Scottish Budget: draft budget 2018-2019

Chapter 1: Strategic Overview for the Draft Budget 2018-19

In September 2017 the First Minister published our Programme for Government – ‘A Nation with Ambition’ – that outlines the Scottish Government’s plan to transform Scotland’s public services, grow our economy and seize the economic opportunities that will emerge in the coming decades.

It committed the Scottish Government to refocusing our efforts and refreshing our agenda to meet the changing needs of our people and the unprecedented challenges of our times.

This Draft Budget sets out the Scottish Government’s tax and spending plans for 2018-19 and is the next step in delivering that programme.

Our Vision

In the face of the UK Government’s continued austerity, sluggish UK economic growth, and the uncertainty caused by Brexit, we have a duty to protect our public services, protect jobs, boost the economy, and uphold the rights and values of an open, inclusive, diverse, tolerant and progressive democracy.

We have a responsibility to tackle climate change and an economic opportunity in preparing Scotland for the new, low carbon world.

And, as our population ages, we must meet the needs of our older citizens while ensuring fairness across the generations and taking steps to grow our working-age population.

To meet these challenges and seize the opportunities we must revolutionise our productivity, not least through innovation, entrepreneurialism and internationalisation. We must make Scotland one of the best places in the world to live, to work, to run or invest in a business, and to explore and commercialise new ideas.

This requires long-term investment in economic opportunity and infrastructure not least through support for first-class digital connectivity and the transition to a low carbon economy.

And it requires excellent public services, starting with an NHS that will always remain free at the point of need and equipped to meet the challenges of a changing population.

The Choice We Make

Over the decade between 2010-11 and 2019-20, Scotland’s discretionary budget allocation will be eight per cent – £2.6 billion – lower in real terms. Over the next two years alone, our Block Grant from the UK Government for day-to-day spending in Scotland is projected to fall by over £500 million in real terms.

That level of austerity does not just fail the needs of the current generation, it weakens our ability to meet the challenges of tomorrow.

In order to invest in our future prosperity, protect our public services and build the fairer nation we all want to see, the Scottish Government has chosen a different path.

We will use the income tax powers devolved through the Scotland Act 2016 to raise additional revenues.

We will use those revenues to halt the cuts to Scotland’s budget. We will always choose to invest in the NHS but, with the additional revenues, we will be able to do so and also invest in our economy, childcare, school education and in the range of public services that people the length and breadth of Scotland rely upon.

In doing so, we recognise the pressure on household incomes and we will make the tax system fairer and more progressive, protecting those on the lowest incomes and reducing inequalities. Overall, the changes we make to income tax will result in the majority of tax payers paying less than they do now – with those on the highest incomes contributing proportionately more.

This Draft Budget will:

• increase spending on health by over £400 million;
• provide £120 million – over and above core education funding – direct to headteachers to help ensure all young people can fulfil their potential;
• lift the one per cent public sector pay cap and provide for a three per cent pay rise for NHS staff, police, teachers and others earning up to £30,000;
• protect local government day to day spending for local services in cash terms and deliver an increase in capital spending of £89.9 million;
• contribute £756 million towards investment of more than £3 billion by 2021 to deliver 50,000 affordable homes;
• deliver over £4 billion of funding for infrastructure;
• support the procurement of the R100 programme to deliver superfast broadband to 100 per cent of business and residential premises across Scotland;
• double investment in City Region Deals;
• provide the most competitive business rates package in the UK and cap business rates uplifts at CPI ;
• invest £243 million towards the expansion of free early learning and childcare;
• deliver the first £70 million of a new £150 million Building Scotland Fund which, together with £340 million of planned initial capitalisation for the Scottish National Investment Bank, will create a programme of additional economic investment of almost £0.5 billion over the next three years;
• invest nearly £2.4 billion in our colleges, universities, enterprise and skills bodies – including a real terms increase for both College and Higher Education budgets;
• continue to invest in protecting and maintaining Scotland’s environment; and
• protect police and fire services and ensure they retain, in full, the savings created from now being able to reclaim VAT .

Our Social Contract

The provision of high quality universal services, combined with progressive taxation represents a strong social contract between the government and the people of Scotland. This contract supports the economy of Scotland, reduces inequality and boosts intergenerational fairness. It gives everyone a stake in our public services and the economy.

This budget will:

• invest in the NHS , keeping it free at the point of need;
• maintain free personal care and prepare for expansion to include those under 65s who require it – a policy also known as Frank’s Law;
• establish a social security system based on dignity and respect and invest over £100 million in mitigating UK welfare cuts including the ‘bedroom tax’;
• guarantee that higher education remains free of tuition fees for all eligible Scottish or EU domiciled undergraduate students and drive forward our commitment to equal access to university;
• maintain the current provision of 600 hours per year of early learning and childcare and invest in the expansion towards 1,140 hours by 2020 – the same number of hours as a child spends in primary school;
• provide access to free sanitary products to students in schools, colleges and universities;
• ensure roads and bridges remain toll free and support concessionary travel; and
• support sports, arts and culture across the country including free access to the permanent collections of the National Museums, Galleries and Library.

Income Tax

Under the current devolved settlement, income tax is the only major tax power that the Scottish Government has at its disposal.

To support our public services, the economy, and to maintain the benefits of the social contract, this budget sets a distinct income tax policy for Scotland.

Our policy will protect the lowest earners by introducing a new 19p Starter Rate of tax and freezing the Basic Rate.

In order to make the tax system more progressive the policy will introduce a new Intermediate Rate of 21p and increase both the Higher Rate and Top Rate by 1p respectively.

Under these proposals, more than 70 per cent of tax payers will pay less tax next year.

This means that those earning under £33,000 will pay less income tax in 2018-19 than in 2017-18, with higher earners paying proportionately more.

Our proposals will also mean that for a given income, 55 per cent of taxpayers – those earning up to £26,000 – will pay marginally less income tax than if they lived elsewhere in the UK . For the majority of Scottish taxpayers, Scotland will be the lowest taxed part of the UK .

By simultaneously lowering the Starter Rate of tax and increasing the Top Rate of tax we will make Scotland the fairest taxed part of the UK and reduce income inequality, as measured by the Gini coefficient.

The independent Scottish Fiscal Commission ( SFC) has forecast that these proposals will provide an additional £164 million for investment in public services in Scotland. This estimate takes account of possible behavioural changes.

Economic and Fiscal Outlook

Scotland’s economy has continued to grow in 2017. Scotland’s economic fundamentals also remain strong with the number of people in employment rising and the unemployment rate close to the lowest ever level.

Despite these positive signs, Scotland’s economy still faces significant challenges. The Scottish Fiscal Commission’s report, published alongside this draft budget, highlights that Brexit presents a key risk to Scotland’s economy and will reduce migration, productivity and trade in the coming years. Table 1.01 sets out the SFC’s headline economic forecast.

The Scottish Fiscal Commission’s forecasts, estimate that employment will rise further, unemployment will remain at near record lows, and earnings growth will accelerate.

The SFC also highlights the challenges that Scotland faces and points to the need for continued efforts to improve performance on productivity. They forecast that, partly as a result of Brexit, productivity growth will be subdued in the coming years, and our working age population will shrink, both of which will feed through to lower GDP growth.

Table 1.01: Headline Economy Forecasts (Calendar Year Basis)

	2016	2017	2018	2019	2020	2021	2022
GDP (per cent growth)	0.4	0.7	0.7	0.9	0.6	0.9	1.1
Employment (millions)	2.61	2.64	2.66	2.66	2.66	2.66	2.67
Earnings (per cent growth)	3.2	2.0	2.2	2.4	2.6	2.8	3.1

Scottish Government Spending Limits

The Scottish Government 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 as adjusted to reflect taxes devolved to Scotland through Scotland Act 2012 and Scotland Act 2016;
• independent forecasts of receipts generated by those taxes; and
• planned use of available devolved borrowing powers and use of the Scotland Reserve.

The overall block grant allocation has increased in recent years as the responsibilities of the Scottish Parliament have increased. However, the discretionary elements of the block grant allocation have experienced a sustained real terms reduction since 2010-11. For 2018-19 alone, the fiscal resource budget allocation is £211 million lower in real terms than in 2017-18.

In 2018-19, the cumulative impact of Scottish Government decisions on tax and capital borrowing is to reduce the real terms reduction to the Scottish fiscal budget from 8 per cent to 5.1 per cent between 2010-11 and 2019-20, generating an additional £812 million for investment in public services in Scotland in 2018-19 that would not otherwise have been available.

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

Table 1.02: Scottish Government Budget Control Limits for 2010-11 and 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)	828	1,247	1,423
Total Budget Limit from HM Treasury (A)	29,600	30,141	30,274	31,348	31,867	32,293
of which:
Fiscal Resource Budget Limit	25,624	25,991	26,088	26,679	26,860	26,903
Non-cash Budget Limit	642	1,030	967	1,057	1,105	1,145
Capital Budget Limit	3,335	2,734	2,891	3,166	3,413	3,726
Financial Transactions	–	386	329	446	489	519
Block Grant Adjustment			(5,500)	(12,450)	(12,472)	(12,793)
Scottish Income Tax			4,900	11,829	12,115	12,582
Land and Buildings Transaction Tax			538	507	588	628
Scottish Landfill Tax			133	149	106	88
Non-Tax Income				36	25	25
Net Resource Budget Adjustment (B)			71	71	362	530
Capital Borrowing (C)	–	306	316	450	450	450
Total Scottish Government Funding (A+B+C)	29,600	30,447	30,661	31,869	32,679	33,273

2010-11 figures are adjusted to include Council Tax Benefit for comparison purposes. Block Grant Adjustment figures shown for 2018-19 and 2019-20 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. Net Resource Budget Adjustment is the impact of SG decisions on taxes against the Block Grant Adjustment. 2019-20 capital borrowing figure for illustration only – final decisions on 2019-20 borrowing will be taken as part of the 2019-20 budget process.

Table 1.03 Real Terms Changes to HM Treasury Spending Limits

HMT Spending Limits – Real Terms (2017-18 prices)	2010-11 £m	2015-16 £m	2016-17 £m	2017-18 £m	2018-19 £m	2019-20 £m
Fiscal Resource Budget	28,624	26,993	26,495	26,679	26,468	26,142
Capital Budget	3,726	3,157	2,936	3,166	3,364	3,621
Total	32,350	30,150	29,431	29,845	29,832	29,763
Real-Terms Change against prior year			(2.4%)	1.4%	0.0%	(0.2%)
Real Terms Change on 2010-11		(6.8%)	(9.0%)	(7.7%)	(7.8%)	(8.0%)

Excludes Financial Transactions

Table 1.04 Real Terms Changes to Scottish Government Funding

SG Adjusted Spending Limits – Real Terms (2017-18 prices)	2010-11 £m	2015-16 £m	2016-17 £m	2017-18 £m	2018-19 £m	2019-20 £m
Fiscal Resource Budget	28,624	26,993	26,567	26,750	26,825	26,657
Capital Budget + Capital Borrowing	3,726	3,157	3,257	3,616	3,807	4,058
Total	32,350	30,150	29,824	30,366	30,632	30,715
Real-Terms Change against prior year			(1.1%)	1.8%	0.9%	0.3%
Real Terms Change on 2010-11		(6.8%)	(7.8%)	(6.1%)	(5.3%)	(5.1%)

Excludes Financial Transactions

2018-19 Proposed Portfolio Budget

Scotland’s devolved Total Managed Expenditure, a mix of discretionary and ring-fenced funding, amounts to £40.6 billion including a control total of £32.7 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 2018-19, which will be laid before the Scottish Parliament in January 2018.

Table 1.05: Total Proposed Spending Plans for 2018-19

2018-19 Draft Budget 1,2	Resource £m	Capital 3,4 £m	Total £m	UK Funded AME £m	Total £m
Health and Sport	13,147.8	351.2	13,499.0	100.0	13,599.0
Finance and the Constitution	164.9	6.7	171.6	4,624.0	4,795.6
Education and Skills	2,813.6	171.0	2,984.6	428.0	3,412.6
Justice	2,540.1	112.8	2,652.9	-	2,652.9
Economy, Jobs and Fair Work	266.0	423.8	689.8	-	689.8
Communities, Social Security and Equalities	7,146.3	1,733.4	8,879.7	2,636.0	11,515.7
Environment, Climate Change and Land Reform	165.0	239.9	404.9	-	404.9
Rural Economy and Connectivity	1,447.0	1,359.4	2,806.4	-	2,806.4
Culture, Tourism and External Affairs	314.6	29.7	344.3	-	344.3
Administration	179.5	13.1	192.6	-	192.6
Crown Office and Procurator Fiscal Service	112.4	3.6	116.0	-	116.0
Scottish Government	28,297.2	4,444.6	32,741.8	7,788.0	40,529.8
Scottish Parliament and Audit Scotland	106.1	1.5	107.6	2.0	109.6
Total Scotland	28,403.3	4,446.1	32,849.4	7,790.0	40,639.4

1. All figures are in cash terms and are presented on a full resource basis, and include depreciation and impairment charges where appropriate.

2. In order to manage our budgets over the Spending Review period the Scottish Government will make use of the Budget Exchange Mechanism agreed with HM Treasury, whereby there is flexibility to carry forward underspends, within agreed limits, and draw them down the following year.

3. Capital includes Financial Transactions, details of which appear in relevant portfolio chapters.

4. The proposed capital budget reflects the Scottish Government’s intention to utilise the borrowing powers available through the Scotland Act 2016. Given the variety of factors that impact on major projects, the capital programme will be proactively managed through the financial year.

Budget Process Review Group

Ahead of Draft Budget 2017-18, the Finance and Constitution Committee and the Scottish Government jointly established a Budget Process Review Group to carry out a fundamental review of the Scottish Parliament’s budget process following the devolution of further powers in the Scotland Act 2012 and Scotland Act 2016.

The final report of the Group, published in June 2017, set out a series of wide ranging recommendations as to how the process could be improved including a suggested implementation timetable. The majority of recommendations will be implemented ahead of Draft Budget 2019-20 but in developing this Draft Budget, we have made a concerted effort to improve the transparency and accessibility of the document. New thematic chapters on the Enterprise and Skills Bodies and Infrastructure Investment will begin to address Recommendation 23 whilst the decision to adjust the tables and annexes and publish all tables online alongside the main documentation delivers on Recommendation 44 as well as our Open Government Partnership commitments.

The Scottish Government will continue to work with the Finance and Constitution Committee to amend the ‘Written Agreement’ to ensure that the report’s recommendations are delivered in full.

Investing In Public Services

A World-Class Health Service

The NHS, which will be 70 years old in 2018, is our most treasured public service. Our manifesto committed us both to reform and investment, including a pledge to increase spending on the NHS by £2 billion over the course of this Parliament. To deliver upon that commitment we are providing additional resource investment of over £400 million in the health service in 2018-19. This is over £200 million more than inflation.

This continued investment will ensure that prevention and early intervention improve healthy life expectancy while we transform the way we deliver health and social care to adapt to Scotland’s changing health and care needs.

In 2018-19 we will:

• provide additional investment for health and sport, taking our total investment in 2018-19 to almost £13.6 billion;
• deliver investment in primary care reform of £110 million. By the end of the Parliament, expenditure on primary care will increase by £500 million to 11 per cent of the frontline NHS budget;
• transfer £355 million from the NHS to Integration Authorities to ensure improved outcomes on health and social care;
• increase the level of investment in mental health services by £17 million while delivering 800 additional mental health workers over the next five years; and
• invest an additional £3 million to promote and spread health innovation, supporting better collaboration between the NHS, academia, industry and medical research charities.

Investment in Health and Social Care Integration

Integration of health and social care is the most significant reform of the NHS since its establishment in Scotland in 1948. It brings together NHS and local government services to deliver person-centred care that supports people to retain their independence in their own homes and communities for as long as possible.

£8.5 billion was previously managed separately by Health Boards and Council, but is now the responsibility of Integration Authorities. Pooling budgets in this way gives local systems greater opportunities to maximise their use of all of their resources to improve people’s health and wellbeing. As well as providing ongoing support to Integration Authorities as they integrate care, we are enhancing the social care sector’s ability to meet increased demand and provide better services.

In 2018-19 we will provide an additional £66 million to bring the Carers (Scotland) Act 2016 into force, to continue to support the delivery of the Living Wage for adult social care workers, and to increase payments for free personal and nursing care.

The Best Start in Life

2018 is Scotland’s Year of Young People and the Scottish Government is committed to ensuring that Scotland is the best place in the world to grow up. This is why we are establishing a £50 million Tackling Child Poverty Fund to trial innovative programmes that address the underlying social and economic causes of poverty. We will also introduce a new enhanced Best Start Grant to replace the current Sure Start Maternity Grant, to be delivered by summer 2019.

A child’s early years are critical to determining outcomes in later life. This budget sees a step-change in the funding for the transformational expansion in childcare and early years’ education, with investment of £243 million towards providing 1,140 hours of childcare per year. It also provides £8 million to fund the baby box, giving every child born in Scotland the same everyday essentials that they need.

Investment in Early Learning and Childcare

There is clear and compelling evidence that the earliest years of life are not only crucial to a child’s development but also have a lasting impact on health, education and employment later in life. High quality Early Learning and Childcare ( ELC) is critical to giving the best possible start in life to all our children, particularly to those from disadvantaged backgrounds, and is an investment that will continue to pay dividends throughout life.

That is why, as part of providing the best start for every child, we are committed to a transformative expansion of ELC.

We have already increased free, high quality early learning and childcare by almost 50 per cent to 600 hours per year since 2007 and this budget continues to fund that in full through local government.

Now, we are committed to the ambitious goal of increasing funded ELC entitlement to 1,140 hours per year – the same number of hours a child spends in primary school.

This will require substantial additional investment in both extra staff and premises. For example, we estimate that up to 11,000 additional ELC workers will be required by 2020 to deliver the expansion.

This budget therefore delivers £243 million investment in 2018-19 for the expansion.

Of this, an additional £54 million of resource funding will support expanding the workforce, upskilling existing ELC staff and funding increased capacity in graduate level courses.

To support the expansion, an additional £150 million of capital investment will fund a substantial programme of refurbishment of existing premises or construction of new settings.

Excellence and Equity in Schools

Closing the attainment gap in education and raising the bar for all is the key priority of the Scottish Government.

As part of our wider reforms, over 2,300 schools have already benefited from receipt of Pupil Equity Funding – which provides support to those schools who need it most and empowers headteachers to spend it on additional staff and resources at their discretion. As at September 2017, 666 FTE teachers have been recruited through the Attainment Scotland Fund ( ASF). These additional teachers show the potential when headteachers are empowered to make the decisions about their schools and communities and the value of our focus over the last six years on maintaining teacher numbers.

In 2018-19 we will:

• allocate £179 million to local authorities through the Attainment Scotland Fund, as we continue to allocate £750 million over the term of the Parliament. This will include:
  • £120 million directly to headteachers through the Pupil Equity Funding; and
  • £59 million in Attainment Scotland funding, which will continue to provide targeted support for those authorities and schools supporting children and young people in greatest need;
• protect local authority core revenue budgets in cash terms, to reduce pressure on education and other budgets;
• provide £10 million to organisations that provide support to children and young people with complex additional support needs;
• deliver key commitments in the STEM Education and Training Strategy, by supporting public science engagement initiatives, including science centres and festivals and a new national STEM engagement campaign;
• commit an overall funding package of £88 million in the local government finance settlement to support both achieving a pupil teacher ratio at a national level and ensuring that places are provided for all probationers who require one under the teacher induction scheme; and
• provide an additional £24 million to fully cover the 2017 teachers’ pay offer.

Safer Communities

The Scottish Government continues to deliver radical reforms to our justice system – improving access to justice and ensuring that the system meets the needs of people. This will include major reforms implemented in Scotland’s courts; securing the benefits of reform from our police service; investing in the next phase of transformative reform of the fire and rescue service; and working with the new national body, Community Justice Scotland.

Our emergency services play a vital role in keeping our communities and homes safe and secure. After six years of pressing the UK Government to address the iniquitous treatment of VAT for our emergency services, we welcome their belated decision to do so. We will pass the benefits of that decision straight on to our police and fire services and continue to press the Chancellor of the Exchequer to refund the £140 million of VAT receipts previously charged.

Affordable Housing and Homelessness

Everyone in Scotland should have access to good quality, secure, affordable housing. 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 activity of around £1.7 billion per year, supporting up to 14,000 full-time equivalent jobs. House builders in Scotland will also have access to the Building Scotland Fund to boost their activities.

In 2018-19 we will:

• invest £756 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; and
• introducing an LBTT relief for first-time buyers on the first £175,000 of the purchase price which, together with the existing zero rate of LBTT for homes up to £145,000, will mean that 80 per cent of first-time buyers will pay no LBTT.

We will also renew our mission to address the problem of homelessness and rough sleeping, allocating the first £10 million of a £50 million fund devoted to tackling the issue.

Local Government

This budget provides a total core funding package amounting to £10.5 billion for local government. This protects local government day to day spending for local services in cash terms and delivers an increase in capital spending of £89.9 million.

Local authorities will also have the flexibility to increase council tax levels by up to 3 per cent, providing up to an additional £77 million for investment in local services.

A combination of Scottish Government funding with the additional resources available from council tax, can secure a real terms increase in the overall resources to support local government services.

In addition to the core 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 Deal investment. These funding streams total £361 million of funding in 2018-19.

Investing In Our Economy

The Programme for Government articulated the Scottish Government’s vision for Scotland to be an inventor and producer of the goods, industries and skills of the future not just a consumer. This budget delivers key investments to support that vision such as:

• providing a £270 million (almost 40 per cent) uplift in our expenditure in the Economy, Jobs and Fair Work portfolio;
• establishing a new £150 million Building Scotland Fund to boost housebuilding, commercial property and research and development;
• guaranteeing an initial capitalisation of £340 million between 2019-21 for the Scottish National Investment Bank;
• beginning the procurement of a £600 million multi-year investment in our R100 Broadband programme, which will secure superfast broadband for every business and household in Scotland by 2021; and
• the £2.4 billion investment in our enterprise and skills bodies as outlined in Chapter 4.

These major investments will underpin our focus on innovation, infrastructure and investment, internationalisation and inclusive growth. They will be supported by our approach to business rates.

A Great Place to do Business

Our reforms to the business rate system will ensure that Scotland provides the best possible environment for businesses to start-up, grow and scale-up.

These include:

• using CPI (3.0 per cent) rather than RPI (3.9 per cent) to calculate the annual uplift in the poundage this year – something demanded by business and supported by the Barclay Review;
• providing the most competitive reliefs package in the UK, worth a record £720 million, up from £660 million in 2017-18;
• protecting the Small Business Bonus Scheme, lifting 100,000 properties out of rates altogether and continuing to provide better support for Small and Medium Enterprises than elsewhere in the UK; and
• going beyond the recommendations in the Barclay Report to introduce a growth accelerator, so that new properties are only added to the roll after first occupation.

Investing in Innovation and our Businesses

The Programme for Government underlined our determination that Scotland lead the way on the industries and jobs of the future. To do so we must revolutionise our productivity, intensify our support for innovation and entrepreneurialism and support those industries that can be internationally competitive in a constantly changing world market. We cannot do this on our own but we will work with, and invest in, our businesses and higher and further education institutions to secure these changes.

In 2018-19 we will:

• support innovation with £15 million of additional investment in research and development as the first tranche of £45 million to be made available over the next three years;
• give Scottish companies a competitive edge in manufacturing processes through the establishment of the National Manufacturing Institute for Scotland (backed by £18 million of investment) and continued support for the Lightweight Manufacturing Centre; and
• invest £4 million in the Unlocking Ambition Challenge over the next two years for a group of up to 40 talented individuals and early-stage entrepreneurs who have big ideas and ambitions to be mentored and led by some of Scotland’s leading entrepreneurs.

Connecting Scotland

Scottish businesses and citizens operate in an increasingly digital context. Our investment in digital infrastructure will position Scotland, and many of its most deprived or geographically remote communities, at the forefront of the digital revolution.

By the end of 2017 we will have achieved our existing commitment to deliver fibre access to at least 95 per cent of premises in Scotland.

The Scottish Government is now committed to extending superfast broadband access across all of Scotland by 2021 – the only part of the UK to have such a commitment.

This will build on the success of our Digital Scotland Superfast Broadband ( DSSB) programme. We will deliver the commitment through the Reaching 100% (R100) programme, which will see £600 million of public funding invested to help create a future-proofed, truly national fibre network – a vital first step towards achieving the commitment.

An initial procurement will formally begin in December 2017 and is expected to last approximately one year. A total £600 million capital investment package will be made available over the four financial years to March 2022.

Broadband activity will continue on the ground during 2018-19, through the DSSB programme. This will be funded through a contractual mechanism (Gainshare), where new investment has been generated by early take-up on the fibre network. Gainshare will benefit every local authority area across Scotland during 2018, avoiding any significant gap between DSSB and R100 deployment.

Building Scotland – Infrastructure and Investment

Along with digital infrastructure this budget maintains and expands the government’s commitment to modernising Scotland’s infrastructure, with total investment of over £4 billion in 2018-19.

Our investments include:

• £1.2 billion in our transport infrastructure including key road and rail projects such as improvements to the A9; the electrification of the Stirling, Dunblane and Alloa line; improvements to the route between Aberdeen and Inverness; and on the Highland Main Line;
• almost £40 million capital investment in the regeneration of disadvantaged communities through the Regeneration Capital Grant Fund, the SPRUCE infrastructure investment loan fund, the Vacant and Derelict Land Fund and sponsorship of the Clyde Gateway;
• completing the £100 million Shieldhall Tunnel project, bringing environmental improvement to the River Clyde and reducing sewer flooding risk in South Glasgow;
• delivering the Ayrshire resilience scheme at over £120 million;
• doubling investment in City Region Deals further developing the deals we have agreed with Glasgow, Inverness, Aberdeen and Edinburgh and seeking to secure deals for Stirling and Clackmannanshire, the Tay Cities, and deliver a regional deal for Ayrshire; and
• making £7.5 million in capital funding available for an Ultra-Deep Water Port in Scotland.

Trade and Investment

In spite of ongoing uncertainty over the impact of Brexit, we know that our businesses need to export more and that we require continuing inward investment to secure growth and jobs.

So, in 2018-19, we will:

• open a new Innovation and Investment Hub in Paris to complement those already established in London, Brussels, and Dublin;
• continue our expansion of the number of people working for Scottish Development International across Europe to market Scotland, complementing the work of our network of Trade Envoys to champion Scotland’s export interests;
• strengthen and deepen our engagement with the US, Canada, Japan, China, India and Pakistan, with a focus on education, business and culture;
• continue to fund VisitScotland to deliver sustainable growth in the wider visitor economy, by working collaboratively with the Scottish tourism industry and public sector partners to ensure that Scotland develops as a world-class tourism destination; and
• launch our Rural Tourism Infrastructure Fund to help address infrastructure needs in rural areas.

A Sustainable Economy

Scotland is a world-leader in tackling climate change, which represents not only a moral imperative but an economic opportunity. Our environment and economy are intrinsically linked, and Scotland’s transition to a more prosperous, low carbon economy is already well underway. We have created jobs and backed innovative new industries while winning international respect for our ambition and leadership on this defining issue.

This year’s PfG was the greenest in Scotland’s history and this budget acts on those commitments: supporting our low carbon work across renewable energy; energy efficiency; sustainable travel; waste reduction; and rural land use.

Our commitments include:

• doubling our investment to £80 million in a range of measures to support our ambitions to build an Active Nation;
• investing £50 million towards the target to phase out the need for new petrol and diesel cars and vans by 2032;
• a £60 million low carbon innovation fund;
• making available £137 million this year as part of a commitment to invest more than £500 million over four years in energy efficiency and heat decarbonisation; and
• contributing to global efforts to tackle climate change and its impacts through our Climate Justice Fund.

Culture, Heritage and Major Events

We recognise that Scotland’s unique heritage and culture sit at the heart of our quality of life and wellbeing. They also form an essential part of a thriving tourism industry that generated around £11 billion of economic activity in 2015, and employs over 200,000 people. Given the importance of our culture and creative industries, we will commit to resources for Creative Scotland over the next three years, so that they can maintain support for the Regular Funding programme in the face of a significant decline in Lottery receipts.

In 2018-19, we will provide:

• an additional £6.6 million to Creative Scotland to support the Regular Funding programme; and
• investment of £10 million to create a dedicated screen unit in Creative Scotland to strengthen support to our film and TV sector - this will increase public funding to £20 million per annum.

To support our ambition to make Scotland a perfect stage for world class events, we will invest £36.8 million in a programme of major events including the inaugural Glasgow 2018 European Championships.

Delivering Fairness

Tackling inequality is at the heart of this Government’s ambitions and we have been taking action through the Fairer Scotland Action Plan launched in October 2016.

Investing in People

The Programme for Government set out a clear commitment to lift the 1 per cent cap on public sector pay.

The 2018-19 Public Sector Pay Policy published alongside this Draft Budget recognises the rising cost of living; provides significant 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 rising costs for households and individuals with the need to protect funding for public services.

The pay policy includes a three per cent pay rise for all earning less than £30,000; caps the pay bill at two per cent for all those earning more than £30,000; and limits the maximum pay uplift for those earning over £80,000 to £1,600.

This delivers an uplift in pay that is at least equal to the increased cost of living for more than half the staff in our key public sector workforces, and will benefit many of those in frontline public sector roles.

This means a Band 5 nurse will receive a pay rise of £870 next year and a trainee fire-fighter a rise of at least £680.

The Scottish Government also recognises the contribution that unpaid carers make to our public services and communities. That is why we will support the implementation of the Carers (Scotland Act) 2016 from 1 April 2016, with investment of £19.4 million in Health and Social Care Partnerships. This will enable carers to continue caring if they so wish, and to have a life outside caring.

Fair Work for Everyone

At the heart of our economic strategy is a commitment to inclusive growth.

Successful economies not only need to harness the power of technology but also successfully harness the full potential of the workforce. Technology has the potential to create a revolution in the type of work we do, and the structure of our working lives. Done correctly, this can revolutionise productivity and provide new and rewarding employment.

By embedding Fair Work and Inclusive Growth in our economy we can ensure that everybody is equipped with the skills to flourish in the economy of the future and that those communities which have previously faced the greatest barriers to work are at the heart of this.

We will:

• exercise one of the first powers devolved under the Scotland Act 2016 to deliver a fully devolved employment support service, Fair Start Scotland, providing tailored, person-centred support to people who face barriers to entering the labour market and staying in work;
• continue to develop and refine the Flexible Workforce Development Fund to promote partnership working between colleges and employers to deliver high quality training opportunities to up-skill and re-skill the workforce;
• ensure that contracts for our large infrastructure projects include community benefit clauses, to achieve continued employment and training opportunities;
• produce a Rural Skills Action plan to enhance employment opportunities for young people;
• grow and develop our Modern Apprenticeship programme, as we continue to expand towards our target of 30,000 new Modern Apprenticeship opportunities a year by 2020; and
• provide skills development and employability support to minimise the time individuals affected by redundancy are out of work, through our initiative, Partnership Action for Continuing Employment ( PACE).

We must also ensure that the work we create in our new economy, will continue to foster a culture of fair work. Through the independent Fair Work Convention we will strive to create work that offers people in Scotland opportunity, security, fulfilment and respect, balancing the rights and responsibilities of employers and workers, and generating benefits for individuals, organisations and society.

Social Security

We will also continue to tackle the effects of the UK Government’s austerity policies, sustaining action to protect our society’s poorest members. This includes £50 million to fully mitigate the ‘bedroom tax’ through Discretionary Housing Payments, sustaining funding for the Scottish Welfare Fund and increasing funding for our Fair Food Fund, which we are increasing from £1 million to £1.5 million. We will also continue to maximise the incomes of people through our benefit take-up work to ensure people receive all the financial support to which they are entitled.

To support all households on low incomes, we have invested over £1 billion in the Council Tax Reduction Scheme since 2013-14, assisting almost half-a-million households each to meet their Council Tax.

The Social Security (Scotland) Bill was published on 21 June 2017 and sets a framework for a new social security system that is designed to meet Scottish needs.

This will allow Scottish Ministers to shape a distinct social security system for social security benefits devolved under the Scotland Act 2016, based on dignity and respect. We will drive forward implementation of these new powers, and the establishment of a new agency, over the term of this parliament.

Equalities

We want Scotland to be an open, welcoming and inclusive country and will continue to give priority to tackling inequality and to promoting equality, by increasing our investment in this area to over £22 million in 2018-19. This resource will support human rights, work to prevent violence against women and girls and strengthen community engagement.

We will also continue to support the third sector to maximise the impact of the sector, including empowering and supporting communities; tackling inequality; and providing support and investment to the social enterprise sector, credit union movement and wider enterprising third sector.

Conclusion

The measures outlined in this budget will preserve the social contract between the Scottish Government and the Scottish people in the context of significant economic challenges, maintaining investment in our public services and our ambitious commitment to inclusive growth. They will also help to create a Scotland ready to embrace the future: a nation of innovators and makers, and a more prosperous, sustainable economy.