Scottish Budget 2022 to 2023

Foreword - by the Cabinet Secretary for Finance and Economy

This Scottish Budget comes at a crucial juncture for Scotland. Over the last year, thanks to the hard work and sacrifices of everyone across Scotland, the heroic efforts of health and care staff, and the roll-out of our mass vaccination programme, we have started to look beyond the immediate impact of the pandemic. But, in the face of the crisis, a return to normal is not enough.

As the emergence of new variants demonstrates, we must remain vigilant and ensure the necessary resources are available for the continued protection of people and public services, but we must also look to the future. This budget seeks to balance the immediate pressures with the long-term imperatives – shifting the dial on inequalities, carbon emissions and economic prosperity. It delivers on our ambitious Programme for Government, as we start implementing the manifesto this government was resoundingly re-elected on in May, and our Shared Policy Programme with the Scottish Green Party.

This budget – the first of this Parliament – is progressive, but also transitional. It paves the way for a full Resource Spending Review in May 2022 which will set out the government’s long-term funding plans and the roadmap for delivering key commitments, such as the establishment of a National Care Service and ending our contribution to climate change through a just transition.

This long-term approach is vital to deliver on our ambitions to transform our society and economy, and to capitalise on the opportunities the next decade could bring – but we must also act now. This budget brings forward key commitments and lays the groundwork for much of the transformational investment and innovation that is to come across three strategic priorities: tackling inequalities; securing a just transition to Net Zero; and investing in economic and public service recovery.

We will drive forwards our national mission to tackle child poverty – investing in training and employment opportunities, addressing financial insecurity and improving living standards, and ensuring that every young person is able to fulfil their potential. Fundamental to this will be our significant investment in the Scottish Child Payment. We committed to double this payment by the end of the parliament, but the decision of the UK Government to push more households into poverty by cutting universal credit, and the impact of rising living costs, makes it imperative that we act now. We will double the payment to £20 a week from April 2022, and extend it to under 16’s by the end of 2022, helping lift 40,000 children out of poverty and mitigating the impact of UK Government cuts.

We will play our part in tackling the global climate emergency head on, re-invigorated by COP26 in Glasgow and our Shared Policy Programme with the Scottish Greens. Through this Budget we will provide at least £2 billion of the first, multi-billion pound, public and private investment needed across this Parliament for a just transition – protecting and restoring our natural environment, decarbonising our homes, industries and transport, and positioning ourselves as a global leader in renewable energy, and green and digital technology.

As we move to a Net Zero economy it is critical that we secure a just transition that is led by workers, communities and industry across Scotland. This principle will underpin our efforts to transform our wider economy: supporting innovation and diversification of industries, boosting entrepreneurship and exports, and doing so in a way that improves people’s standards of living. We will help equip businesses to grasp the opportunities of a green recovery which secures new highly-skilled jobs for the future – rooted in fair work, good wages and increased prosperity. As part of this, we will continue investing in strong public infrastructure, and give confidence to businesses.

And, we will restore our precious public services, not least health and social care – providing record levels of funding to respond to the pressures created by the pandemic, and ensure that everyone can get the care they need in a time, place and way that suits. Most significantly, we will take the next steps in the single greatest public health reform since the establishment of the NHS – the creation of a new National Care Service.

Among the provisions of this budget, the Scottish Government will invest:

1. Over £4 billion in social security and welfare payments, including £197 million to double the Scottish Child Payment and extend it to under 16s.

2. £145.5 million for the sustained employment of additional teachers and classroom assistants and a further £200 million to tackle the poverty-related attainment gap.

3. £831 million for affordable housing – progressing our commitment to deliver 110,000 affordable, energy efficient homes across the next decade.

4. The first £20 million of our 10 year, £500 million Just Transition Fund – which we will increase year on year – and almost £350 million to drive forward our commitment to decarbonise the heating of 1 million homes, and the equivalent of 50,000 non-domestic buildings, by 2030.

5. £53 million to protect and restore nature, and a further £69 million in woodland creation and sustainable management of Scotland’s woodlands.

6. £304 million for bus services, plus £110 million for concessionary travel for under 22s, and £150 million for active travel – supporting our commitment to cut car kilometres by 20% by 2030.

7. £802 million of non-domestic rates reliefs – helping businesses get back on their feet following the crisis.

8. Over £1.6 billion for social care and integration – progressing our commitment to increase spend in social care by 25% by the end of parliament, and laying the groundwork for the establishment of a National Care Service.

9. £12.9 billion for health boards – delivering the first increase to ensure front-line funding which directly supports patient services increases by at least £2.5 billion by 2026-27.

10. An additional £40.5 million to maintain the police resource budget in real terms, £53.2 million to support the recovery, renewal and transformation of our justice services, and £13 million for court recovery and trial backlogs.

In delivering on these ambitions, we will harness a collaborative approach across all areas of Scottish life – public and private, national and local – capitalising on the renewed approach to partnership seen through the pandemic. As set out in our COVID Recovery Strategy, we will work jointly with local government to deliver our ambitions, and this budget provides a settlement which recognises the important role they play across all communities. It provides increased resources for social care and education – ensuring the continued delivery of vital services across Scotland – while working to increase the fiscal autonomy and power of local government, and put more say over how local budgets are raised in local hands.

While this budget lays the groundwork for a fair and green recovery from the pandemic, and invests in the infrastructure and industries of the future, we must be clear that the UK Government’s spending review hindered rather than helped us on this mission, and failed to safeguard the country against the continued impacts of the virus. Far from providing its supposed increase, with all COVID-19 funding and one-off consequentials stripped out, we will in practice see a reduction in our day-to-day funding in 2022-23 compared to last year, at a time when we need to invest in the economy and help public services to recover.

For hard-pressed families, the UK Government’s spending review gave with one hand – with a small increase in the minimum wage, despite failing young people and failing to match the Real Living Wage – while taking with the other, doing nothing to make up for the £20 a week cut in universal credit and risking plunging more families into poverty. In the year of COP26, it turned its back on the global climate crisis – prioritising tax reliefs for domestic air travel over transformational change, and constraining our ability to deliver the capital infrastructure necessary to invest in the good, green jobs of the future. And, it continued to undermine the devolution settlement and set Scottish councils against each other – through the Levelling Up Fund, and the encroachment of the Internal Market Act – while making up little for the funds lost by, and the impacts of, EU exit.

By removing the necessary COVID-19 funding and limiting the future investment needed to seize the opportunity of reducing inequality and a just transition to Net Zero, the UK Government’s settlement means we face difficult decisions in how we manage the continued impacts of the virus while securing a brighter future.

That means this budget cannot deliver the resources all our partners will want. Instead, it addresses key priorities, targets resources on low income households, and paves the way for future investment over the life of this Parliament. Where possible, it seeks to cushion the economy against the headwinds that COVID-19, EU exit and the UK Government’s settlement have created. The Scottish Government has had to dig deep – diverting resources where necessary, and utilising some one-off funding sources to deploy the full resources available to us to start forging a different path.

As people, businesses and communities continue to feel the aftermath of the pandemic, we recognise the need for ongoing stability and certainty for taxpayers, as well as targeted support, as a foundation for the recovery. That is what our tax package delivers, through a more progressive approach to tax. It supports our spending plans, protects essential public services, and underpins support for the people and businesses that need it the most – consistent with our Scottish Approach to Taxation which we will set out in more detail in Scotland’s first Framework for Tax later this month. Alongside the budget we have also published a distributional analysis and a factsheet in relation to Scottish Income Tax.

For businesses, we will continue to offer the lowest Non-Domestic Rates poundage in the UK, as well as ongoing rates relief for the retail, hospitality and leisure sectors, at 50% relief for the first three months of 2022-23, capped at £27,500 per ratepayer. This will save ratepayers in these sectors an estimated £56 million in 2022-23. On Income Tax, the Starter and Basic Rate bands will increase by CPI, and the Higher and Top Rate thresholds will remain frozen in cash terms, raising an additional £106 million in 2022-23.

The overall fiscal and economic position has also required some challenging decisions in relation to public sector pay, while recognising the challenges increases in inflation are having on people. The public sector pay policy secures a minimum inflationary uplift for employees earning up to £25,000 and announces a minimum wage of £10.50 per hour for bodies covered by the policy, helping the lowest paid workers and supporting our poverty reduction measures, which other public sector employers are encouraged to implement within their own pay proposals. At a time of much uncertainty, the government is also maintaining the no compulsory redundancy policy.

Taken together, the Scottish Government – strengthened by the Bute House Agreement with the Scottish Green Party – is putting forward a budget which starts to deliver the necessary investment to secure our long-term ambition of a fairer, greener future. It helps families and young people to break the generational cycle of poverty; tackles the global climate and nature emergencies, and provides

businesses with the confidence to invest in a just transition to Net Zero; and supports the recovery and reform of our precious public services.

Securing those long-term ambitions requires a long-term fiscal plan. Given the continued threats of the virus, and the disappointing settlement from the UK Government, this is a transitional budget. We have identified some additional non-recurring sources of funding that help us maintain levels of public spending when it is most needed. To provide certainty and stability, and demonstrate how we will deliver on our commitments in full across this Parliament, it will be followed by a Resource Spending Review in May 2022. We have published a consultative framework document for that spending review alongside this budget, setting out the priorities and approach which will guide it. This work will complement the already published Capital Spending Review to provide a comprehensive multi-year settlement for all public spending in Scotland.

While the fiscal future and state of the economy remains uncertain, we will press forward with an ambitious programme to secure a fairer, greener Scotland. It is a social, economic and environmental imperative. By investing today in the green technologies of tomorrow, and promoting good, new jobs, we can support businesses to grow and diversify, and play their part in a just transition to Net Zero. By protecting family incomes, enhancing opportunities for children and young people, and providing a strong social safety net, we will be investing in a more certain and secure future for people, and reducing the risk of long-term inequality. And, by protecting and renewing our public services, we can ensure they are equipped to focus on prevention and providing safe, healthy and prosperous lives for people across Scotland. We will use this budget, and the Spending Review, to work across the Scottish Parliament and society to grasp those opportunities, and deliver on our promises to the people of Scotland.