Budget Statement: 2022-23

Presiding Officer, today’s budget will help tackle the climate emergency, support economic recovery and reduce inequalities.

It comes at a crucial moment for Scotland.

It is the first Budget of this parliamentary term.

It is also the first budget of this partnership government – developed in cooperation with the Scottish Green Party. It delivers on key commitments made in the Bute House Agreement - from free bus travel for young people to doubling the Scottish Child Payment

As a result of that partnership, this budget redoubles our efforts to meet our emissions reduction targets, in a fair and just way that creates economic opportunities – harnessing opportunities for green jobs, for prosperity and for greater well-being. PWC and Lloyds Banking Group both conclude that Scotland is the top ranked part of the UK for green jobs and green economic prosperity.

And so the Budget supports Scotland at a point of transition – balancing our response to the immediate pressures of Covid and the cost of living crisis with longer term action.

If my last two Budgets have been shaped by our immediate experiences of Covid, today’s Budget aims to lift our eyes to the future, while of course remaining vigilant to the effects of new variants.

This is a transitional Budget, as people, businesses and services get back on their feet.

We can’t leave anybody behind in our determination to increase prosperity, so the Budget directly contributes to our national mission to end child poverty, by doubling the Scottish Child Payment and investing in employability schemes to get people back into work.

Presiding Officer, Government can never deliver on these ambitions alone, so we need to work collaboratively all areas of Scottish life – public and private, national and local – building on the renewed approach to partnership seen through the pandemic.

However, in the absence of Covid-related funding, despite the very real ongoing impacts of the pandemic, combined with the pressures of inflation, this Budget, is a budget of choices.

While this budget lays the groundwork for a green economic recovery from COVID-19, we must be clear that the UK Government’s spending review hindered rather than helped us on that mission.

In practice, with Covid funding having been removed, our day-to-day funding next year is significantly less compared to the current year, at a time when we undeniably need to invest in the economy and help public services recover.

That means the Budget cannot deliver the resources that all of our partners will want and, let me be clear, there are areas where I would have wished to go further.

But, today I present a Budget which does address key priorities, targets resources for low income households, and paves the way for future investment over the life of this Parliament.

It is a budget of choices and I believe we have made the right choices.

It is a transitional budget, maximising funding where we can to deliver key priorities now but also paving the way for future fiscal choices.

Alongside today’s Scottish Budget and Medium Term Financial Strategy, I am publishing a framework for the Resource Spending Review, which  will be published in May 2022 and set out the Government’s multi-year spending plans.

The framework sets out our principles and I look forward to contributions from Members across the Chamber.

Presiding Officer, let me now update Parliament on the economic and fiscal context, and take a moment, first, to thank the Scottish Fiscal Commission for the forecasts which inform the Budget.

Supply chain bottlenecks, labour market shortages, inflationary pressures and rising energy prices are all placing extra pressure on businesses and households trying to recover from the impact of the pandemic.

The Fiscal Commission forecasts a level of long-term economic damage to the Scottish economy from COVID-19 of around negative 2%, similar to the OBR’s forecast for the UK economy.

This means the long-term impact of Brexit on the economy will be worse than that caused by COVID-19, with the OBR attributing a 4% long-term reduction in living standards due to the UK’s exit from the European Union.

The impact of Brexit has not been felt equally across the UK. Latest figures from the ONS show that Northern Ireland is the only part of the UK where the economy has recovered nearly to pre-pandemic levels. That’s not surprising, given that Northern Ireland has in effect remained in the EU's single market for goods due to the Northern Irish Protocol.

While all other parts of the UK have seen a negative impact as a result of Brexit, the scale of that is three times higher in Scotland than in London.

We said that Brexit would be bad for Scotland, that it would have a differential impact on our economy and, as is clear, it is, which is having a direct impact on our budget.

Be under no illusion, the budget I’m presenting today is smaller than it would have been if it wasn’t for the impact of Brexit on our economy, a Brexit that has been imposed on Scotland against the express wish of the people that live here.

Brexit and UK Government policy on immigration continues to affect Income Tax receipts in Scotland.

Based on the latest SFC and OBR forecasts, Scottish Income Tax receipts are estimated to be £190 million lower than the corresponding Block Grant Adjustment next year. There are a number of factors that may explain this.

Both the SFC and OBR state that the continued uncertainty around the pandemic means the uncertainty around forecasts may be even greater than usual. The final position on the performance of Income Tax revenues next year will only be known once outturn data is published in 2024.

Strong earnings growth in London and the South East, particularly among the highest earners, means that our budget is being reduced even while earnings grow in Scotland. That issue is accounted for in the Welsh Fiscal Framework, but not ours, and we are clear that it must form part of the upcoming Fiscal Framework Review. Rising inequality in England should not see Scotland’s budget reduced.

But ultimately, without full control over economic policy and immigration – which the UK Government refuses to give us – we do not have full powers to mitigate the effects of Brexit, to secure a green economic recovery from the pandemic, and to raise the revenues our public services need.

Despite all of that, there are reasons for optimism for the Scottish economy.

The Fiscal Commission now forecast our economy will recover to pre-pandemic levels by April–June 2022, almost two years earlier than forecast at the previous Scottish Budget in January.

Although they are expecting a peak unemployment rate of 4.9% at the end of this year, that’s far below the 7.6% forecast at the time of the previous Scottish Budget.

I have taken these forecasts, and the overall state of our economy, into account when setting tax policies for the year ahead.

I am proud of the consultative approach we take to taxation in Scotland.

We consulted widely in advance of the Budget and met with a broad range of stakeholders.

We will maintain our progressive approach, which we will reinforce when we publish Scotland’s first Framework for Tax.

And of course I recognise the ongoing need for stability and certainty for taxpayers at this time, as well as targeted support, as a foundation for recovery.

For businesses, over the last two years I have delivered 100% rates relief for the retail, hospitality, leisure and aviation sectors and unlike in England and Wales we did not cap the level of support available at any time during that period. We were also the first government to offer the certainty of a relief in 2021-22 when businesses needed it most. 

On 1 July 2021, this year when retail, hospitality and leisure businesses in England starting paying rates, their equivalents continued to receive 100% uncapped relief in Scotland for a further 9 months. Those decisions along with our unprecedented decision to cut the poundage at the peak of the pandemic have saved businesses in Scotland around £1.6 billion through the rates system alone since 1 April 2020.

Recognising that we have offered the most generous rates relief anywhere in the UK for the last two years, and the importance of phasing the return of rates liabilities, rates relief for the retail, hospitality and leisure sectors will continue at 50% for the first three months of 2022-23, capped at £27,500 per ratepayer. That will prevent a cliff edge for businesses in those sectors.

I will also continue to offer the lowest Non-Domestic Rates poundage in the UK, at 49.8p, delivering a below inflation uplift for the fourth year in a row, in addition to the UK’s most competitive package of annual reliefs worth £745 million. 

I have heard the calls to support small businesses in particular and our High Streets. A small business, with a rateable value of less than £15,000 on a Scottish high street will continue to pay no rates for the entirety of next year, irrespective of what sector they are in, through the Small Business Bonus Scheme. A new build in one of our towns will pay no rates for the first 12 months after occupation, through the Business Growth Accelerator. Our competitive rates reliefs are directly seeking to revitalise our high streets. 

On Income Tax, this Government's priority has been to make the tax system fairer and more progressive, and to protect low and middle income taxpayers.

With increases in the cost of living and rising fuel prices likely to impact lower income families than most, I believe that these principles are more important than ever.

I can therefore confirm that:

• Income Tax rates in 2022-23 will remain unchanged;
• the starter and the basic rate bands will increase in line with inflation; and
• the higher and top rates will remain frozen at their current levels

Our progressive income tax policy means the majority of Scottish taxpayers will continue to pay less Income Tax than if they lived elsewhere in the UK, while those who earn more will pay more.

It maintains spending power in households who need our support the most, yet also raises crucial revenues for our public services from those who can most afford it.

On Land and Buildings Transaction Tax we will maintain both residential and non-residential rates and bands at their current levels next year, and will shortly launch a call for evidence and views on changing the Additional Dwelling Supplement.

On Scottish Landfill Tax, we will increase both the standard and lower rates of tax from 1 April, to maintain consistency across the UK and support our ambitions for a more circular economy.

In sum, with our devolved tax policies we are delivering a more progressive approach to tax, whilst also supporting recovery. 

And we are generating the revenues we need to invest in our NHS recovery plan, in our new National Care Service, real-terms budget protection for our police to keep us safe, and of course, the doubling of the game changing Scottish Child Payment to £20. 

The continued threat posed by coronavirus will remain the primary focus of the Scottish Government in the immediate term – not least in the face of the risk of further variants.

Today I can set out our plans to provide increased funding to respond to the pressures created by the pandemic, and ensure that everyone can get the care they need in a time, in a place and a way that suits them.

We are doing that despite the absence of Covid consequentials from the UK Government, which means we must absorb these additional costs within our overall Budget.

In total, this Budget provides record funding of £18 billion for Health and Social Care, not only to address the immediate pressures across the NHS, but also to deliver the first step to ensure front-line funding which directly supports patient services increases by at least £2.5 billion by 2026-27.

As we set out in our manifesto, we are delivering on our commitment to pass on all health and social care consequentials in full, with additional spend in excess of £1 billion in health and social care. 

Members will be aware of the staffing difficulties being experienced in the care service, with Brexit and the ending of freedom of movement once again a major factor.  

The transfer to local government for social care includes an additional £200 million, which will deliver the £10.50 minimum wage for all adult social care staff in commissioned services and support the recruitment and retention of care staff that are so vital to the health and care system, as we begin the process of creating a new National Care Service over the course of this Parliament.

The overall package provides £1.2 billion for mental health, taking forward our commitment to ensure direct mental health funding increases by 25%, and that 10% of all front-line NHS spend goes to mental health, by the end of this Parliament.

We also reaffirm our commitment to Keep the Promise, which will see the establishment of an initial £50 million Whole Family Wellbeing Fund to provide person-centred holistic support for children and their families.

That funding will build during this session, as capacity and capability for transformational change builds in the sector.

The Budget also deepens our partnership with local government.

It delivers a settlement for local government that recognises the leadership role that councils play in their communities, and their part in delivering a national recovery.

It provides increased resources for social care and education – ensuring the continued delivery of vital local services across Scotland – while working to increase the fiscal autonomy and power of local government, and put more say over how local budgets are raised in local hands.

That includes record increased investment in teacher recruitment, supporting the recruitment of at least 3,500 teachers and 500 classroom assistants over this Parliament.

Presiding Officer, my investment plans for public services and action across portfolio are directed by three priority themes:

• Tackling inequalities;
• Supporting Scotland’s economy; and
• Ending Scotland’s contribution to climate change

The Budget backs our national mission to tackle child poverty, and to make Scotland truly a land of opportunity for everybody.

The most immediate and direct way to tackle poverty is by putting more money into the pockets of people who need it most, ensuring a decent standard of living, particularly for children.

This budget invests in increasing family incomes, driving down the cost of living.  It contains:

• £200 million for the Scottish Attainment Challenge – the next instalment of our commitment to provide £1 billion over this Parliament to tackle the poverty-related attainment gap;

• Over £4 billion across social security and welfare payments, providing vital support for low income families, carers and disabled people – including £1.95 billion to start delivery of the Adult Disability Payment next year;

• £41 million for the Scottish Welfare Fund, helping people in times of crisis;

• £80.2 million in Discretionary Housing Payments;

• £110 million to provide free bus travel for young people from January, putting more money in their pockets, and encouraging more use of public transport;

• It includes over £72 million for the continued expansion of free school lunches – providing lunches for all children in P1-5 and special schools, and supporting the infrastructure required to roll-out lunches to all primary children;

• It includes £544 million to deliver free funded early learning and childcare for three and four year olds, and two year olds from lower income households, while taking forward work to expand that to one year olds from low income households within this Parliament;

• And Presiding Officer, £831 million for affordable housing – progressing our commitment to deliver 110,000 affordable, energy efficient homes across the next decade, leveraging private sector investment and supporting employment in the construction sector;

Presiding Office, these measures will make a huge difference.

But we can and must do more.

I know there is consensus in this Parliament for greater action to tackle child poverty. 

It is right that Government stretches every sinew to do so, and that means we have to make hard choices elsewhere in the Budget where necessary. 

We do so in order to fund the most ambitious anti-poverty measure anywhere in the UK, and to respond to the UK Government’s decision to scrap the £20 uplift to universal credit.

This Budget delivers not just on the pledge in the Programme for Government to double the Scottish Child Payment to £20 per week, but – as the First Minister announced last week – we will bring forward that commitment to April 2022.

Presiding Officer, that is nearly £200 million in next year’s Budget going directly to lift children across Scotland out of poverty.

Presiding Officer, I know that when our economy is prospering, there is more public revenues to reinvest. So, we cannot talk about public services without ensuring we are supporting businesses to recover.

This budget invests in Scotland’s ambition of being a wellbeing economy: an economy that enables successful and profitable business activity, entrepreneurship and innovation, but is also environmentally sustainable and supports places to thrive.

We know that the biggest challenges facing businesses are labour shortages, rising costs and inflationary pressures. Our Budget seeks to respond to each of these issues – to invest in skills and employability, to make catalytic investments which regenerate areas and boost trade and keep costs low.

That will be a long-term process and I will shortly publish the Government’s National Strategy for Economic Transformation, to provide the vision and the leadership for the longer term. 

But it is also a process that starts now.

Today’s Budget provides over £205 million in capitalisation for the Scottish National Investment Bank, helping it deliver against its missions of supporting Scotland’s transition to net zero; building communities and promoting equality; and harnessing innovation.

Scotland’s geographical diversity is one of our great economic strengths. I can confirm investment of £51 million in rural services and islands, including activities linked to the National Islands Plan and introducing a new Islands Bond Fund.

There are few challenges as acute as labour shortages. So we will invest over £225 million in Skills Development Scotland to support a range of national training interventions.

The Budget allocates nearly £2 billion to Scotland’s universities and colleges – delivering high quality education and training.

More generally, I am providing more than £370 million to support our enterprise agencies and nearly £50 million to VisitScotland, to strengthen key sectors, like tourism, to promote innovation and achieve sustained success in new and emerging markets.

These actions, taken together with the package of non-domestic rates measures, provides a strong platform in this Budget for Scotland’s economy, now and into the future.

I turn now to the climate crisis, which is also an enormous economic opportunity for Scotland.

Our hosting of COP26 showcased what we are already doing in Scotland and the depth of commitment that exists to go further.

I have worked closely with colleagues in the Scottish Green Party to shape today’s Budget. I welcome their support and their constructive challenge.

Through this Budget, we will lay the groundwork to protect and restore our natural environment, decarbonise our homes, industries and transport, and position ourselves as a global leader in renewable energy, and green and digital technology.

Meeting our ambitious emissions reduction targets will require transformative activity, across all sectors of the economy and across society. It is not an easy task but we are up for the challenge.

The just transition to net zero needs investment now, and today’s Budget sets out almost £2 billion of low carbon capital investment in Scotland’s public infrastructure – supporting the decarbonisation of our homes and buildings, transport and industry. We will also continue to work with the private sector to mobilise investment behind the low carbon transition.

The Budget will lay the groundwork to secure a green recovery, and follow through on our commitment to implement the recommendations of the Just Transition Commission across this Parliament.

And so today, I can confirm:

• the first £20 million of our 10 year, £500 million Just Transition Fund for the North East and Moray;

• £336 million for energy efficiency, and low carbon and renewable heat – cutting emissions, making homes warmer, tackling fuel poverty and creating jobs across Scotland - including £60 million for large scale heat decarbonisation projects;

• £53 million across a range of energy transition and industrial decarbonisation projects, which in turn include £20 million for Energy Transition Fund projects in the north east;

• £23.5 million for our Green Jobs Fund - helping businesses create green employment through investment;

• And a record investment of £150 million in infrastructure to make walking, wheeling and cycling safer;

• £1.4 billion to maintain, improve and decarbonise Scotland’s rail network;

• £43 million to drive forward Scotland's circular economy;

• £53 million to restore Scotland’s precious natural environment, including our internationally important peatlands, addressing the twin crises of climate change and nature loss;

• £25 million this year to start work on transforming farming and food production in Scotland to be world leading in sustainable and regenerative agriculture;

• And a further £69.5 million to be invested in woodland creation and sustainable management of Scotland’s woodlands – enabling an increase of our woodland creation target to 15,000 hectares

Climate change requires global action, driven by local and national commitment to ensure we deliver the changes that are needed. Today’s Budget demonstrates that commitment exists here.

Let no-one be in doubt, this Government – working in partnership day in, day out with the Scottish Greens – is absolutely committed to meeting our statutory climate change targets and delivering the net zero society we not only want, but need, to see.

Presiding Officer, I want to lastly turn to the issue of pay.

The principle of fair work is a cornerstone of this Government’s economic approach, and I have placed that principle at the centre of my decisions about public sector pay.

I recognise the challenges presented by inflation and rising living costs, and also the huge effort the public sector has made in responding to the pandemic.

Our pay policy for next year therefore focuses on those on low incomes, continuing our progressive approach and guaranteeing an inflationary uplift of at least £775 to those earning up to £25,000, £700 to those earning between £25,000 and £40,000, and £500 to those earning above £40,000.

In October, the Government announced an uplift in pay for social care workers to £10.02 per hour.

Today Presiding Officer, I can announce a minimum wage floor of £10.50 per hour across all bodies covered by the pay policy, with specific funding to apply this for adult social care staff.

Targeted support for many of our lowest paid staff across the public sector is hugely important and this Budget delivers that.

Presiding Officer, as I come to a close, today’s Budget is a Budget of choices, and we have chosen to tackle child poverty, to invest in the transition and to boost economic prosperity.

It delivers on our manifesto promises – more teachers, more funding for our police and record investment in our health and social care services, as we stand united against the impacts of Covid 19.

It is a Budget for households facing a cost of living crisis, targeting resources at low income families and making bold choices to address the devastating impact of child poverty.

It is a Budget for our businesses and our workers, with further financial support for enterprises now and a clear plan to achieve longer term prosperity.

It is a Budget for a net zero future, that once again shows Scotland leading from the front, in the defining mission of our generation.

Presiding Officer, I commend this Budget to Parliament and to the people of Scotland.