Budget statement: 2023 to 2024

Presiding Officer,

The Scottish Government Budget for 2023-24 takes place in the most turbulent economic and financial context most people can remember.

War is taking place in Europe, leading to the suffering and displacement of millions of Ukrainians. As a result of the conflict, energy and fuel prices are surging. Inflation is now corroding our economy having reached a 40 year high.

If these challenges – faced by countries around the globe were not enough - the United Kingdom has added to the turmoil by a disastrous approach to Brexit which has damaged labour supply through the loss of free movement of people and undermined frictionless trade with our nearest markets.

And all of these difficulties have been compounded by the utterly catastrophic decisions of the United Kingdom Government in the September mini Budget, which have driven increases in interest rates and saddled the country with much higher debt, undermining the public finances for generations to come.

In short Presiding Officer, these are spectacularly difficult times in which to manage the public finances.

These times require Governments to lead, to make choices, to decide what matters, and that is what this Government has resolved to do.

As Parliament knows, those hard realities are not just about future years. I am wrestling with those challenges right now. Before I set out our financial plans for the forthcoming year, I must provide Parliament with an update on this financial year, given the extreme pressure that the Scottish Government Budget faces at the present moment.

As a result of soaring inflation, we have faced significant, and entirely understandable, pay demands from public sector workers. In response, we reallocated over £700 million more than originally budgeted to enhance pay uplifts to better reflect the increased cost of living and especially to tackle low pay.

We continue to deal with the unforeseen – but accepted – costs of resettling refugees fleeing the illegal war in Ukraine. We have seen thousands of people in Scotland open their homes in response to war - an example of our country at its very best.

Scotland will always play our part in supporting those fleeing conflict and persecution.  We have made, and are continuing to make, financial provision to support Ukrainian resettlement costs.

The public sector is not in any way immune from the rising costs of energy and inflation placing additional, real pressures on the value of our Budget.

As a result of these factors, in the autumn the Scottish Government had to make unprecedented reductions to our spending plans mid-way through the current financial year totalling £1.2 billion. We had to do this because, once a financial year commences and in the absence of borrowing powers to address in year volatility or the ability to alter Income Tax rates midway through a financial year, we operate a largely fixed total Budget unless the United Kingdom Government allocates any additional resources to Scotland. Despite repeated requests, no additional resources have been forthcoming for this year.

The Emergency Budget Review allowed us to meet the costs of increased public sector pay and provide further help to those most impacted by the cost of living crisis.

Taken together, in 2022-23, the Scottish Government has allocated almost £3 billion to help mitigate the cost of living crisis in these difficult days.

There are however two key points that I must advise Parliament about in relation to the Budget for this current year.

Firstly, despite reductions in spending of £1.2 billion, the financial pressures are so great that I am still working in this financial year to find a path to fully balance this year’s Budget.

Secondly, as a consequence of that issue, for the first time since this government took power, I am announcing a Budget today for the next financial year assuming that we do not carry forward any fiscal resources from this year into next. For comparison, our Budget for this year was underpinned by £450 million of resources carried over from the previous year. The absence of that carry over increases the scale of the financial challenge that we face in the next financial year.

Our Budget decisions take place against assessments of deterioration in the economy.

I am grateful to both the Office for Budget Responsibility and the Scottish Fiscal Commission for their engagement in our Budget process. I am, of course, incorporating into the Budget the projections made by the Scottish Fiscal Commission.

The UK economy has already begun to contract. The OBR estimates that the UK has entered a recession that will last for over a year and see GDP fall by 2%.  

The Scottish Fiscal Commission is expecting the Scottish economy to follow the UK into recession in 2022, with GDP falling 1.8% between quarter 1 2022 and quarter 3 2023. The Commission forecast the recession to be similar in Scotland to the rest of the UK.

According to the latest data published yesterday inflation now stands at 10.7%. Last month we saw inflation in the UK at its highest since 1981.

Businesses and households are facing additional pressures from rising interest rates, with the Bank of England base rate reaching 3.5% today following the largest increase since 1989. 

Real household disposable incomes are estimated to fall back to 2013 levels, the largest fall since records began.

To compound matters, our labour market has also been experiencing shortages – in part driven by Brexit – as the economy has reopened from the pandemic. As the recession takes hold, unemployment is projected to gradually rise to reach a peak of 4.7% at the end of 2024.

In their November Economic Outlook, the OECD forecast that the UK will see the worst economic performance in the G20 other than Russia in both 2023 and 2024.

The calamitous choices made by successive UK Governments have made our economy weaker and put the public finances under tremendous strain.

In November, the UK Government set out revised tax and spending plans in its Autumn Statement, an urgent attempt to repair the damage of the ‘mini-budget’.

Whilst this brought some improvements to our resource position for 2023-24 compared to the UK Government’s published plans, our budget will be still be lower in real terms than in 2021. The outlook for future years is looking particularly bleak in 2025-26 and 2026-27 - the latter two years of the Scottish Government’s Resource Spending Review period. 

That is the economic and fiscal context in which the Scottish Government must make our choices for the forthcoming financial year. In formulating this Budget, I have reached out to all political parties in this Parliament, to our partners in local government, to trade unions and to many stakeholders in the private, third and public sectors to hear their views. I am grateful to our partners in the Scottish Green Party for their constructive and collaborative approach as we have developed these tax and spending plans in line with our shared commitments in the Bute House Agreement.

There are four important factors relevant to considering our decisions set out in the Budget today.

Firstly, the enormous pressures on the public finances mean that in some cases, it will take the Government longer to deliver on our plans. We will work with partners to minimise that effect.

Secondly, the requirements for public sector reform, set out in the Medium Term Financial Strategy and the Resource Spending Review, will be ever more required in this context and the Government will set out further plans in due course. We will take forward an agenda consistent with the principles of the Christie Commission with a significant emphasis on early intervention and prevention as we work to create person-centred public services.

Thirdly, the significant increases in input prices and energy costs mean that our Capital Budget will be unable to deliver as much as would have been judged possible just a few months ago. The Government will keep these factors under constant review as we take forward the Capital programme.

And fourthly, given the uncertain inflation outlook and the need to still conclude some pay deals for the current year, I am not publishing a Public Sector Pay Policy for 2023-24 at this stage. We will of course continue to collaborate with trade unions and public sector employers on fair and sustainable pay, and will look to say more on our approach for 2023-24 in the new year.

The Scottish Government, like governments all over the world, is faced with a difficult set of choices. Through this Budget we are facing up to our responsibilities, while being open with the people of Scotland about the challenges which lie ahead.

To govern is to choose and the Scottish Government has made its choice. We have chosen not to follow the path of austerity that is the hallmark of the United Kingdom Government. But let me be clear, the choices we face are all the starker because of the United Kingdom Government.

Within the powers available to us, we will choose a different path. A path which sees the Scottish Government commit substantial resources to protect the most vulnerable people of Scotland from the impact of decisions and policies made by the United Kingdom Government.

We choose to do everything in our power to eliminate child poverty because in doing so we improve the lives of children and families in Scotland today while also laying the foundations for a more equal and prosperous country in the future. 

We choose to prioritise the transition to Net Zero because it is precisely through this transition that Scotland will realise its economic potential, not in spite of it. A stronger, fairer, greener economy benefits everyone.

We choose to stand firmly alongside the Scottish people, investing in our public services and doing everything possible to ensure that no one is left behind. All of us need to know our public services will be there to meet our needs and we must invest in them to make sure that promise can be fulfilled.

In particular,  we must target investment in our National Health Service, which is facing unprecedented pressure following the pandemic. To do this by choosing a different, more progressive path for Scotland. That is why this Budget strengthens the social contract between the Scottish Government and every citizen of Scotland for the wider benefit of society.

This social contract means that people in Scotland continue to enjoy many benefits not available throughout the United Kingdom - including free prescriptions, free access to higher education and the Scottish Child Payment.  It also means that in Scotland families are shielded, as far as possible, from the welfare cuts and austerity policies of the United Kingdom Government.  

Because we know this progressive model works, we choose the path where people are asked to pay their fair share, in the knowledge that in so doing, they help to create the fairer society in which we all want to live.

The limited powers we won after the Independence Referendum in 2014, enable Scotland to make different choices on tax and some elements of social security.

This Scottish Government has made use of those powers in the past.  In total, the decisions we have taken since the devolution of tax powers, and the proposals that I am putting forward today, will raise around £1 billion more next year than if we had followed UK tax decisions.

We have also used these powers in creating a social security system based on the values of dignity, compassion and respect.

This year we introduced the Scottish Child Payment, the only measure of its kind available in the United Kingdom, to support children living in poverty. It was first introduced at a rate of £10 per week, per eligible child under the age of 6. It was then doubled to £20 from April 2022. In November 2022 it was extended to eligible children under the age of 16 and increased to £25, meaning that the payment has increased in by 150% in just eight months. The Scottish Child Payment is now available to around 387,000 children in Scotland and I confirm that the payment will remain at that increased level of £25 per child per week.

I am pleased also to announce that all other social security benefits under the control of the Scottish Government will be increased by the rate of inflation in September of 10.1%.

In the face of the extraordinary challenges we face, we have chosen to use our tax powers again – to protect our country from the harm caused by the turmoil of these times and the damaging decisions of the United Kingdom Government.

Our approach to taxation continues to be guided by our values and the principle that the tax burden should be proportionate to the ability to pay. This commitment to fairness is what underpins the choices we have made throughout this Budget and it underpins our whole approach to taxation.

In this Budget, we are asking people on higher incomes to contribute more in taxation than those on lower incomes, but with the majority of people in Scotland still paying less in taxation than if they lived in the rest of the United Kingdom. By these decisions, everyone in Scotland will be able to enjoy the benefits of strong public services and a comprehensive social contract.

Presiding Officer, on Income Tax, I intend to maintain the thresholds for the Starter and Basic Rate Bands at their current levels.  I confirm I will also maintain the Higher Rate Threshold at its current level and I will lower the Top Rate threshold from £150,000 to £125,140. I also intend to make no changes to the Starter, Basic and Intermediate rates to protect those on lower incomes.

I have decided to increase the Higher and Top Rates of tax by 1 pence each to 42 pence and 47 pence respectively.

As a result, we are asking all those earning more than £43,662 to pay an extra penny in income tax and I want to be clear, that extra penny is being raised for a specific purpose. We have taken the decision to enable us to exceed the health resource Barnett consequentials from the UK Government with substantial additional investment in the National Health Service, an investment that will benefit us all. It is in short an extra penny to enable spending on patient care in our NHS.

On Land and Buildings Transaction Tax, there will be no changes to the main residential and non-residential rates and bands next year.

Legislation will be introduced today to increase the rate of the Additional Dwelling Supplement from 4% to 6%, raising much needed additional revenue whilst protecting opportunities for first time buyers. This change will apply with effect from 16 December to address any potential for forestalling, with a transitional provision in place.

I can also announce today that we will increase both the standard and lower Scottish Landfill Tax rates from 1 April, which will maintain consistency across the UK, guard against waste tourism and support our ambitions for a more circular economy.

The Scottish Fiscal Commission forecasts that the Income Tax policy changes I have outlined today will raise £129 million in 2023-24. In addition to this, the Scottish Government estimates that freezing the Higher Rate Threshold has added £390 million when compared to inflation.  The SFC also forecast that the changes to the Additional Dwelling Supplement will raise an additional £34 million in revenue in 2023-24.

Taken together, we estimate that these changes will provide £553 million in 2023-24 for investment in public services in Scotland.

Presiding Officer, in this challenging economic context, I recognise the pressures faced by business, working in difficult conditions to create employment and growth in our economy. Sixteen business organisations came together to ask me to take one particular step to support businesses through these tough economic times.

Their number one ask was that I freeze the Non-Domestic Rates poundage at 2022/23 levels.

On Non-Domestic Rates, I can confirm that we will protect businesses from the full impact of inflation by delivering a freeze to the Basic Property Rate. This will ensure Scotland has the lowest poundage in the United Kingdom for the fifth year in a row and is forecast to save business tax ratepayers £308 million compared to an inflationary increase.

We will reform and extend the Small Business Bonus Scheme to improve the progressivity of the relief whilst ensuring that it remains the most generous small business relief in the United Kingdom and delivers the manifesto commitment that 100,000 properties will be taken out of rates altogether.

By introducing transitional reliefs we will help to ensure those properties that see their rates liabilities increase significantly following the revaluation to do so in a phased manner.

We will use our approach on Non-Domestic Rates to assist the transition to Net Zero as we incentivise investment in renewables through the introduction of new prescribed plant and machinery exemptions for onsite renewable energy generation and storage.  

Investment, be it in the low carbon economy or more broadly, is central to building a strong economy and the fairer and more equal country in which we all want to live. It is to that investment that I now turn.

In formulating a Budget in this period of huge challenge, it is vital that the Government sets out its clearest priorities. That is necessary to give clarity to our partners in local government, the private and third sectors and in public bodies about the direction, about what matters to the Government.

Through our Programme for Government and this Budget, we are focused on eradicating child poverty, transforming the economy to Net Zero and in creating sustainable public services. We do not view these as three competing objectives; we view them as priorities that are linked together, as a means of supporting families, of creating new economic opportunities, of protecting our environment, and of offering protection and support to every citizen in Scotland through our public services.

Much of what the Government wishes to achieve for Scotland aligns with what local authorities wish to achieve for their communities. But too often valuable time and energy is taken up in fractious debates about resources and accountability for spending them. The Government will invite our partners in Local Government, to work with us in building on our jointly produced Covid Recovery Strategy, to create a more effective way of working together, focused on outcomes that matter to people, with more flexibility, reduced reporting and greater assurance. And we want to enable this new partnership by giving our commitment to the financing of Local Government. So instead of providing the flat-cash position set out in the Resource Spending Review, we are now increasing the resources available to Local Government next year by over £550 million.

Furthermore, I can confirm that the Scottish Government will not seek to agree any freeze or cap in locally determined increases to Council Tax, as requested by COSLA and Council Leaders. This means that each council will have full flexibility to set the Council Tax rate that is appropriate for their local authority area. I encourage councils to consider carefully the cost pressures facing the public when setting future rates.

Earlier this year, the Government set out our Plan to tackle Child Poverty, Best Start, Bright Futures. The title of the Plan says it all. We want to ensure that children get the best start in life and are able to fulfil their potential. That means in this Budget, sustaining investment in the Baby Box, providing 1,140 hours of Early Learning and Childcare to all 3 and 4 year olds and eligible 2 year olds, committing £200 million to the Scottish Attainment Challenge to deliver excellence and equity in education, and tackling school holiday hunger with investment of £22 million to provide meals during school holidays to the children who need them most.

This builds on our ongoing expansion of Free School Meals for all Primary 6 and 7 pupils in receipt of the Scottish Child Payment, as the next step in fulfilling our commitment to universal provision in primary schools from August 2024.

We recognise that some of the children in poverty whose life chances face the greatest of challenge are those with experience of care. The Budget delivers a further £30 million investment to keep the promise and £50 million investment in a Whole Family Wellbeing Programme, to provide holistic, preventative family support to give our children who face the greatest challenge the greatest opportunity to realise their potential.

A crucial element of helping families out of poverty is providing the opportunities and integrated support parents need to access, sustain and progress in work. We recognise that some people face greater challenges in entering the labour market so we are increasing the investment we have made in No One Left Behind and Fair Start Scotland.

Employment opportunities are crucial, particularly in these difficult economic times, so the transition of our Economy to Net Zero must be undertaken in a just and fair way that enables people, communities and businesses in Scotland to thrive and prosper.

And these opportunities must exist in every single part of Scotland. This approach will be delivered through initiatives such as the £366 million planned investment in the Heat in Buildings Programme to decarbonise heating, plus the £34 million Scottish Industrial Energy Transformation Fund and the £26 million Low Carbon Manufacturing Challenge Fund.

Investment in our natural environment will support the journey to Net Zero with a £26 million programme of peatland restoration, £77 million in woodland planting and £44 million to help Scotland become a global leader in sustainable and regenerative agriculture.

We will support the transition to Net Zero by investing a further £244 million in the Scottish National Investment Bank, by investing £50 million to deliver the next phase of the Just Transition Fund for the North East and for Moray – more than doubling the current year’s allocation – and investing in the Tech Scaler programme throughout Scotland to support our efforts in innovation.

As the Climate Change Committee recently highlighted, decarbonising transport remains one of the key challenges we face in reaching Net Zero. We will support these efforts by working with the private sector to extend Scotland’s Electric Vehicle charging infrastructure with investment of £60 million, expenditure of £1.4 billion to maintain, operate and decarbonise our rail infrastructure, invest nearly £200 million in active and sustainable travel and provide £15 million as part of our Fair Fares Review for a six month pilot, removing peak time rail fares as a way of making rail travel more affordable and attractive to travellers.

Ferry services are vital in sustaining connectivity with our island communities and the Budget includes £440 million to support lifeline services. I am also allocating £15 million in this financial year and £57 million in the next financial year to support the completion of vessels 801 and 802 at Ferguson Marine, along with the resources required to build the two new Islay class vessels under construction, and a further two vessels of the same type currently in procurement.

We must have a skills, training and research environment that enables our people and businesses to realise their potential. For that reason we have increased the resources available to the College and university sectors by £26 million and £20 million to support this process.

Many of our public services are on a journey to recovery following the acute phase of the pandemic. That is no more so than in the Justice system. We want people to live in safe communities, where we act early to reduce the potential for harm, support victims of crime, and act swiftly to bring the perpetrators of crime and violence to justice. As part of this Budget, I intend to increase the resources available to the Crown Office and Procurator Fiscal Service by £13 million and to our wider Justice system by £165 million. This will provide resources to tackle court backlogs, strengthen legal aid provision and enable the funding for police services to increase by £80 million.

The most precious of our public services, the one on which all of us depend, is our National Health Service. We recognise the challenges the NHS faces, and the pressures that are borne by the outstanding public servants who work in the NHS. That is why we have offered a formidable pay settlement to staff in the NHS.

Supporting our NHS Boards remains a top priority and in the year ahead we will invest over £13 billion to allow them to continue to drive forward the five‑year Recovery Plan.

The reform of key services will continue, backed by £2 billion to establish and improve primary health care services in the community.  In parallel, we will provide £1.7 billion for social care and integration to improve services while paving the way for the introduction of the National Care Service.

An additional £100 million will be made available to support delivery of the £10.90 real living wage for adult social care, building on the increase provided in 2022‑23. This is vital work and it is important those on the front line are supported.

We remain committed to addressing the ongoing public health emergencies and reducing the avoidable harms associated with drugs and alcohol. By investing £160 million we will ensure this important work continues. This is part of our commitment to provide £250 million of additional funding over the life of this parliament to address the drugs death emergency.

If we want to be able to depend on the NHS, we have to be prepared to pay for it. When the UK Government set out its Autumn Statement, it gave rise to consequential funding for the NHS in Scotland of £291 million. I intend to pass on that funding consequential but I do not believe it is nearly enough for the critical task that we ask our staff in the National Health Service to do. As a result of the choices I have made on Income Tax, I am in a position, in one year, to increase the amount we spend on Health and Social Care in Scotland by over £1 billion.

In the Resource Spending Review, the Scottish Government committed to make £20 million available to fund the cost of a Referendum on Scottish Independence. The Government believed that to be a necessary investment to ensure the people of Scotland have the opportunity to express their democratic right to self-government. The Scottish Government respects the decision of the Supreme Court, but still believes the people of Scotland must have the opportunity to have that say in a democratic referendum, in line with our clear mandate. And when that opportunity is available, the Scottish Government will make financial provisions for that to happen. However at this moment, I must make full use of the resources available to me.

One of the reasons why I believe Scotland will be a successful independent country, is because of the energy wealth we enjoy. Scotland is a country, with an abundance of renewable energy opportunities. The travesty however, is that despite that strength, too many of our people languish in fuel poverty.

In order to help our most vulnerable citizens, I intend to utilise the finance earmarked for a Referendum on Independence to make provision to extend our Fuel Insecurity Fund into next year – a further £20 million to address yet another failure of the United Kingdom and its policies.

Presiding Officer, this Budget takes place at a time of enormous challenge and difficulty for people and business due to volatility in the economy and the corrosive effect of inflation. Many in our communities, the people who send us here, are suffering real and enduring hardship. And all of this is happening at a time when our country needs to adapt to the challenges of Net Zero and face the hard reality of severe constraints in the public finances.

In that context, this Government has decided to use our scope to take distinctive decisions to the greatest extent we believe possible at this time.

We have chosen to reject the path of austerity.

We have chosen a progressive path instead. To invest in our people, to invest in our economy and to invest in our public services.

These are the choices we have made, the choices for our future, and I commend the Budget to Parliament.