Resource Spending Review Framework: Ministerial statement

Presiding Officer, the Resource Spending Review today details how we will invest over £180 billion to deliver the Government’s priorities in the coming years.

I am also publishing our Medium Term Financial Strategy, an accompanying equalities statement and a review of our capital programme.

We are of course still recovering from COVID. There is still acute pressure on the NHS, on business and the wider economy.

The illegal Russian invasion of Ukraine is a humanitarian crisis and it’s affecting the global economy.

Rising energy prices and constrained supply chains have affected countries worldwide. Whilst inflation is also impacting other countries, it is not impacting them equally.

The UK currently has the highest inflation rate of any G7 country – almost twice the rate of France. Brexit has made this problem worse, with increases in food prices, hitting the poorest hardest.

We are experiencing an unprecedented cost of living crisis. Inflation is at a 40-year high of 9 per cent with households facing considerable hardship.

This government is doing all it can in response, prioritising additional funds to help households in need, but the limits on our fiscal and economic powers, limit in turn the support we can offer.

This Government faces the same inter-related challenges as other Governments across the globe – significant volatility, sharply rising inflation and a need for greater investment to aid Covid recovery and to shield people from the impact of a cost of living crisis – but we face these challenges without the tools and without the levers that other Governments have at their disposal. 

Whilst I welcome the more targeted, grant-based support announced by the Chancellor last week, £400 per household is less than half of the predicted forthcoming rise in the energy price cap, before factoring in the pressures that families face right now. Of course, this help has been funded disproportionately by taxes on Scottish industry.

The Chancellor’s efforts were in reserved areas, so there is very little consequential funding. We will consider where there are gaps and who most needs most help, before we decide how to allocate any further limited funding.

Presiding Officer, today’s Resource Spending Review is not a Budget. Change to the fiscal position is inevitable over the next few year, one hopes for the better. Tax decisions will be taken in future budgets. 

However, it is essential to share high-level financial parameters with public bodies, with local government and the third sector, so that we can plan ahead together.

The basis for our spending plans were set out in the Bute House Agreement and Programme for Government. Our long term ambitions for Scotland include: tackling child poverty, transitioning to net zero, growing a stronger economy, and improving public services. To that we have added the actions we are taking to help people struggling with the cost of living.

The funding I have at my disposal is mainly based on the existing block grant settlements implied by the 2021 UK spending review and the forecasts from the Scottish Fiscal Commission.

Those judgements can change over time, in response to the available data and economic outlook, and of course as a result of decisions taken by the UK Government.

By way of example, the first Medium Term Financial Strategy back in 2018 set out the expected budget for 2022-23. In reality, that projection was out by around £7 billion.

And that illustrates the level of volatility inherent in the funding outlook, underlying the importance of taking decisions at each Annual Budget.

Inflation will inevitably erode the funding growth we have assumed in today’s MTFS, reducing our spending power.

When the UK Spending Review in October set out funding for the Scottish Budget, inflation was 3.1 per cent.  Despite inflation hitting 9 per cent, the UK Government has not updated its spending plans, leaving us with far less funding in real terms.

Following a real terms reduction of 5.2 per cent between last year and this year, our real terms funding grows by only 2 per cent across the whole four year period of the Resource Spending Review, after accounting for the devolution of Social Security benefits.  

That is the stark reality – reflected in the commentary by the IFS and Fraser of Allander Institute last weekend.  

But it is not inevitable – it is the result of a deliberate choice by the UK Government – as they sit on their hands.

Whilst the Chancellor has provided welcome, if limited and late support for households, the chill winds of UK Government austerity are blowing when it comes to spending on public services.

It lays bare the constraints of the current fiscal framework - our budget largely decided by others, denied sufficient borrowing powers, yet facing the very same demands for increased spending as governments with much greater levers do.

So, we must prioritise.

We have prioritised spending on health and social security, education and tackling climate change, but by definition we cannot prioritise everything.

After years of growth in the public sector, due to Brexit and the pandemic, we need to reset. We need to focus on how the public sector can reform to become more efficient, giving us space to realise our ambitions for better outcomes.

And so reform will focus on:

• digitalisation
• maximising revenue through public sector innovation
• reform of the public sector estate
• reform of the public body landscape; and
• improving public procurement.

The spending review also incorporates continued engagement with trade unions and public sector employers about pay and workforce. 

I know that inflation is a real concern for public sector employees – as it is for those in the private sector – and particularly so for those on lower incomes.

The UK Government has chosen not to act on public sector pay, meaning our more progressive approach, with public sector wages on average 7% higher in Scotland than in the rest of the UK, is funded from within our severely limited budget.

We do not intend to take the same approach as set out by the UK Government today, but we do need to reshape and refocus the public sector post Covid and the spending review calls upon all of the public sector to look creatively at ways to sustainably address that challenge, while seeking to ensure fair increases.

These reforms are necessary, in order to prioritise spending which makes the biggest difference to our objectives, our around child poverty, around net zero, around a growing and thriving economy and improved public services.

The spending review funds the Scottish Child Payment, which will more than double to £25 per child per week over the course of this year with eligibility expanded to under 16s.

It will provide for universal free school meals to primary school children in P1-5 and the expansion of provision beyond that.

It will deliver increased investment in frontline health services by 20 per cent over this Parliament and it increases investment in primary and community care, to provide more care for people in a place and in a way that meets their needs.

It provides Capital investment of around £18 billion over the period, it will fund improvements in Scotland’s transport network, in the NHS and the public sector estate, in affordable housing and the shift to a low carbon economy, with an additional £500 million directed to net zero programmes that meet the climate challenge.

The Resource Spending Review delivers on our commitments to invest in energy efficiency and zero emissions heating; it supports public transport and record investment in active travel; and protects our natural environment.

The spending review also underpins the actions of the National Strategy for Economic Transformation, to deliver a strong, inclusive and economy to deliver growth, to stimulate entrepreneurship, to open new markets, to increase productivity and to develop our skills for the future.

Presiding Officer, today I set out an ambitious but realistic public spending framework for the years ahead. It does not ignore the realities of our financial position, but neither does it roll back on our ambitions for change.

It balances the need to shift resources so we achieve the greatest impact for our economy, for our environment for our society, with the need to continue improving public services, as we build back from Covid-19 and respond to the challenging economic and financial outlook for Scotland.          

• Read the Resource Spending Review and related documents