Provisional outturn 2021 to 2022: Ministerial statement

Presiding Officer, I welcome the opportunity to update Parliament on the provisional outturn against the budget for the financial year 2021-22.

The provisional outturn demonstrates once again that this Government is prudently and competently managing Scotland’s finances.

This again, has been another exceptionally challenging year. The Scottish Government has had to respond quickly and decisively to significant challenges, in particular the ongoing impact of the Covid-19 pandemic, the Cost of Living crisis and the tragic illegal war in Ukraine.

However, our effective and prudent financial management has meant every penny received by the Scottish Government has been channelled to where it was needed the most. 

In 2021-22 we:

- Spent over £5.7 billion in relation to Covid. This includes just over £2.6 billion to support health and wider public health initiatives, and around £1.5 billion in business support and self-isolation grants;

- Part of this business support was a £375 million package announced to support firms impacted by the unexpected spread of Omicron. This was proportionately significantly more than the Chancellor announced for the UK as a whole;

- We continued to roll out a highly successful Covid 19 vaccination programme, including those vital third ‘booster’ doses to combat the unexpected Omicron variant;

- We spent over £3.5 billion on Social Security benefits, including £57m as we started the game changing Scottish Child Payment; and

- We also committed an additional £4 million of Scottish Government humanitarian aid, as the first part of a contribution to support the Ukraine crisis, supporting those inside Ukraine affected by the conflict, and for vulnerable people who were displaced from Ukraine, whilst they were in transit. 

Looking forward, the Scottish Government remains committed in ensuring that as a country we continue to effectively manage the ongoing recovery from Covid, and provide stability and support against the impact of the cost of living crisis.

 Responding to the pandemic, sharply rising inflation and the cost of living crisis has once again put a spotlight on the challenges we face in managing such volatility within the narrow, restricted fiscal powers we have. We face the same interrelated challenges as other governments across the world but we do so – currently - without the tools and levers other governments have at their disposal.

The current fiscal framework is inadequate and leaves us with an imbalance between the risks to which the Scottish Budget is exposed to and the levers that we have to manage those risks. 

Presiding Office, we have:

- Uncertainty over our UK Government funding. The UK Government did not confirm our final funding envelope until six weeks before the end of the financial year, materially changing it, with no prior warning right up to that point.  This limits our ability to do long term, optimal planning and makes efficient and effective deployment of late funding changes extremely challenging.   

- This is an important point and links directly to the management of the budget and spending well.  The total resource funding confirmed so late in the year was over £1.1 billion – some of this was expected but large elements were not.  We want to make the most of that funding and doing so requires managing programmes of spending across the cut off that is our year end. This is not underspending, it is maximising the effective use of our budget.    

- The challenge of managing this volatility in our funding envelope is compounded by a funding model which means carry forward of our budget between financial years is tightly restricted.  Our priorities need to be managed using a multi-year model, these challenges unfortunately do not stop at the end of a financial year;

- We also have to manage within strict limits on how much and for what purposes the Scottish Government can borrow, leading us to be overly dependent on UK Government policy. This has been compounded by the UK Government’s decision to remove necessary Covid consequential funding at a time when we undeniably need to continue to provide additional support for public services; and this is why, until such a time as the people of Scotland choose a different constitutional path, we will also continue to make the case to the UK Government for more proportionate financial powers to help manage pressures and volatility in Scotland’s financial position and allow the Scottish Government to respond fully to its priorities.

The forthcoming Fiscal Framework review must take place in that context - a narrow, technical review of the framework will not deliver what the people of Scotland need or want.

 Turning now to the 2021-22 provisional outturn.

Under the current devolution settlement, the Scottish Government is not permitted to overspend its budget.

At the same time the carry forward of budget between financial years is very limited, meaning that phasing of expenditure between financial years is extremely restricted. The UK Government does not constrain its economy and businesses to manage their finances to one single year, so why do they expect a devolved nation to do this? This is the situation we currently face in Scotland.

There is therefore a balance to be struck to ensure we maintain spend within our budget limits but do not generate high carry forwards between financial years that would risk breaching our reserve cap and result in the loss of funding.

We have however once again managed to maintain this balance, under these strict fiscal constraints. I can report that the provisional fiscal outturn for 2021-22 is £47 billion against a total fiscal budget of £47.6 billion. 

The remaining budget of £650 million, which represents just over 1% of our total budget has been carried forward in full through the Scotland Reserve.  It is made up of £421 million fiscal resource, £183 million capital and £46 million of Finance Transactions, which, of course, can only be used for loans or equity investment in entities outside of the public sector. 

It is important to note that there is no loss of spending power to the Scottish Government as a result of this carry forward.  

As I have said, every penny has been allocated in full, allowing us to implement measures at the most optimal time, rather than being constrained to a single financial year.   

This is evidenced by the fact that the majority of this carry forward has already been pro-actively anticipated in the 2022-23 spending plans that have been approved by this parliament, including: £324 million anticipated within the 2022-23 Budget (published 9 December 2021), and the £120 million announced (27 January 2022) by the Cabinet Secretary for Finance and Economy to support Local Government 2022-23 costs at stage 1 of the Budget Bill process.   £265 million of this funding is directly linked to late UK Government consequentials finally confirmed only six weeks before the end of the financial year. The remainder represents just 0.4% of our budget and is also already built into our 2022-23 plans, funding expenditure in 2022-23, with the full budget allocations being disclosed to Parliament as part of our Autumn Budget Revision process.

I highlight that these outturn figures for 2021-22 remain provisional as they are subject to the on-going audit process.

Finalised figures will be reported as usual in the annual Scottish Government Consolidated Accounts and a Statement of Total Outturn for the financial year 2021-22 later this year.

To conclude, the provisional outturn demonstrates that the Scottish Government has maintained a firm grip on Scotland’s public finances, in the context of a year with significant challenges. 

We have delivered on our priorities, maintained the balance of not breaching our fixed budgetary limits, and ensured we have sufficient balances to  fund our 2022-23 spending commitments. This is despite the challenges and fiscal restrictions the UK Government places upon us.

I commend today’s figures to Parliament.