotland, with that funding to also be returned in future years.

Further details are included in the letter to the FPA Committee which was provided to opposition business managers prior to this statement.

Furthermore, as inflationary pressures continue to exacerbate the cost of living crisis and pressures for households and businesses across Scotland, I have protected overall health spending, and our investment in key programmes such as the Scottish Child Payment, and in tripling the Fuel Insecurity Fund for this financial year. 

This challenge is as a result of prolonged Westminster austerity and is not unique to Scotland. Last month the Welsh Government set out that they needed to find £600 million in savings before the end of the financial year. Accounting for differences in the size of our budgets, that would be equivalent to over £1 billion for Scotland.

The devolved administrations have worked together to call on the UK Government for additional funding and in-year budget flexibilities to support the management of the pressures we all face. The response so far to these calls has been, at best, insufficient. 

Presiding Officer, I am developing our budget for 2024/25 guided by our three missions of equality, community and opportunity - and the Bute House Agreement. In doing so I will be reflecting on the feedback from committees following their pre-budget scrutiny process.

When I presented the Medium-Term Financial Strategy to Parliament in May, I laid out the scale of the challenge that we face.

I showed in May that our central resource spending outlook for 2024/25 was £1 billion higher than our central funding scenario, which was based on the Scottish Fiscal Commission forecasts at that time. Our funding for capital projects is facing a real-terms cut next year.

We must meet these challenges in the 2024/25 Budget. The decisions we take must be underpinned by reform to ensure that people in Scotland get value from the taxes they pay and secure a sustainable future for our public services.

The Auditor General for Scotland raised the importance last week of reforming our public services to ensure they remain financially sustainable in the longer-term. We are committed to public service reform that will help deliver fiscally sustainable public services which improve outcomes and reduce inequalities.

The powers that this Parliament needs to deliver a better budget for Scotland are still retained in Westminster.

The Chancellor needs to act tomorrow to deliver for investment in public services and infrastructure; to prioritise Net Zero and tackling fuel insecurity; and to support people with the ongoing cost of living crisis. I have written to him to stress the importance of these areas.

From briefing to the media in recent days it appears that this may not be the course he follows, with suggestions that tax cuts may be prioritised over investment in public services.

Bluntly, when Westminster consistently underinvests in public services it means we have less funding to spend on our public services in Scotland.

As I have set out, these concerns are shared by the other devolved governments. The Welsh Finance Minister and I both raised the need for increased funding to address this with the UK Government directly.

This is especially important for infrastructure investment. However, our budget for capital investment is constrained by UK Government spending decisions, with funding projected to fall in real terms by 6.7% between 2023/24 and 2027/28 - and potentially more given sustained inflation. This limits our ability to deliver projects at the required pace.

So I have called on the Chancellor to rectify this. This must be new money and not funding that we have already allocated to other commitments. This happened with the UK Government’s recent announcement in response to our request for additional funding to support flood recovery – which was disingenuous to say the least.

A key part of this is ensuring that there is the necessary investment in the infrastructure that we need to meet our net zero targets and realise the opportunities for jobs and the economy.

That should include confirming a decision on the Acorn Carbon Capture and Storage project – where we have pressed the UK Government repeatedly on this and we need to see action.

And providing an appropriate market mechanism for hydro power. The lack of action from the UK Government is preventing Scotland from fully realising its potential.

It is also unacceptable in a country as energy rich as Scotland that around 830,000 households – 33% of all households – are in fuel poverty. Although the energy price cap has dropped, many consumers are still paying significantly more than they were two years ago.

With Gillian Martin, I have called for a social tariff for priority consumers, as well as reinstating the £400 Energy Bills Support Scheme. The UK Government must also take longer term action to reform the electricity market so that everyone benefits from the net zero transition.

We can all see that the pain the cost of living crisis is causing.

We are using our social security powers to deliver a system built on dignity, fairness, and respect. This year we are investing £5.3 billion in Scottish Government benefits and payments which will reach around 1.2 million people, including our unique Scottish Child Payment.

However, the majority of social security spend in Scotland remains reserved to the UK Government.

I have called on the Chancellor to increase working-age benefits by inflation to ensure that they retain their real-terms value for struggling families across the UK.

I also urge him to go further and legislate for an Essentials Guarantee, which would provide those who need it most with the most basic of necessities and benefit 8.8 million families. This would provide dignity and security for people reliant on Universal Credit.

And I have again called upon the UK Government to remove the heinous rape clause - the two-child cap - and the benefit cap, which disproportionally affect women and children.

Presiding Officer, I have been frank with members about the challenges we face and difficult decisions we have had to take to balance our budget and make best of use of public money. We are doing all that we can with the limited powers that we have but we need the UK Government to step up and use its powers for the benefit of Scotland. The priority for any fiscal headroom should be investment in public services.

Tomorrow the Chancellor has the opportunity to make a real difference for people across Scotland and I urge him to take it.