Budget Statement: 2021-22

Today’s Budget comes almost a year after the first case of COVID-19 was notified in Scotland.  The pandemic has shaken our society and economy to the core. 

Every life has been impacted, and every single life lost has been a tragedy.  Livelihoods have been up-ended.  Frontline services have responded in remarkable ways.

And of course our collective fight to overcome the virus continues.  The exceptional circumstances require an exceptional response.

This Budget provides for continuity in our urgent work to control the virus and protect our economy and NHS, whilst the vaccine is delivered as quickly and as safely as possible.

It is not just the pandemic that has taken its toll on Scotland’s economy.  The wrecking-ball of a dismal Brexit deal is compounding matters.

So today’s Budget will help to bring much needed support and stability, to ensure our economy recovers and we protect those who have been hit the hardest.

Our approach continues to target support in the immediate term, as well as tracking a course over the coming year to build a fairer, stronger and greener economy.

Fundamentally it focuses on three key priorities:

• Creating jobs and supporting and investing in a sustainable recovery;
• Responding to the health pandemic and;
• Tackling inequalities.

This is a time of great fiscal uncertainty.

In the absence of a UK Budget much of the information we need to plan with certainty is missing.

We must persevere with a Budget based on a partial, settlement.

Left waiting until the UK Budget to see the full hand being dealt to us. 

I have repeatedly welcomed the additional Covid funding – largely borrowed – provided by the UK Government. I do so again.

But I also have a duty as Finance Secretary to make the case forcefully when I believe more is required.

There is £21 billion sitting in the UK Covid reserve.  Our share of that funding would help meet the ongoing needs of our businesses, our NHS and other public services.

In the interests of providing certainty and based on the balance of consequentials received to date, I have made a prudent funding assumption and allocated £500 million against what we expect to flow to us from that Covid reserve next year.

This will help make the budget process more transparent and aid parliamentary scrutiny of our spending decisions 

I have written to the Chancellor this week setting out the Scottish Government’s priorities for the UK Budget and seeking clarity and flexibility on several matters of importance to Scotland.

Presiding Officer, given the particular interaction between this year’s and next year’s budgets, I will touch on the 2020-21 position as we approach financial year-end.

Last month I set out how Covid funding was being allocated in full.

Following my assessment of the latest position, and confirmation of an additional £400 million of consequential funding I have already confirmed further 2020-21 funding of:

• £300 million for business support;
  • including payments from the Strategic Framework Business Fund to the end of this financial year;
  • a one-off top ups to the grant support for hospitality, retail and leisure businesses;
  • comparable support for island businesses;
  • and increased funding for the taxi and wedding sector funds

There is also

• £85 million for education recovery; and
• £30 million for university student hardship,

On Monday, Councils paid out millions in Framework funding and sector top-ups, significantly more than the figures published earlier this month. Since Boxing Day, payments have been made to tens of thousands of businesses. That builds on the 383,000 business awards made since the beginning of the pandemic, valued at over £2.3 billion.

Alongside that, we are filling the gaps in support through sector-specific funding, with funding now available for taxi drivers, brewers, travel agents, indoor football clubs, events and a variety of businesses in the wedding sector from florists to photographers.

I know that businesses will continue to need support for as long as they need to close, and they want certainty about the future.  I can confirm today that the Strategic Framework Business Fund will continue to support businesses beyond the end of this financial year –  should funding from the UK Government be forthcoming.

And I can confirm two further measures – a doubling of the discretionary fund for local authorities for up to £60 million, to distribute as they wish, and a commitment to pay February grants at Level 4, irrespective of what Level a business is in.

Presiding Officer, Local Government has been at the forefront in distributing grants, supporting communities and responding to the pandemic. Last year, the Scottish Government and COSLA agreed the details of a scheme then estimated at £90 million to compensate councils for the loss of income from sales, fees and charges due to the pandemic.

Today I am increasing that allocation to £200 million.  When added to the £49 million previously announced, the total support for councils’ losses this year is now up to an additional £249 million.

I am writing today to the Finance and Constitution Committee with the full 2020-21 allocation details, which confirms that every single penny has been allocated.

Yesterday’s GDP figures show that, as a result of the restrictions we have had to put in place control the virus, our economy is now 7.1% smaller than it was pre-COVID-19, while over the same period the UK economy has shrunk by 8.5%. We have largely tracked the rest of the UK economy over the course of the pandemic, with a negligible difference in labour market and GDP statistics, but yesterday’s figures suggest a widening gap in the impact on the Scottish and UK economies.

The Scottish Fiscal Commission’s forecasts published today show a difficult outlook.

The current lockdown measures to suppress the new COVID variant will likely reverse some of the fragile economic recovery seen in the summer, with GDP forecast to fall 5.2% in the first quarter of 2021.

The vaccine rollout and anticipated easing of measures mean the economy is expected to return to growth across 2021-22 as a whole.

Yet the Commission still expects longer-term damage, and does not expect GDP to return to pre-pandemic levels until 2024.

The SFC also forecasts unemployment to increase to 7.6% in Quarter 2 this year.

In line with currently announced UK Government policy, that forecast is based on the assumption that the Job Retention Scheme ends at the end of in April, without a replacement scheme.

Now I do not underestimate either the cost or the benefit of the Job Retention Scheme, it is a stark reminder that if it ends prematurely the impact on jobs and livelihoods will be severe.

So the Chancellor must extend the Job Retention Scheme, and he must do so before the UK Budget in March to give businesses sufficient time to plan ahead. Because good jobs and viable businesses depend on this.

Members will note that the Scottish Fiscal Commission projections published today take into account the current period of lockdown.  The most recent UK projection is from November and does not reflect the current lockdowns across the UK

That timing difference will inevitably cause some challenges for our budget through the fiscal framework. However, as Richard Hughes from the OBR said to Finance committee yesterday, UK GDP fell by less than expected in November, suggesting that we have become better adapted to dealing with lockdown conditions.

But the latest restrictions will inevitably have an impact on the economy.

The updated SFC projection for Scotland sees growth fall in the first quarter of this year, whilst the OBR had been forecasting growth in its November publication.

This difference does not reflect a difference in our underlying economic performance, but rather differences in timing, and will likely disappear when new OBR projections are published in March.  But it does mean that the technical conditions under the fiscal framework for the release of additional reserve and borrowing flexibilities following an economic shock, have been met. The UK Government has confirmed these flexibilities are now available to me and I will use them to support our recovery from COVID-19.

These extra flexibilities are welcome, although they are constrained and temporary – they do not change the fact that the Scottish Government cannot borrow at its own hand to fund spending in response to COVID-19 or support the economy in the way that countries around the world have done.

This is a time for certainty and stability, and helping businesses and households as far as we can. With limited resources, we must target those who need our help the most.

I am delivering that stability and certainty that taxpayers need, with targeted support for the individuals and businesses most impacted.  This is a package of tax measures that will support our recovery and renewal.

Significant changes to Scottish Income Tax were implemented in 2018-19, to deliver a fairer and more progressive five-band system.  That structure will remain unchanged, while the starter, basic and higher rate bands all increase by inflation.  The top rate threshold will remain frozen at £150,000.

This will see all Scottish taxpayers pay slightly less Income Tax next year than they will this year, based on their current income.  In addition to this, a majority will continue to pay less Income Tax than if they lived in other parts of the UK.

Alongside record investment in public services, that is a key part of making Scotland an attractive place to live and work.

On Land and Buildings Transaction Tax, the temporary change to the residential nil rate band introduced in July supported the housing market at a difficult time, and contributed to a robust recovery throughout the year to date.  The housing market re-opened in June and has continued to operate uninterrupted since.

That change was always meant to be temporary.  The ceiling of the nil rate band will return to £145,000 from 1 April as intended, with no other changes to rates or bands.

First-time buyer relief, will remain in place saving first-time buyers up to £600 and meaning that an estimated 8 out of 10 first-time buyers will pay no tax at all.

The Additional Dwelling Supplement rate will remain at 4 per cent. However, recognising the longstanding calls for change, we intend to consult early in the next Parliament on reforms to the ADS.

Non-residential LBTT rates and bands remain unchanged.

Finally, on Scottish Landfill Tax the standard rate of Scottish landfill tax will rise to £96.70 per tonne and the lower rate to £3.10 per tonne.

At a time when the people of Scotland are dealing with the significant economic and social impacts of the pandemic, these tax policies deliver certainty and stability.

Based on the most up-to-date forecasts from the SFC and the OBR, the net contribution from devolved taxes in 2021-22 to the Scottish budget will be £539 million. In addition to this we have used our limited borrowing and reserve powers to their maximum effect. In total that means that the Scottish budget will be over £1.7 billion bigger than it otherwise would have been.

Presiding Officer, we have always been rightly proud of the world-class care provided by our NHS.  But during the pandemic, in the toughest circumstances imaginable, our inspirational NHS workers have worked tirelessly.

When the history of this pandemic is written, our NHS and social care staff will be recognised as the undisputed heroes they are.

I’m sure I speak for everyone in this chamber – everyone in the country in fact – when I offer them our heartfelt thanks.

To support their efforts in 2021-22, we will invest over £16 billion in the Health and Sport portfolio – an increase of over £800 million to the core budget.

And an additional £869 million to support our response to COVID-19 – including vaccinations and Test and Protect.

That includes investment in primary care of £1.9 billion.  And it will bring our total investment in social care and integration to over £883 million in 2021-22.

I want to draw attention to two critical elements of the Health Budget. The first is that we will provide £145.3 million funding in 2021-22 for alcohol and drugs – an increase of £50 million on this year, specifically for our national mission to reduce drugs deaths as part of a five-year £250 million commitment.

Secondly, we know that the pandemic has taken a huge toll on mental health and so next year’s investment in mental health will exceed £1.1 billion.  This will underpin our continued approach to improving mental health services and support for children, young people and adults, including Child and Adolescent Mental Health Services.

The social harms of COVID‑19 have exacerbated poverty and inequality, highlighting the importance of driving progress towards our statutory targets to reduce, and ultimately eradicate, child poverty, by 2030

We are delivering a direct programme of action to meet those targets across 2018-2022, backed by the £50 million Tackling Child Poverty Fund which this Budget confirms we will deliver in full.

The ambitious use of our new welfare powers to tackle child poverty includes significant investment in our  “game changing” Scottish Child Payment of an expected £68 million next year, with payments starting next month – part of a total of almost £3.6 billion for social security.

Our public sector pay policy will continue its progressive and restorative approach, focused on addressing low pay.

The UK Government’s ill-judged pay freeze has a material impact on our block grant, within which we must balance reward and affordability of public sector pay.

We will continue to adopt the real Living Wage, applying the increased rate of £9.50 per hour, guarantee a minimum 3% increase for those on salaries up to £25,000 via a £750 cash underpin, with those on higher salaries receiving a 1% rise capped at £800 above £80,000.

Negotiations are under way in our NHS on the future of Agenda for Change and I will work with the Cabinet Secretary for Health to deliver for our NHS workforce.

The most enduring way to tackle inequality and break the intergenerational poverty cycle is of course, through education.

In 2021-22, we will provide £2.7 billion across the Education and Skills budget to deliver on this ambition, alongside the significant funding for education delivered through the local government settlement.

That includes almost £1.9 billion for the Scottish Funding Council, to fund our university and college sector, including £700 million for colleges and over £1.1 billion for universities.

It is vital that we continue to invest strongly in our world-class institutions, and provide students with the best opportunities.

Turning to Justice, the budget provides significant extra funding to help deal with the backlog in criminal justice caseloads caused by the pandemic,

We will provide a total funding settlement of £1.3 billion for the Scottish Police Authority, including an uplift of £60 million in the resource budget – surpassing our commitment to deliver a £100 million boost by 2021 and eliminating the deficit in the police budget.

Keeping public transport options open remains vital to our recovery, backed by investment in 2021-22 of over £1.6 billion across bus and rail services.

This will ensure a viable alternative to private transport for more people, further reducing our reliance on cars providing a cleaner form of mass transport, in addition to promoting the wide benefits of our 20-minute neighbourhood ambitions.

We will also deliver a national concessionary travel scheme for free bus travel for under‑19s in the coming year.

And we will continue to support transformational change to our streetscapes with a five-year commitment to maintain the active travel budget at a record high of £100.5 million per year.  

I said earlier that Local Government had been at the forefront of our response to Covid. And I remain extremely grateful to Local Government colleagues, many of whom have worked night and day to manage grant funding, welfare support and maintain statutory services throughout lockdown.

We will make available to local government a total funding package amounting to £11.6 billion for 2021-22, including a £245.6 million increase in core revenue funding and an additional £259 million of non-recurring Covid funding.  That is a total additional revenue funding of more than half a billion pounds .

Within that, the settlement includes additional funding of:

• £59 million to complete the expansion of Early Learning and Childcare to 1,140 hours; £72.6 million for investment in health and social care; and £7.7 million to support the inter-island ferries in Shetland, Orkney and Argyll and Bute meeting their revenue ask in full, as well as extending the timetable and RET on Orkney’s inter-island ferries.

This settlement also allows councils to join us, in financially supporting households who will undoubtedly be struggling as a result of the social and economic impact of the pandemic. Just as we have chosen not to increase tax rates, ensuring people pay no more than last year, I have taken the significant step of offering funding to councils who choose to freeze council tax, providing financial re-assurance to those who are struggling.  That additional funding is equivalent to £90 million for councils or a 3% rise, with inflation at 0.5%, and that more than fully compensates local authorities.

That takes the increase for core revenue services to £335.6 million and when added to the non-recurring COVID funding of £259 million, provides a total increase for local government of £594.6 million in 2021-22. I have also confirmed a further increase of £110 million over previously announced plans for the lost income scheme for local government.

Presiding Officer, while the pandemic’s profound effect on our economy requires constant support, it also requires us to plan and deliver a strong, fair and green recovery in the longer term. The future of our public services, depends on the resilience and the strength of our economy and so, if this Budget must achieve anything, it must set the groundwork for economic recovery.

Today, I set out a plan to deliver that – a plan which provides for ongoing business support, tackles unemployment, helps business emerge stronger and invests in long term growth.

Leadership matters, and our enterprise agencies must have the resources they require to play a leading role in the recovery.

The collective resource budget for the three enterprise agencies in the Highlands, the South of Scotland and across Scotland will increase by more than 12%.

The Budget builds on the significant package of labour market interventions with a total of investment of £1.1bn in employability and skills support. 

That includes an initial additional investment of £125 million for the Young Person’s Guarantee, the National Transition Training Fund and broader skill and employability support. 

The Young Person’s Guarantee will help achieve our ambition that within two years every young person will have the opportunity to study; to take up an apprenticeship, a job or work experience; or participate in formal volunteering.

Today’s Budget allocates £230.9 million to Skills Development Scotland to work with partners across this vital agenda.

And it also sees the launch of the first phase of our five-year £100 million Green Jobs Fund and a commitment to establish a Green Jobs Workforce Academy.

And across Scotland we will invest over £230 million to ensure our diverse and evolving cultural heritage is valued, nurtured, and celebrated, protecting thousands of  jobs in the culture and heritage sectors.

Presiding Officer, we must invest for growth. The Infrastructure Investment Plan, which will be published in full next week will outline a pipeline of projects that drive Scotland’s resilience driving inclusive, net-zero and sustainable growth.

The Plan will be key to the success of the National Mission for Jobs, offering a robust pipeline of work that will help stimulate the green recovery – providing good, green jobs, stimulating supply chains and building market confidence.

The Capital Spending Review will set out budgets for five years, confirming that we will deliver our National Infrastructure Mission in full, to increase annual investment in infrastructure by £1.5 billion by 2025, supporting 45,000 full time equivalent jobs across the period.

These efforts are enhanced by the work of the Scottish National Investment Bank, which we will capitalise with £2 billion, with over £200 million for investment in 2021-22. Next year, we will provide funding of £210 million for cities investment and strategy.

And that will continue our work with regional partners to progress all Deals not yet in delivery, with the aim of concluding Full Deals for all regions urban and rural by the end of 2022.

COVID has further underlined the value of a safe, secure and affordable home and our homes will also now be somewhere many of us work from. We’re providing more than £800 million for housing in the budget. Building on our  achievement of having delivered almost 97,000 affordable homes since 2007 I am allocating funding of more than £711 million to the Affordable Housing Supply Programme.  

Capital investment will inject confidence, but it will also help to meet our statutory commitment to be a net zero society by 2045. Our carbon taxonomy shows nearly 37% – or over £1.9 billion – of our capital investment is low carbon.

And as we look to Glasgow hosting the COP26 summit in November, we want to inspire global action and demonstrate that Scotland is a world leader in green and renewable technologies.

The Programme for Government and our recent Climate Change Plan update together outlined a £2 billion Low Carbon Fund over the next Parliament – central to which is investment of almost £1.6 billion in heat and energy efficiency in our homes and buildings.

Through the Fund we will also begin a five-year £50 million programme of investment to regenerate Scotland’s vacant and derelict land. That will help put abandoned land to use across our communities.

This includes creating community gardens to nurture wellbeing, provide a local food supply and improve biodiversity – or creating space for community renewables projects, low carbon affordable housing, urban farms, woodland and green spaces.

Presiding Officer, I strongly believe in investing in economic recovery in every part of the country – including rural areas. Recognising the acute impact of the pandemic on our rural communities, we will double the Rural Tourism Infrastructure Fund, helping tourist attractions and communities make improvements to cope with increased visitors.

Our £801 million investment in agricultural support will offer much needed stability to our farmers, our crofters and our land managers – and help ensure our agriculture sector plays a leading role in our transition to net zero.

Over the next five years, an additional £150 million has been allocated for woodland and forestry through the low carbon fund, supporting a 50% increase in tree planting and woodland creation from 12,000 hectares this year to 18,000 hectares by the middle of the decade.

And our peatland restoration spend will increase by 10% as part of a ten‑year £250 million commitment.

Digital connectivity was important pre-pandemic, but now as a result of the changes in how we work, shop and socialise due to COVID-19, it is absolutely fundamental to our future prosperity.

The review I commissioned from Mark Logan has provided an industry-led blueprint to establish Scotland as a world class hub for technology start-ups. And It has rightly drawn wide acclaim.

To help deliver this ambitious agenda we are providing an additional £7 million in 2021-22

To bring more people into the digital world we will invest almost £100 million in digital connectivity.  That includes funding for our Reaching 100% programme, and for improved mobile coverage through delivery of 4G and 5G infrastructure ensuring no part of Scotland is excluded.

Presiding Officer, the last piece of the plan to support businesses and drive economic recovery is our policy on Non Domestic Rates. I know how crucial this year’s targeted 100% relief from non-domestic rates has been to retail, hospitality and leisure businesses.

The extension of this relief to avoid a cliff edge in support was the number one ask of businesses.

The absence of clarity on UK Government NDR policy has undermined our ability to continue this relief.  I have been clear that the only way I can replicate that relief in full, is if there is additional funding from the UK Government.

The UK Spending Review provided £11.5 million as a result of NDR policy decisions.  Contrasted with the over £900 million it would cost to extend the relief, those consequentials are entirely insufficient.

However, I cannot and I will not leave Scottish businesses trying to plan without certainty.

So I am committing now to extend the 100% relief for retail, hospitality and leisure businesses for a further three months into 2021-22 funded from the money reimbursed by supermarkets and other retailers.

I continue to urge the UK Government to bring forward an extension to their equivalent relief.  And should they do so I will use the funding generated to match their extension.

Together with our other reliefs, including the expanded Fresh Start scheme to incentivise the use of empty buildings and the Small Business Bonus Scheme, we are offering a total reliefs package worth almost £1 billion in this Budget.

And there is still more I want to do to help our businesses. 

The UK and the Welsh Governments have frozen their non-domestic rates poundage. I don’t intend to do the same. 

Instead, in an unprecedented step in a non-revaluation year, I am today reducing it – to 49 pence.

That will be the lowest poundage available anywhere in the UK, saving ratepayers over £120 million compared to previously published plans. 

Let nobody doubt, this is a Government that listens and acts when it is most needed. 

Presiding Officer, we have been through so much as a country.  Our recovery may be long, and it will be hard, and we cannot guarantee that there won’t be more tough times ahead.

But throughout these dark times, we have never given up hope.  Hope for a better future, for a healthier, greener, fairer society. And now with large-scale vaccination, focused firstly on the most vulnerable, there is some light at the end of the tunnel.

This Budget seeks to build on that hope, and by focusing on how we continue to protect, to recover, to rebuild and to renew our country it seeks to make that light at the end of the tunnel shine that bit brighter.