Scottish Budget: draft budget 2018-2019

Foreword

by the Cabinet Secretary for Finance and the Constitution

This budget builds on the bold and ambitious plans outlined by the First Minister in the Programme for Government, 'A Nation with Ambition'. It invests in economic opportunity for all, in public services that are fit for the future and in a fairer, more inclusive Scotland.

It recognises the economic turbulence created by Brexit uncertainty, the reality of continued UK austerity and the increasing pressure on public services as a result of an ageing population. And, it seeks to meet the challenges and seize the opportunities presented by new technological developments and the shift to a low carbon economy. All of these issues require a strong response from Scotland’s Government.

Our spending choices are made in the context of the continued reduction in the discretionary block grant we receive from the UK Government. Between 2010-11 and 2019-20 this will fall by £2.6 billion in real terms and over the next two years alone we face real terms cuts of over £500 million in the block grant we receive for day-to-day spending.

As a result, this budget sets out how we will use the devolved powers of our Parliament to mitigate further cuts and to deliver a strong, dynamic economy supported by investment in public services, education, business, infrastructure and tackling inequality.

The decisions we have taken in this budget enable Scotland to get ahead of the curve with investment in our world-leading universities, a new National Manufacturing Institute for Scotland, and support for our entrepreneurs and innovators, our creative industries and for the internationalisation of our economy.

This budget builds the foundations of an agile economy. It continues our work to deliver superfast broadband to 100 per cent of business and residential premises across Scotland, supports new investment in low carbon industry and invests in low carbon transport solutions and more energy-efficient homes. We also take the first financial steps toward establishing Scotland’s National Investment Bank with long-term funding commitments and a new Building Scotland Fund.

We will make Scotland the most attractive place to run or establish a business with a package of rates reliefs that goes beyond that available elsewhere in the UK and a cap on the inflationary uplift in business rates to CPI.

Of course, securing our future economic success depends on securing more inclusive growth, with an economy backed by strong public services, investment in a fairer society and a clear social contract.

To ensure opportunities for all our citizens we will invest in delivering 50,000 affordable homes and tackling homelessness so that no one is deprived of a safe and affordable place to live.

We will support our young people and those who care for them. This budget puts nearly a quarter-of-a-billion pounds towards our commitment to double the availability of publicly-funded nursery education and childcare and provides £120 million directly to headteachers to deliver on this Government’s priority of raising standards for all and closing the attainment gap in education.

We will continue to mitigate the impact of UK Government welfare reform on the most vulnerable, build a Scottish social security system based on dignity and respect and take steps to alleviate poverty in all its forms.

And, crucially, we will deliver on our commitments to the National Health Service. Our spending plans this year contain over £400 million of additional investment in health.

Scotland’s health service is undergoing a transformation to meet new pressures and changing demands. This budget delivers record investment in the NHS as well as funding to further increase the care and support provided closer to people’s homes, boost mental health spending and deepen the integration of health and social care.

This budget also delivers real terms increases in funding for education, and protects our police and fire services. Recognising the importance of high quality local services we will also improve the settlement for local government and lift the public sector pay cap.

This Government would always deliver fully on our commitment to the NHS, but we are only able to do so without placing severe pressure on funding for education, the economy, local government services or the lifting of the public sector pay cap, because of the decisions we have taken to use Scotland’s powers in relation to taxation.

Reflecting the principles-based approach we have taken across all areas of tax policy our decisions on income tax meet the four key tests set out earlier this year in our discussion paper ‘An Income Tax Policy for Scotland’.

Introducing a new starter rate, 1 per cent below the basic rate, and increasing the top rate of tax, will make Scotland’s tax system fairer and more progressive. In doing so we are able to increase revenues, reverse this year’s real terms cut from the UK Government, and at the same time ensure that the majority of taxpayers will pay less than in other parts of the UK. Indeed, the new starter rate, combined with an increase in the personal allowance, will result in 70 per cent of all income tax payers paying less than they do this year.

Alongside our decisions on tax we have also chosen to protect the social contract, ensuring there are no tuition fees for Scottish students in higher education, expanding free personal care for the elderly to those under 65 who need it, continuing our policy of no prescription charges and maintaining concessionary travel.

These measures, combined with our investment in the NHS, the economy, infrastructure, education and essential public services, ensure that, in the year ahead, Scotland will be the fairest taxed part of the UK, providing the best deal for taxpayers.

Derek Mackay MSP
Cabinet Secretary for Finance and the Constitution