Scottish Budget 2019-2020

Chapter 1 Strategic Overview for the Scottish Budget 2019-20

Our Vision

The Scottish Government has a clear vision of the kind of country we want to be.

A Scotland that leads the world in technological innovation and stays true to the enduring values of social justice. A country proud of its history and achievements, but equipping itself to seize the opportunities of the future. And a society determined to remain open, inclusive and welcoming in the face of rising forces of intolerance, isolation and protectionism.

This Budget flows from that vision.

It seeks to strengthen our economy and support first-class public services and provides support for our people who need it the most. 

It seeks to equip our country to adapt and grow in the face of the challenges of the future, whether those challenges are forced on us, like Brexit, or created by the rapid technological change that is happening all around us.

The Scottish Government’s spending plans and tax policies for 2019-20 reflect this vision and commitment. The delivery of high quality public services and a competitive business environment, supported by progressive taxation, represents a strong social contract between the Scottish Government and the people of Scotland. This contract supports the economy of Scotland, improves the wellbeing of our communities and reduces inequality.

The Scottish Budget in 2019-20 will: 

• increase spending on the health and care services by almost £730 million; 
• invest more than £180 million in raising attainment in schools, including £120 million delivered to head teachers to spend on closing the attainment gap;
• deliver the fairest income tax system in the UK with 55 per cent of income taxpayers in Scotland paying less than people earning the same income in the rest of the UK, while still raising the revenue needed to support investment in the Scottish economy and public services;
• boost the economy by providing over £5 billion of capital investment to grow and modernise Scotland’s infrastructure, including the creation of a Town Centre Fund, the expansion of elective care centres, continued progress on dualling the A9 and A96, investment in the National Manufacturing Institute for Scotland and in City Region and Growth Deals;
• support public sector workers by delivering a pay deal that continues on the journey of restoring pay levels across the public sector by providing a pay uplift of 3 per cent for those earning up to £36,500; 
• provide the most competitive package of business rates in the UK, ensuring that over 90 per cent of properties in Scotland pay a lower poundage than they would in other parts of the UK;
• invest over £600 million in Scotland’s colleges and maintain investment at over £1 billion in Scotland’s universities;
• increase direct investment in mental health by £27 million, taking overall funding for mental health to £1.1 billion - this includes improving mental health services for young people and providing support in schools, colleges, universities;
• increase investment in Health and Social Care Partnerships to over £9 billion for delivery of primary and community health services;
• deliver new and improved Social Security benefits based on dignity and respect; 
• provide local government with a real terms increase in both revenue and capital funding, and a real terms increase in total overall support provided through the settlement of £11.1 billion;
• invest almost £500 million to expand funded early learning and childcare, supporting the recruitment and training of staff and investment in building, refurbishment and extension of around 750 nurseries and family centres;
• provide initial funding of £130 million towards the establishment of a Scottish National Investment Bank;
• protect the police resource budget in real terms;
• provide over £20 million for Zero Waste, to help support the transition towards a more resource-efficient, circular economy, including design and implementation work for a deposit return scheme;
• invest £80 million in Active Travel to help build an Active Nation; and
• commit over £825 million, as part of our total investment of over £3 billion to deliver 50,000 affordable homes over the course of the Parliament, and continue to invest in the £50 million Ending Homelessness Together fund.

Brexit and Continued UK Government Austerity

This Budget is set against the backdrop of the UK’s prospective exit from the EU and continued austerity from the UK Government.

The UK Government’s decision to take us out of the EU single market and the customs union – the largest market in the world – presents a risk to economic growth (which in turn has an impact on forecast revenues to support public services), to investment in funding programmes, migration and our population. 

Under the shadow of growing uncertainty for the future, the UK Government’s Budget in October 2018 was a missed opportunity to provide much needed direction and leadership for our longer term finances and the wider economy. 

The UK Government failed to deliver on its pledge to end austerity and to invest in public services and fell £55 million short of the additional funding for the Scottish NHS, which the Prime Minister committed to in June 2018.

Different spending choices are possible. The Office for Budget Responsibility confirmed in October 2018 that the UK Government could spend £15.4 billion more and still meet its fiscal rules in 2020-21. This failure to take action impacts on our economy, our communities and our public services.

The reality of these choices is that Scotland’s resource block grant will be almost £2 billion lower in real terms in 2019-20 than it was in 2010-11. 

Excluding the NHS funding uplift, all of which is being allocated in full to health and care, the remaining resource block grant is over £340 million or 1.3 per cent lower in real terms in 2019-20 than in 2018-19. This leaves a very challenging overall budget position for the Scottish Government to manage.

Brexit and the Impact on the Scottish Budget

While the Scottish Government continues to oppose Brexit, as the law stands at present the UK will leave the EU on 29 March 2019. In line with the UK Government’s Autumn Budget, the 2019-20 Scottish Budget is prepared on the assumption that the UK will leave the EU with a deal and an orderly transition. If this assumption changes, the Scottish Government will revisit our budget assumptions and present revised proposals to the Scottish Parliament.

The Scottish Government’s view, supported by the Scottish Parliament, is that remaining in the EU would be the best outcome for Scotland and the UK. We believe the UK Government has put forward a false choice. Whatever people voted for, they did not vote for the chaos and uncertainty of a blindfold Brexit, or worse, no deal. We have argued consistently for remaining in the EU, and in the event that the UK’s exit from the EU cannot be prevented, we will continue to argue for the least-worst option - remaining in the single market and customs union.

We have been clear that, given Scotland voted overwhelmingly against leaving the EU, there must be no detriment to the Scottish Budget as a result of the UK’s exit. The Scottish Government is determined to defend its hard-won fiscal responsibility and maintain the benefits that EU funding has provided to many sectors through economic, social and environmental programmes across Scotland.

EU funding is expected to benefit Scotland by over £5 billion over the life of the current EU budget round (2014-2020). In line with our overall position on EU membership, the Scottish Government wants to remain in as many EU-funded programmes on the same terms as we currently do in order to maintain and deepen the economic, academic, scientific and cultural ties with our partners across Europe.

As a result of the UK Government’s chosen route for exiting the EU, the UK will pull out of large elements of agricultural, marine, regional development and structural funding - without consultation and without setting out clear alternatives. The Scottish Government remains deeply concerned about the lack of certainty about future arrangements and the impact this could have on Scotland.

Mitigating and Preparing for the Risk of Brexit

In the face of ongoing uncertainty surrounding the outcome of the UK’s departure from the EU, the Scottish Government is preparing as best we can with the resources we have and under the budgetary pressures we face. Since July 2018, we have made available an additional £26.6 million for Brexit-related work in the Scottish Government and its agencies, including £9.4 million for preparations in agriculture and the rural economy and £2.1 million to help mitigate impacts on the NHS. The ‘Prepare for Brexit’ campaign is being delivered by Scotland’s enterprise and skills agencies, supported by the Scottish Government as well as business and sector bodies. Support includes online information and articles, access to expert advice, events and workshops as well as financial support. Given the threat Brexit poses to the Scottish economy, we will also be investing £20 million over the next three years to enhance and intensify support to businesses wishing to export.

By late summer 2018, around 420 people (full-time equivalent) in the Scottish Government were spending more than 50 per cent of their time on Brexit-related work and a significant number of other people are also carrying out such work as a smaller proportion of their overall role, alongside their other duties. Overall, staff time taken up by Brexit is expected to increase. We have set up new teams to support preparations including building up an international trade and investment policy function, doubling Scottish Development International’s presence in Europe and establishing a range of new units to coordinate work on Brexit negotiations and readiness. 

Across the public sector, resources are being diverted to essential preparations for the impact of Brexit. A decision to remain in the EU would allow those resources to be returned to the support and development of frontline services and the delivery of Scotland’s priorities.

Economic and Fiscal Outlook

Scotland’s economy has continued to grow in 2018, with growth outpacing that of the UK in the first six months of the year. The Scottish Fiscal Commission forecast that Scotland will grow faster than the OBR’s forecast for the UK for 2018 as a whole. This stronger economic performance, in the face of challenging headwinds, is also reflected in the labour market, with high employment and low unemployment.

Despite these positive signs, Scotland’s economy still faces significant challenges. The Scottish Fiscal Commission’s report, published alongside the Scottish Budget, highlights that the UK’s exit from the EU is a key factor that is expected to lead to slower growth in productivity, population and trade. Table 1.01 sets out the SFC’s headline economic forecast.

The Scottish Fiscal Commission forecasts that, over the next five years, employment will rise further, unemployment will remain at near record lows, and earnings growth will accelerate.

The SFC also highlights relatively slow productivity growth in Scotland. The SFC forecasts show that, partly as a result of the UK’s exit from the EU, productivity growth will be subdued in the coming years, and our working age population will shrink more rapidly, both of which will feed through to lower GDP growth. The Scottish Government believes that there is a need for continued efforts to improve performance on productivity.

Table 1.01: Headline Economy Forecasts (Calendar Year Basis)

	2017	2018	2019	2020	2021	2022	2023
GDP (per cent growth)	1.4	1.4	1.2	1.0	1.0	1.1	1.2
Employment (millions)	2.64	2.64	2.65	2.65	2.66	2.66	2.66
Unemployment (per cent)	4.1	4.2	4.3	4.3	4.3	4.3	4.3
Nominal Average Annual Earning (per cent growth)	1.5	2.0	2.3	2.5	2.8	3.0	3.1

Scotland’s Social Contract

In the face of these challenges, the Scottish Government is choosing a path that seeks to protect and invest in Scotland.

We choose to have a progressive tax system, to invest more in our public services and economy, our infrastructure, and to build a fairer, more inclusive society where everyone is welcomed.

In line with the social contract between the Scottish Government and the people of Scotland, this Scottish Budget will:

• invest in the NHS, keeping it free at the point of need;
• invest to raise the school attainment of those from our poorest communities;
• expand the number of Modern Apprenticeships and guarantee that higher education remains free of tuition fees;
• maintain free personal care for those who require it including expanding provision to those under 65 – the policy known as Frank’s Law – from April 2019;
• continue to deliver the devolved social security system based on dignity, fairness and respect through Social Security Scotland, committing £435 million in assistance directly to those who need it most;
• invest an additional £37 million to support carers through the Carer’s Allowance Supplement;
• continue to expand the provision of funded early learning and childcare, with Scottish Government annual revenue investment expected to grow to around almost £1 billion by 2021-22;
• provide access to free sanitary products in schools, colleges and universities and extend access to those on a low income who require them;
• support concessionary travel and ensure roads and bridges remain toll free; and
• support sports, arts and culture across the country including free access to the permanent collections of the National Museums, Galleries and Library.

A Progressive Scottish Tax Approach - Balanced, Responsible and Fair

Our income tax proposals are set using four key tests – protecting the lowest paid taxpayers; improving progressivity; raising additional revenue; and supporting public investment in the Scottish economy.

We have increased the Starter and Basic Rate bands by inflation to protect our lowest and middle earning taxpayers, and continue to ensure that 55 per cent of Scottish taxpayers pay less than they would if they lived elsewhere in the UK.

We will not follow the UK Government in providing a tax cut to higher earners. In Scotland this applies to around the top 15 per cent of taxpayers. The Scottish Fiscal Commission has forecast that the policy proposal to freeze the Higher Rate Threshold in 2019-20 will raise an additional £68 million.

If the Scottish Government were to change its income tax policy to match all UK Government rates and bands, it would come at a cost to the Scottish budget of around £500 million.

Our decisions ensure that in 2019-20, 55 per cent of Scottish income taxpayers (those earning less than £26,990) will pay less tax than they would if they lived elsewhere in the UK.

On current incomes, 99 per cent of all Scottish taxpayers – those earning less than around £124,000 – will pay less income tax than they do this year.

We have also ensured that our actions on Land and Buildings Transaction Tax continue to protect those purchasing their first home and support people as they progress through the property market, with over 80 per cent of taxpayers benefitting from LBTT by paying either no tax or less tax than in England. We are ensuring that those who purchase multiple properties make a greater contribution by increasing the rate of the Additional Dwelling Supplement, reinforcing the progressive approach in place for LBTT rates and bands.

Building on the recommendations from the Budget Process Review Group, the 2018 Programme for Government committed to developing a new process for the planning, management and implementation of changes to the fully devolved taxes.

The Scottish Government will take a collaborative and open approach to the development of this new process, and will seek views in a consultation to be launched in February 2019. This Budget commits us to announcing the new process in the Scottish Budget 2020-21.

Scottish Government Spending Limits

The Scottish Budget for any given year is determined by the combined impact of:

block grant funding allocated by HM Treasury at a Spending Review, Autumn Budget or Spring Statement, adjusted to reflect taxes devolved to Scotland through the Scotland Act 2012 and the Scotland Act 2016;

independent forecasts of receipts generated by those taxes and devolved social security spend; and

planned use of the available devolved borrowing powers and use of the Scotland Reserve.

In 2019-20 the cumulative impact of the Scottish Government’s decisions on tax and capital borrowing is to mitigate the UK-imposed austerity by almost three-quarters of a billion pounds. The real terms reduction to the total Scottish fiscal budget of 6 per cent is reduced to 3.8 per cent between 2010-11 and 2019-20, providing an additional £712 million for investment in public services in Scotland in 2019-20 that would not otherwise be available. This is more than the equivalent of the entire budget for Scotland’s 26 colleges, or the whole budget for NHS Fife.

A full reconciliation of forecast revenues to planned expenditure is provided at Annex A. Tables 1.02, 1.03 and 1.04 set out the cash and real terms spending limits for the Scottish Budget.

Table 1.02: Scottish Government Budget Control Limits 2015-16 to 2019-20

SG Spending Limits - Cash Terms	2010-11 £m	2015-16 £m	2016-17 £m	2017-18 £m	2018-19 £m	2019-20 £m
UK Government Spending Review settlement - November 2015	–	–	30,286	30,520	30,620	30,870
Subsequent Barnett consequentials and other additions	–	–	(12)	1,049	1,389	2,384
Total Budget Limit from HM Treasury (A)	29,600	30,141	30,274	31,569	32,009	33,254
Of which
Fiscal Resource Budget Limit	25,624	25,991	26,088	27,027	26,983	27,633
Non-cash Budget Limit	642	1,030	967	907	1,105	1,145
Capital Budget Limit	3,335	2,734	2,891	3,189	3,520	3,956
Financial Transactions	–	386	329	446	401	519
Block Grant Adjustment for Social Security (B)	–	–	–	–	–	290
Net Block Grant Adjustment	–	–	(5,500)	(12,450)	(12,472)	(12,193)
Scottish Income Tax	–	–	4,900	11,829	12,115	11,684
Land and Buildings Transaction Tax	–	–	538	507	588	643
Scottish Landfill Tax	–	–	133	149	106	104
Non-Tax Income	–	–	–	36	25	25
Net Resource Budget Adjustment (C)	–	–	71	71	362	262
Capital Borrowing (D)	–	306	316	450	450	450
Total Scottish Government Funding (A+B+C+D)	29,600	30,447	30,661	32,090	32,821	34,256

Figures may not add due to rounding
2010-11 Figures are adjusted to include Council Tax Benefit for comparison purposes
Block Grant Adjustment figures do not include Air Passenger Duty, devolution of which has been deferred.
Non-tax income is from Fines, Forfeitures and Fixed Penalties and Proceeds of Crime. (£31 million for 2019-20), and a negative £3 million reconciliation adjustment for 2017-18 devolved revenues.
Net Resource Budget Adjustment is the impact of SG decisions on taxes against the Block Grant Adjustment
Tax and Block Grant Adjustment figures are the forecasts that were used to determine the budgets for each of the years.

Table 1.03 Real Terms Changes to HM Treasury Spending Limits

HMT Spending Limits – Real Terms (2018-19 prices)	2010-11 £m	2015-16 £m	2016-17 £m	2017-18 £m	2018-19 £m	2019-20 £m
Fiscal Resource Budget	29,201	27,564	27,067	27,519	26,983	27,147
Capital Budget	3,801	2,899	2,999	3,247	3,520	3,886
Total	33,001	30,464	30,067	30,766	30,503	31,034
Real-Terms Change against prior year	–	–	(1.3%)	2.3%	(0.9)%	1.7%
Real Terms Change on 2010-11	–	(7.7%)	(8.9%)	(6.8%)	(7.6%)	(6.0%)

Excludes Financial Transactions

Table 1.04 Real Terms Changes to Scottish Government Funding

SG adjusted spending limits – Real Terms (2018-19 prices)	2010-11 £m	2015-16 £m	2016-17 £m	2017-18 £m	2018-19 £m	2019-20 £m
Fiscal Resource Budget	29,201	27,564	27,141	27,591	27,411	27,404
Capital Budget + Capital Borrowing	3,801	3,224	3,327	3,705	3,970	4,329
Total	33,001	30,778	30,468	31,296	31,381	31,733
Real-Terms Change against prior year	–	–	(1.0%)	2.7%	0.3%	1.1%
Real Terms Change on 2010-11	–	(6.7%)	(7.7%)	(5.2%)	(4.9%)	(3.8%)

Excludes Financial Transactions

2019-20 Proposed Portfolio Budget

Scotland’s devolved Total Managed Expenditure, a mix of discretionary and ring-fenced funding, amounts to £42.5 billion including a control total of £34.5 billion for Scottish Government portfolios.

Table 1.05 provides the portfolio detail which, subject to Parliamentary consideration, will form the basis of the Budget Bill 2019-20 which will be laid before the Scottish Parliament on 19 December 2018. The capital figures include both capital and Financial Transactions funding.

Table 1.05 Total Proposed Budget 2019-20

2019-20 Scottish Budget	Resource £m	Capital £m	Total  £m	AME  £m	Total  £m
Health and Sport	13,876.8	346.0	14,222.8	100.4	14,323.2
Communities and Local Government	7,012.8	1,999.0	9,011.8	2,853.0	11,864.8
Finance, Economy and Fair Work	438.1	353.7	791.8	4,545.0	5,336.8
Education and Skills	2,900.5	150.0	3,050.5	397.5	3,448.0
Justice	2,575.2	144.0	2,719.2	-	2,719.2
Transport , Infrastructure and Connectivity	1,155.6	1,754.6	2,910.2	-	2,910.2
Environment, Climate Change and Land Reform	181.6	245.0	426.6	-	426.6
Rural Economy	279.0	72.0	351.0	-	351.0
Culture, Tourism and External Affairs	304.5	26.5	331.0	-	331.0
Social Security and Older People	574.9	10.0	584.9	-	584.9
Government Business and Constitutional Relations	12.1	-	12.1	-	12.1
Crown Office and Procurator Fiscal Service	117.1	3.6	120.7	-	120.7
Scottish Government	29,428.2	5,104.4	34,532.6	7,895.9	42,428.5
Scottish Parliament and Audit Scotland	107.1	1.5	108.6	2.0	110.6
Total Scotland	29,535.3	5,105.9	34,641.2	7,897.9	42,539.1

Efficiency Savings 

The Scottish Government expects every public body to deliver efficiency savings of at least three per cent during the course of 2019-20 and to report publicly on the action undertaken and the results achieved. All efficiency savings are available to be reinvested in the body that generates the saving.

Improved Scottish Budget Scrutiny 

As part of implementing the Budget Process Review Group recommendations from 2017, the Scottish Government agreed an amended ‘Written Agreement’ with the Finance and Constitution Committee of the Scottish Parliament in 2018. This has introduced a number of changes to the Scottish Budget process and these are occurring for the first time with the 2019-20 Scottish Budget. 

The improved approach to budget scrutiny is welcomed and Scottish Ministers have carefully considered the views and recommendations expressed by each Parliament Committee as part of developing the Scottish Budget for 2019-20.

As part of improving the Scottish Budget process, the Scottish Government, will from this year onwards, only publish one budget document – the Scottish Budget. This document will combine the information that was previously split across two Budget documents – the Draft Budget and the Budget Bill supporting document. The Scottish Budget Bill will now be introduced in the Parliament one week after the Scottish Budget is published. In addition, up to date data on progress on our national outcomes is available at www.nationalperformance.gov.scot The National Performance Framework outcomes are summarised in the diagram below.

Chart 1.01 National Performance Framework 

Local Government 

Local government is a key partner in the Scottish Government’s transformative programme of public service reform and an integral, essential element of the good governance of Scotland, providing high quality frontline public services which help protect some of the most vulnerable in our society. 

In 2019-20, Scottish Ministers will invest, through a combination of the core budget allocation and funding contained within other portfolios, £11.1 billion in total support through the local government finance settlement. Taken together, this provides a real terms increase in both revenue and capital funding, and an overall real terms increase in the total local government settlement of over £210 million. 

Local authorities will again have the flexibility to increase council tax levels by up to three per cent, providing up to an additional £80 million for investment in local services.

In addition to the local government finance settlement, the Scottish Government also provides local authorities with funding streams for shared national and local government priorities, such as City Region and Growth Deal investment. These funding streams total £449 million in 2019-20.

Delivering For Today, Investing For Tomorrow

A World-Class Health Service

This year the NHS celebrated its 70th anniversary. This essential public service is valued and treasured by everyone in Scotland. Supporting the NHS in Scotland is a top priority for the Scottish Government and we have pledged to increase NHS spending by £2 billion over the course of this Parliament. 

In 2019-20, health and care services in Scotland will benefit from almost £730 million in additional resource funding from the Scottish Government – this includes additional revenues generated by our tax decisions to mitigate the £55 million shortfall in funding promised by the UK Government. 

This funding and the way in which it is allocated will deliver further on our commitment to shift the balance of health and social care spend towards mental health, primary, community and social care, where services can help to maximise people’s independence and wellbeing in their own homes and communities and relieve pressure on acute services. 

This continues the Scottish Government’s progress towards delivering more than half of its NHS spend in community services. In 2019-20 the budget for frontline NHS Boards will be boosted by additional investment amounting to 4.2 per cent.

In 2018 the Scottish Government published its Health and Social Care Medium Term Financial Framework which sets out clearly the financial environment for health and social care services in Scotland. This Scottish Budget will deliver on the commitment to pass on every penny of health resource consequentials from UK related health spend, to support the measures set out in the Financial Framework, which are designed to ensure improved quality and sustainability across health and social care. 

This means that in 2019-20 we are delivering investment of more than £700 million in health and social care integration, underlining our commitment to enable everyone to live longer, healthier lives at home, or in a homely setting.

In 2019-20 we will:

• provide additional investment for health and sport, taking total resource investment in 2019-20 to £13.9 billion. This is £754 million over and above inflation since 2016-17;
• deliver additional investment of 4.2 per cent for our frontline NHS Boards;
• continue to shift the balance of care towards mental health, primary care and social care, to ensure that by the end of this parliament more than half of frontline NHS spending is in community health services;
• increase the Scottish Government’s direct investment in mental health by £27 million, taking overall funding for mental health to £1.1 billion; and
• invest more than £700 million in social care and integration.

The Best Start in Life

During the Year of Young People, Scottish Ministers set high priority milestones to improve the lives and early years experiences of children across Scotland. 

In December 2018, we will launch a new Best Start Grant Pregnancy and Baby Payment. This new benefit replaces and improves upon the UK Government Sure Start Maternity Grant scheme to support low income families by providing a much needed boost when they have a new child in the family. 

This will support families to provide the best start in life for their new family member, providing targeted assistance at birth and then at key milestones in the child’s life to complement the universal baby box which Scottish Ministers fully fund to give every child born in Scotland the everyday essentials that they need. 

In 2019-20, the Scottish Budget will provide a further £10 million for the three Best Start Grant payments (Pregnancy and Baby; Early Learning; and School Age) to give young children in low income families vital support at key stages in their early years.

Investment in Early Learning and Childcare

A new, landmark multi-year funding agreement with COSLA has confirmed the financial arrangements to deliver the life changing, transformational expansion of funded early learning and childcare. This partnership agreement confirms that Scottish Ministers will fully fund local authorities to deliver the expansion of early learning and childcare entitlement to 1,140 hours from August 2020, the same number of hours that a child spends in primary school.

Since coming into power in 2007, the Scottish Government has already increased the provision of funded, high quality early learning and childcare to 600 hours per year and this budget will continue to fund that in full through local government.

Through the new funding agreement reached in 2018, the Scottish Government has committed to provide local authorities with revenue funding of an additional £567 million per year by 2021-22, the first full financial year of the expansion. This is expected to bring the annual public spend on early learning and childcare to almost £1 billion by 2021-22. 

In the 2019-20 Scottish Budget, an additional £210 million has been provided to local authorities to fund the delivery of this early learning and childcare expansion.

In addition, the Scottish Government has committed to provide local authorities with capital funding of £476 million over four years, with £175 million provided this year, to support building projects to create new indoor and outdoor capacity to deliver the expansion. 

This record level of funding by Scottish Ministers is leading the transformation of early years experiences of all children in Scotland, setting the best foundation for learning and development.

Excellence and Equity in Schools

Improving educational outcomes in Scotland through closing the attainment gap between children and young people from the most and least deprived areas and providing targeted support is the key priority of the Scottish Government. 

2018 has been an important year in progressing significant actions to drive these improvements forward and deliver this mission. The latest statistics show that the attainment gap is closing, but we know that there is still more to do so that no child is left behind.

We are fast-tracking our education reforms for the empowerment of Scotland’s schools by working in partnership with local government, Education Scotland, professional associations and other partners, to drive forward that agreement with pace and purpose. 

During 2019-20 we will:

• continue to target additional resources at those authorities and schools which need them most through the £750 million Scottish Attainment Challenge, including £120 million of Pupil Equity Funding provided direct to head teachers;
• increase the portfolio budget in real terms to support the reforms to strengthen our regional capacity for educational improvement through the new Regional Improvement Collaboratives and Education Scotland. This will deliver additional resources, collaborative support and focussed expertise across Scotland, to further support schools and early learning establishments in delivering excellence and equity for our children and young people;
• support the mental health of young people in schools with £12 million of investment in school counselling services;
• continue to provide national funding of £10.5 million to support children and young people with complex additional support needs;
• continue to deliver on our STEM education and Training Strategy by providing funding for bursaries of up to £20,000 for career changers to teach subjects such as computing and physics; and
• continue to fund the Scottish Schools Education Research Centre to up-skill primary and secondary teachers and technicians. 

Investing In Our Economy

The Scottish Government is ambitious for our economy. Building on strong foundations, we want to see a country that is globally competitive with innovation, sustainability and fairness at its heart. A strong, diverse economy is essential to support Scottish jobs, public services and improve our quality of life. 

Economic growth is of course important, but to be truly successful our economy must also be environmentally sustainable and inclusive – benefiting all of our people and communities.

This budget will do more to make sure that every person in Scotland has the skills and opportunities to thrive and to help make Scotland a more successful country.

In 2019-20 we will:

• establish the Scottish National Investment Bank, with funds for precursor activities of £120 million, and introduce the legislation that will underpin it;
• continue to support the Building Scotland Fund which will support the Scottish economy through loans and equity investments of £150 million over three years;
• establish a National Retraining Partnership, with employers, unions and wider stakeholders, to identify the best collaborative way to help workers and businesses prepare for future changes by enabling the workforce to up-skill and/or retrain where necessary;
• invest over £8 million to continue delivery of the National Manufacturing Institute for Scotland to bring together research, industry and the public sector to help companies embrace new manufacturing techniques;
• respond to the changing skills needs of business and employees by enhancing our support for reskilling and upskilling;
• continue to develop and deliver our devolved employment support service, Fair Start Scotland, giving individualised support to 38,000 individuals furthest removed from the labour market; and 
• continue the transition to a circular economy, cutting waste and carbon emissions and opening up new economic opportunities. 

Growing the Economy

Scotland’s Economic Strategy set out our economic ambition and the new Economic Action Plan, published in October, shows the range of new and existing actions that will deliver the sustainable, inclusive economic growth at the heart of that ambition. The Plan will support a competitive business environment and includes actions that will improve lives for the better across all of Scotland, as well as support the export of our solutions, goods and services to the rest of the world. The package of new measures includes:

• establishing an Advanced Manufacturing Challenge Fund of up to £18 million to ensure all parts of Scotland benefit from developments in advanced manufacturing;
• investing £5 million as the first phase of our three year £20 million plan to boost exports by directly supporting more companies to sell their products abroad;
• working with partners to enhance the digital skills that businesses require, including a new £1 million Digital Start Fund to support people with lower incomes;
• increasing the impact of the investment we make in enterprise and skills development, through the business-led Enterprise and Skills Strategic Board, and ensuring our agencies operate as a single system that delivers the right information, advice and support at the right time for business and learners;
• continuing to work with the public, private, and university and college sectors to drive forward our Innovation Action Plan – taking action to support innovation across businesses, sectors and places, using public sector spend to catalyse innovation, and making best use of the research, knowledge and talent of our universities and colleges to drive innovation and growth; and
• actions like our Scotland is Now campaign, to maximise Scotland’s presence in global markets and showcasing our assets and expertise to the world.

Helping and Supporting Business

The Scottish Government has an unwavering commitment to providing the best possible environment for businesses supported by a competitive non-domestic rates regime.

To deliver on this we will cap the increase in the rates poundage in Scotland at a below inflation level of 49 pence, limiting the increase to 2.1 per cent, ensuring that over 90 per cent of properties in Scotland – and all small and medium sized businesses - pay a lower poundage than they would in other parts on the United Kingdom. 

In addition we are delivering the most generous package of reliefs available in the United Kingdom, worth £750 million in 2019-20. This includes: 

• maintaining the UK’s most generous Small Business Bonus Scheme thresholds and continuing to deliver the manifesto commitment that over 100,000 properties are lifted out of rates altogether; 
• introducing an extended relief of 100 per cent on all broadband fibre lit on or after 1 April 2019 for a ten-year period. This will help further our objective of delivering superfast broadband access to 100 per cent of premises in Scotland by 2021; and
• extending transitional relief for the hospitality sector across Scotland, and for offices in Aberdeen City and Aberdeenshire until the next revaluation.

Through responding swiftly to the recommendations of the Barclay Review of Non-Domestic Rates, the Business Growth Accelerator and Day Nursery Relief, encourage new business investment by temporarily suspending rates liabilities for new builds and property improvements, and reduce the overheads to nursery providers who have such an important role to play in ensuring our children have the best start in life. 

In early 2019, we will bring forward primary legislation to deliver other Barclay Review recommendations including measures to support growth, to improve administration of the system and increase fairness, such as the shift to a three yearly revaluation cycle and policies to address known tax avoidance tactics around second homes, charities and empty properties.

Boosting Town Centres 

We want our high streets and town centres across Scotland to be vibrant, creative, enterprising and accessible. Town centres are facing challenges as retail patterns change and evolve and it is essential that we support them to become more diverse and sustainable. We will invest in our town and neighbourhood centres so that they can be sustainable and thriving places for communities to live in, work in and enjoy.

To do this, we will provide a new ring-fenced £50 million Town Centre Fund for 2019-20 within the local authority capital settlement to drive local economic activity and to stimulate and support place based economic improvements to town centres. 

We will work in partnership with COSLA and local authorities to deliver this investment. This will complement a wider package of business support to ensure that our town centres are diverse, thriving and sustainable places for everyone.

This new fund will also complement wider support for town centres. This includes funding Scotland’s Towns Partnership to provide information, support and services for town centre partnerships, including Business Improvement Districts which deliver local improvements and create platforms for local economic growth. 

Delivering City Region and Growth Deal Priorities

Cities and their regions are the engines of our economy. The Scottish Government has committed nearly £1.3 billion to support Scotland’s seven cities and their regions to maximise the economic opportunities of the future. Funding has been allocated to continue our commitment to the City Region and Growth Deals already agreed and to progress new deals in development. This investment will benefit all of Scotland, creating thousands of jobs and up-skilling local labour markets. 

Each deal is tailored to maximise the value from the economic strengths and opportunities of its region, including:

• the oil and gas technology centre in Aberdeen supporting the industry to collaborate for the future; 
• science skills academies in Inverness and across the Highlands to help young people develop career opportunities in STEM subjects; 
• significant investment in Sighthill in Glasgow to better connect a whole community to the jobs and opportunities of the rest of the city; and
• using the world-leading data expertise of Edinburgh’s Universities to drive sustainable and inclusive economic development across the entire region. 

The Scottish Government supports 100 per cent coverage of Scotland through City Region and Growth Deals to drive sustainable and inclusive economic growth throughout the country and to further develop regional economic partnerships to represent every community in Scotland.

In 2019-20 we will:

• continue to support agreed City Region and Growth Deals to deliver the outcomes agreed for Glasgow, Aberdeen, Inverness and Edinburgh;
• secure full agreement to City Region Deals for Stirling and Clackmannanshire and for the Tay Cities Region;
• make progress with our 100 per cent commitment by securing Heads of Terms commitments with the UK Government for Growth Deals for the Ayrshires and the Borderlands;
• continue to progress discussions for Moray, Argyll and Bute, Falkirk and the Islands; and
• support the development of a Scotland-wide network of Regional Economic Partnerships which will learn from, and build on, the foundations laid by City Region Deals.

Supporting Enterprise 

The Scottish Government’s Enterprise and Skills bodies – Skills Development Scotland, the Scottish Funding Council, Scottish Enterprise, Highlands and Islands Enterprise and the soon to be established South of Scotland Enterprise – make an essential contribution to the delivery of our economic strategy and to our ambition that Scotland should rank in the top quartile of countries in the Organisation for Economic Co-operation and Development (OECD) for productivity, equality wellbeing and sustainability.

In 2019-20, we will see continued investment of around £2.4 billion in our enterprise and skills bodies to provide the vital support required to realise our economic vision.

In particular, Scottish Enterprise and Highlands and Islands Enterprise play a key role in delivering this Government’s ambitions for sustainable and inclusive economic growth and Scottish Ministers are committed to providing responsive and focussed enterprise support for all of Scotland.

Culture, Tourism & Major Events

We are committed to ensuring that Scotland’s diverse and evolving heritage thrives and is celebrated, now and for future generations. Tourism, culture and creative industries make a significant contribution to the Scottish economy, and we are maintaining our commitment to these important sectors. Our ambition is to make Scotland a destination of choice for visitors, and provide a perfect stage for world-class events.

In 2019-20 we will:

• continue to enable Creative Scotland to maintain support for the Regular Funding programme in the face of a significant decline in Lottery receipts;
• fund VisitScotland to deliver sustainable growth in the wider visitor economy so that Scotland can continue to build on its reputation as a world-class tourism destination;
• strengthen support for our film and TV sector and drive its growth through Screen Scotland, a new dedicated public sector partnership; and
• continue to work with partners in the planning and delivery of forthcoming major events: the 2019 Solheim Cup and UEFA EURO 2020.

A Sustainable Economy

Scotland continues to be a world leader in tackling climate change, outperforming the UK in delivering emissions reductions with our transition to a dynamic, vibrant low carbon economy well underway. 

A strong economy with growing, competitive and innovative businesses is essential to supporting jobs, incomes and our quality of life. Our economy must also be environmentally sustainable and inclusive – involving and providing benefit and opportunity for all of our people and communities. 

We will continue to deliver on the ambitious package of measures to promote digitally-enabled and low carbon growth that we set out in our Programme for Government.

Our commitments include:

• investing £80 million in Active Travel – to help build an Active Nation and to make our towns and cities friendlier, safer places for active travel;
• investing £50 million in low carbon transport measures, including the expansion of Electric Vehicle charging infrastructure to support the target to phase out the need for new petrol and diesel cars and vans by 2032;
• funding nearly £59 million of forestry priorities – including continued support to stimulate and enable woodland creation across Scotland to achieve the targets in the Climate Change Plan;
• making available over £145 million this year as part of a commitment to invest more than £500 million over four years in energy efficiency, fuel poverty and heat decarbonisation;
• designing a deposit return scheme for drinks containers and consulting on how we can go further to improve the use and reuse of other materials; and
• contributing to global efforts to tackle climate change and its impacts through our Climate Justice Fund.

The Scottish Government is also committed to working in partnership with Michelin, Scottish Enterprise, Dundee City Council, and other partners to develop the next phase of Michelin’s presence in Scotland. We will work together to transform their Dundee site into a key location for new economic and employment opportunities in manufacturing, remanufacturing, recycling and low carbon transport. 

Investment and building for the future – The National Infrastructure Mission

International evidence demonstrates a strong link between government investment in infrastructure and longer-term economic growth and productivity. Recognising the importance of infrastructure investment to our economy, our 2018 Programme for Government set out our commitment to a National Infrastructure Mission which will increase annual investment by one per cent of current (2017) GDP by the end of the next parliament in 2025-26. 

By 2025 this will mean an additional £1.56 billion of investment per year in our key infrastructure, delivering a long term boost to Scotland’s economy and maintaining our competitive global economic position.

It is vital that the right investments are made that generate inclusive growth and deliver our low carbon objectives. For example, investments in broadband, transport and utilities provide the foundation for companies to invest and bring new economic opportunities across Scotland, while investing in low carbon and energy efficient infrastructure can reduce costs, support climate change adaptation and ensure we are equipped for the future.

In 2019-20 we will invest more than £5 billion of capital across Scotland.

Prior to this Budget the Scottish Government had a self-imposed revenue finance investment limit of five per cent of the total Scottish Government budget. To ensure our National Infrastructure Mission will be delivered in a fiscally prudent way, and continues at a sustainable level, we are tightening this limit to five per cent of the Scottish Government resource budget, excluding social security.

We will establish an Infrastructure Commission to provide strategic advice to the Scottish Government on infrastructure investment. The Infrastructure Commission will be independently chaired and will utilise evidence and learning from the best international practice to ensure our National Infrastructure Mission delivers inclusive economic growth and meets our low carbon objectives. 

Scottish National Investment Bank

We will continue our work to establish a Scottish National Investment Bank and a Bill will be introduced to the Scottish Parliament early in 2019 to ensure the underpinning legislation. We will invest £120 million in 2019-20 into precursors to the Bank so that from 2020 it will be investing in businesses and communities across Scotland. The Bank has the potential to transform Scotland’s economy and will be a cornerstone institution in Scotland’s financial landscape.

The Bank will address the challenges facing the Scottish economy with a focus on long-term patient capital, and will be shaped by a mission-orientated approach set by Government. It will create and shape future markets and define how our economy will develop. It will place Scotland at the forefront of innovation in the years to come.

Parliamentary endorsement of our approach earlier this year confirmed the need for a Bank with ambition and vision to address Scotland’s economic priorities in a sustainable, inclusive and ethical way. 

That is why the Scottish Government has committed to providing £2 billion over 10 years for the Bank. This is both ambitious and achievable and will make a material difference to the supply of capital to the Scottish economy by levering in additional private investment, supporting ambitious firms to flourish and enabling transformational change.

Investment through the £150 million Building Scotland Fund announced last year will contribute to the Bank. The Fund is actively seeking eligible opportunities for investment and we are working with Scottish Enterprise, Highlands and Islands Enterprise, the Scottish Funding Council and the Scottish Futures Trust to bring forward a pipeline of projects worth hundreds of millions of investment. 

Fairness And Equality

Investing in people

Despite the failed promise of the UK Government to bring its austerity driven constraints on public spending to a close, Scottish Ministers will continue in 2019-20 to deliver a Public Sector Pay Policy that continues this Government’s commitment to lifting the one per cent cap on public sector pay.

The 2019-20 Public Sector Pay Policy, published alongside this Scottish Budget, recognises the cost of living; continues to provide fair and affordable pay rises for the majority of public sector employees; supports the commitment to pay the real Living Wage; and re-affirms our unique policy of no compulsory redundancy to protect public sector jobs and frontline services.

It balances a fair deal for public sector workers with the need to protect funding for public services. It sets an important direction of travel towards pay restoration in a way that is sustainable and progressive, protecting the very lowest paid.

The pay policy includes a three per cent pay rise for all earning less than £36,500; caps the pay bill at two per cent for all those between £36,500 and £80,000; and limits the maximum pay uplift for those earning over £80,000 to £1,600.

At a time of no real growth in budgets, this is a reasonable and affordable public sector pay approach, providing reward and recognition of the valued service that public sector workers provide.

Reducing Poverty

The Scottish Government has set in statute its ambition to eradicate child poverty through the Child Poverty (Scotland) Act 2017. The Act sets ambitious targets to reduce child poverty levels in Scotland to fewer than one in ten children by 2030 and provides a robust framework for action and progress reporting across government.

The first delivery plan due under the Act, entitled “Every Child, Every Chance”, was published in March 2018 and sets out cross-government action to contribute towards reductions in child poverty levels. The Plan, covering the period 2018-22, is backed by a range of investments, including a £50 million Tackling Child Poverty Fund.

Key investments within the Plan and supported by this budget include:

• £12 million by 2022 to provide intensive employment support for parents;
• £5 million by 2022 towards the Innovation Fund, in partnership with the Hunter Foundation;
• an additional £1.35 million by 2022 to be invested in pilot projects based in further education settings;
• £2 million by 2022 in the Innovative Children’s Neighbourhoods Scotland programme; and
• a total of £3.3 million in 2019-20 to support our new Financial Health Check service.

Alongside this we will increase the budget for our Fair Food Fund from £1.5 million in 2018-19, to £3.5 million in 2019-20; with £2 million specifically to tackle food insecurity during school holidays. 

Social Security

Our new social security system is the largest, most complex programme of change in the history of devolution. Our number one priority is the safe and secure transfer of powers ensuring that the 1.4 million people who rely on this support receive their payments on time and for the right amount.

Work on the transfer of social security powers under the Scotland Act continues at pace and the total social security budget of £560 million supports the programme of delivery; the administration of Social Security Scotland; and the provision of assistance directly to those who need it most. 

In 2019-20 we will:

• commit over £435 million in direct assistance; and
• invest almost £80 million on the continued development and expansion of the systems and processes required to build a Scottish Social Security system which places dignity and respect at its heart.

The Scottish Fiscal Commission is responsible for forecasting the expected level of social security benefit expenditure for each of the benefits for which the Scottish Government has responsibility. This expenditure occurs across three portfolio budget chapters: Social Security and Older People; Finance, Economy and Fair Work; and Health and Sport. The table below summarises the Scottish Government’s planned benefit expenditure for 2019-20. 

Table 1.06 Scottish Government Benefit Expenditure

	2019-20  £m
Social Security and Older People
Carer’s Allowance	283
Carer’s Allowance Supplement	37
Discretionary Housing Payments	63
Best Start Grant	12
Funeral Expenses Assistance	6
Scottish Welfare Fund	33
Total	435
Health and Sport
Healthy Start Vouchers/Best Start Foods	4
Total	4
Finance, Economy and Fair Work
Employability Services	19
Total	19
Total Scottish Government Benefit Expenditure	458

Figures may not sum due to roundings

Fair Work and Employability

Scotland’s employment rate remains amongst the highest on record and our unemployment rate is low – with the youth unemployment rate being lower and employment rate for women having been higher in Scotland over the last year compared with the UK. 

Our new approach to funding employability services through our joint partnership agreement with local authorities and other partners will better align funding and deliver stronger outcomes for people seeking work. 

Our commitments to Fair Work and Employability will continue in 2019-20 as we focus on:

• developing Scotland as a world-leading Fair Work Nation, including publishing a Fair Work Action Plan;
• investing £5 million over three years to support around 2,000 women return to work following a career break;
• supporting parents to address barriers to work and providing in-work support to help low income parents remain in work;
• closing the disability employment and gender pay gaps;
• supporting those affected by redundancy through the Partnership Action for Continuing Employment (PACE);
• publishing a Future Skills Action Plan in early 2019; and
• continuing to deliver the £10 million Flexible Workforce Development Fund.

Supporting Communities 

We want to build inclusive, empowered, resilient and safe communities in Scotland where everyone feels connected, has a sense of belonging and feels valued. 

In 2019-20 we will continue to invest in regeneration activity to stimulate sustainable and inclusive growth, and to empower and improve the wellbeing of people and communities. We want communities across Scotland to be able to participate in and make decisions on the priorities that matter most to them. 

The Scottish Government’s Empowering Communities Fund supports the development of strong and resilient communities and we will bring forward work in 2019-20 to streamline this funding mechanism. As part of this, Scottish Ministers will seek to include multi-year funding to provide medium-term support for our community programmes and partners. 

Providing Affordable Homes

Everyone in Scotland should have access to a good quality, safe, warm, affordable home. Our More Homes Scotland approach is increasing the supply of homes across all tenures.

In partnership with councils, housing associations and developers, government investment in housing will, on average, leverage economic output in the region of £1.4 billion per year, supporting around 10,000 to 12,000 jobs per annum in the construction and related industries in Scotland. House builders in Scotland also have access to the Building Scotland Fund to boost their activities.

In 2019-20 we will:

• commit £826 million, as part of our total investment of over £3 billion to deliver 50,000 affordable homes over the course of the parliament; and
• continue our support for the Rural and Islands Housing Funds.

In addition we will extend home ownership to more families by continuing our ‘Help to Buy and Open Market Shared Equity’ schemes.

Ending Homelessness

Ending homelessness is a national priority for the Scottish Government. Our ‘Ending Homelessness Together: High Level Action Plan’, published in partnership with COSLA at the end of November, is backed by the £50 million Ending Homelessness Together fund. The Homelessness Prevention and Strategy Group, co-chaired by the Minister and COSLA, will oversee progress on the implementation of the Action Plan.

Scotland’s transition to a rapid rehousing approach is a key part of the strategy to end homelessness. Local authorities are to submit their Rapid Rehousing Transition Plans to the Scottish Government by 31 December 2018 to show their intent in doing this. The development of these plans is being supported by £2 million of funding from the Scottish Government. 

Safer Communities

Scottish Ministers will continue throughout 2019-20 to support the Scottish justice system through improving access to justice, supporting Scotland’s court systems, continuing to deliver the benefits of an integrated Police Scotland and investing in the transformation of our fire and rescue service. 

Our budget provides continued real terms protection for the police resource budget, to support a modern and effective police service to ensure the safety and security of Scotland’s people and communities and we will invest over £5 million for service transformation to support and encourage the Scottish Fire and Rescue Service to modernise the fire-fighter role to meet new and emerging risks. We are also investing £18 million in support for victims of crime and tackling violence against women and girls. Work will continue with Community Justice Scotland and national and local community justice partners, including the third sector, to implement the national Community Justice Strategy to deliver better outcomes for individuals and communities.

As part of delivering wider justice improvements, Scottish Ministers will provide an additional £5 million of funding during 2019-20 for the Crown Office and Procurator Service to recruit additional legal staff to manage increased court workloads.

Conclusion

The initiatives and investments outlined in this Budget will reinforce the social contract between the Scottish Government and the people of Scotland.

In the face of Brexit and the challenging economic context it risks imposing, this budget provides vital investment in our economy and public services.

It takes the next step in building a nation that leads the world in technological innovation, equips itself to seize the opportunities of the future and stays true to the enduring values of social justice.