Scottish Spending Review 2011 and Draft Budget 2012-13

Foreword by the Cabinet Secretary for Finance, Employment and Sustainable Growth

In this document, I present Scotland's spending plans from 2012-13 to 2014-15 together with the Draft Scottish Budget 2012-13 for consultation with the Scottish Parliament and the people of Scotland.

When this Government was first elected in 2007, we made clear that we would direct all our efforts to making Scotland a more successful country, with opportunities for all to flourish through increasing sustainable economic growth.

Over the last four years, we have tackled head-on the significant challenges presented by the downturn in the global economy and taken forward an ambitious programme of reform of our public services.

All of this has been undertaken within the context of the most dramatic reduction in public spending ever imposed on Scotland by the UK Government. In 2011-12, we have already been forced to reduce public spending by £1.3 billion, with a 22.9 per cent cash reduction to our capital budget. Under the plans that the UK Government announced in its October 2010 Spending Review, between 2010-11 and 2014-15, we face real terms resource budget reductions of 9.2 per cent and a real terms cut to our capital budget of 36.7 per cent.

We have argued consistently that the UK Government is cutting spending too far and too fast, and that its actions run the risk of damaging the fragile recovery in both Scotland and the UK. While we will continue to press the UK Government to change course, under our current constitutional arrangements, we must work within the spending limits we have been given and deliver a balanced budget.

Despite these constraints, we have acted decisively to support Scotland's economic recovery and to protect our vital public services at a time when they are needed the most.

The latest labour market statistics show that our actions are working. Over the most recent three month period - May to July 2011 - Scotland was the only part of the UK with falling unemployment. Over the year, unemployment has fallen by 33,000 in Scotland compared with an increase of 44,000 across the UK as a whole. Over the

year, Scottish employment rose by 36,000 compared with an aggregate increase of just 24,000 for the UK as a whole. Scotland has the highest employment rate of any UK nation and a lower unemployment rate than the UK as a whole.

Our public sector efficiency programme has delivered savings above our annual targets for each of the last three years which have been re-invested to strengthen public services in Scotland and equip them for the challenges ahead. In 2010-11 alone, we have delivered efficiency savings of £2.2 billion, £600 million more than our target.

Over the past four years, our minority government secured parliamentary support for its budget, balanced the budget in each year and demonstrated its financial competence.

I am proud of this record.

The Scottish people have now returned this government to office, placing their trust in our ability to chart a secure course for Scotland at a time when recovery in the global economy remains fragile and public spending is under real pressure.

Our spending plans set out how we will respond to continuing fiscal challenges, building on the vision in our Programme for Government and the measures set out in the Government Economic Strategy. These priorities mean that we have focused our future spending plans on investment in the people of Scotland, in vital infrastructure and in new opportunities.

This Budget sets out the key commitments this Administration will deliver for the people of Scotland.

Accelerating economic recovery

Our focus is on accelerating economic recovery to create the jobs that our people need.

Crucial to economic recovery is the size of our capital budget. In the face of a cut to Scotland's capital budget of 36.7 per cent in real terms, we have taken decisive action to boost investment in the infrastructure Scotland needs to prosper, supporting jobs and promoting growth. The Government is using every lever to maintain investment. We are:

• switching over £200 million a year from resource spending to support our capital programme;
• taking forward a £2.5 billion pipeline of projects using the Non-Profit Distributing model, including major investments such as the package of improvements to the M8, the Aberdeen Western Peripheral Route and Balmedie project, and the new Royal Hospital for Sick Children;
• investing in our railways, using Network Rail's Regulatory Asset Base, including the Edinburgh Glasgow Improvements Programme;
• prioritising key projects such as the Forth Replacement Crossing, the New South Glasgow Hospitals and our school building programme; and
• funding manifesto commitments to deliver 30,000 new affordable homes over this Parliament.

Alongside this, we are using innovative mechanisms such as the National Housing Trust and Tax Incremental Financing to secure additional funds and maximise investment. Taken together, these steps will ensure that government-supported investment continues to grow, despite cuts in our capital budget.

We are prioritising our investment in Scotland's young people to enable them to achieve their full potential. This includes supporting 125,000 Modern Apprenticeship places during this Parliament, a record level, and delivering on our commitment that every 16-19 year old in Scotland who is neither in work nor part of a Modern Apprenticeship scheme nor receiving education will be offered a learning or training opportunity.

We will use procurement as a lever for economic growth and, to this end, we intend to require recipients of major public contracts to deliver new training, employment and apprenticeship opportunities.

The Spending Review settlement for universities guarantees that the sector remains internationally competitive and truly excellent in world terms. Most importantly, access to higher education in Scotland will remain free for Scottish students.

We are also investing in Scotland's competitive advantage in the low-carbon economy. With our abundant renewable energy resources and our energy engineering, business and academic expertise, we have the opportunity to become a world leader in low carbon activities. Our budget includes increases in renewable energy investment and a focus on creating jobs.

A priority for the Spending Review period is to deliver the ambition of next generation broadband to all by 2020, with significant progress by 2015, as set out in Scotland's Digital Future: A Strategy for Scotland, and ensure that businesses across Scotland have the skills and aspiration to enable them to innovate and compete in the global digital economy.

In this Spending Review, despite the unprecedented cuts in our budget, we will continue to provide business with the most generous package of rates reliefs available anywhere in the UK worth £2.6 billion (over the current revaluation cycle 2010-2015). We will continue with the Small Business Bonus Scheme, which is helping tens of thousands of businesses across Scotland.

Public services and the reform agenda

This Government has pursued a vigorous programme of efficiency and public sector reform since 2007. We have valued the work of the Independent Budget Review chaired by Crawford Beveridge CBE, the Commission on the Future Delivery of Public Services chaired by Dr Campbell Christie CBE and the Review of ICT Infrastructure in the Public Sector in Scotland conducted by John McClelland CBE. These have informed our decisions for the future.

We are protecting NHS spending by allocating an additional £826 million to the health revenue budget in Scotland over three years. This meets our commitment to pass on in full to the NHS in Scotland the benefit of the Barnett resource consequentials from

the UK health settlement. As a result of this commitment - and at a time of real terms reductions in the overall budget of the Scottish Government - the core budgets that our territorial Health Boards have to spend on delivering frontline health services are protected in real terms in each of the next three years. This will allow us to drive

forward continuous improvement in the quality of healthcare services in the interests of our economy and the health and wellbeing of communities across Scotland.

We have discussed and agreed with the COSLA leadership an approach to delivering Joint Priorities between national and local government that produces a settlement which will enable local authorities to maintain the delivery of shared commitments that impact positively on households throughout the country:

• freezing the council tax;
• funding Police Boards to allow them to maintain 1,000 additional police officers on our streets;
• maintaining teacher numbers in line with pupil numbers and securing places for all probationers under the teacher induction scheme; and
• meeting the needs of our most vulnerable and elderly through the NHS and councils working together to improve adult social care.

We will lead an ambitious programme of public service reform that challenges the public sector in Scotland to reshape, integrate and deliver better services to those who use them, consistent with the recommendations of the Christie Commission, and with the requirement to deliver savings. We will establish single police and fire and rescue services and reform post-16 education.

The Government will drive greater integration of services at local level, firmly in line with the focus on improving outcomes that we have taken forward since 2007, through joint work with local government, the health service and the third sector. As part of the public service reform agenda, we will give full consideration to the proposals from local government to strengthen their constitutional role and to extend the duty of Best Value across the public sector.

Preventative spending

Despite the acute financial pressures we face, this spending review marks a decisive shift towards preventative spending. Focusing on preventing problems by intervening earlier is not only the right approach to many of the social and other issues facing us in Scotland today; it also secures better value for the taxpayer. We are doing this to build a nation fit for the future.

The Scottish Government's shift to target investment in preventative approaches will deliver better outcomes and value for money and respects the parliamentary consensus that exists in this area. Our focus will be on supporting adult social care, early years and tackling re-offending - with specific funding designed to encourage joint working across institutional boundaries and sectors. Over the next three years, through the Joint Priorities work of national and local government, preventative spending initiatives will be boosted by £500 million.

Preparing for the future of Scotland

In these tough times, the government is determined to equip Scotland for the future. We will invest more than £160 million over the next three years and a further

£90 million in 2015-16 across the five components of the Scottish Futures Fund (SFF) to support our key economic, social and environmental objectives. These funds have been designed as focused interventions to address many of the deep-seated problems which exist in Scotland and which hold us back from achieving our full potential. A key theme of the SFF will be support for children and young people through the Young Scots and Sure Start Funds. This is an important component of one of the key pillars of this Government's approach to public service reform - a decisive shift towards early intervention and prevention. The other three funds contribute to delivering the infrastructure of the future across Scotland: superfast broadband, energy-efficient homes and low carbon travel.

Financial challenges

The financial challenges that we face as a government take place at a time when household incomes are under great strain through pay constraint, rising inflation and higher energy costs. I do not underestimate the effect of these challenges and the pressures on households across Scotland. In response, the Scottish Government has set out its commitment to a Social Wage. At its heart, the Social Wage asks those who work in the public sector to accept pay restraint while the Government will support households through measures such as the council tax freeze, free education and the abolition of prescription charges. Through the choices in this Spending Review, we are acting to create new economic opportunities, protect household income, support frontline services and improve our environment. Our initiatives aim to help households facing pay restraint, a necessary measure to protect jobs and assist the economy.

We also recognise the pressures on households due to the increases in energy prices. As part of our commitment to bringing down emissions, as well as helping those affected by fuel poverty, we will continue to invest in energy efficiency measures that will bring down bills across Scotland.

Inevitably, the Spending Review requires difficult decisions to be taken in our efforts to sustain the public finances and public services. We have had to reduce organisational costs; restrict pay costs; switch resource spending to support vital capital projects; maximise the income gained from asset sales; and introduce a public health levy for large retailers. The Government has taken all these decisions in a way that is consistent with its manifesto commitments and its record of sound management of public finances, seeking always to drive out efficiency, protect employment and prioritise delivery of frontline services.

The Scottish Government faces these unprecedented challenges without the powers that other countries have at their disposal. That is why we also continue to push for the constitutional changes that would enable us to do much more.

However, until such a time, the Scottish Government will use its powers, its energy and its abilities to ensure that we maximise the value and impact of public spending in Scotland.

I commend the proposals set out in this Budget to Parliament. They are focused on accelerating economic recovery and preparing Scotland for the future. By working together I believe we can take forward an approach which best meets the needs of the people of Scotland in these challenging times.

John Swinney MSP
Cabinet Secretary for Finance, Employment and Sustainable Growth

September 2011