UK Autumn Budget: Letter to UK Government

Dear Chancellor,

Following our meeting in Glasgow last month, and ahead of the UK Budget, I want to outline matters of priority for the Scottish Government and opportunities for collaboration.

Pressures on the Scottish Budget

The areas of concern that you set out in your public spending audit have contributed to the unprecedented budget challenge that we now face. In my statement to the Scottish Parliament on 3 September I set out a range of measures to support the 2024-25 budget totalling almost £1 billion, of which up to £500 million are direct savings. We are required to balance our budget each year, and under the Scottish Fiscal Framework have only limited levers with which to flex the funding available to manage new pressures. As such, reductions to planned expenditure is one of the few options open to me to deliver a balanced budget.

This is a challenge facing all devolved governments. I would like to work jointly to consider a set of fiscal adjustments and flexibilities that will support the Scottish Government to manage pressures in 2024-25 and beyond in a prudent and efficient way. Addressing this has the potential to materially reduce pressure on the Scottish Budget this year and in future years. I plan to discuss this with the Chief Secretary to the Treasury and would welcome your support for this work.

Priorities for the UK Budget

Given the magnitude of the challenges to the UK’s public finances that you have outlined, it is crucial that the UK Government work closely with the devolved governments. Ahead of your first Budget on 30 October I would welcome further dialogue on how we protect services and best prioritise and support investment. An early understanding of likely resource and capital funding for 2025-26, including public sector pay and workforce assumptions, will greatly assist our decision-making.

I would also welcome advanced notice of changes to pay and tax policy that will affect devolved revenues, interact with the devolved tax system in Scotland or impact specific sectors of the Scottish economy.

Public services and public sector pay

Investment in public services is key to tackling poverty, growing the economy, and addressing the cumulative impact of EU exit, the pandemic and inflation. As highlighted by the OBR in their recent discussion paper, public investment has the potential to deliver permanent improvements in the economy.

Public sector pay is a significant element of delivering public services and I welcome the UK Government’s acceptance of the Pay Review Body recommendations. As I have previously set out, it is vital that the funding provided to devolved governments in the UK Budget reflects these increased costs.

I would welcome consideration of a four-nations approach to pay reviews and further clarity on how we can explore opportunities to share intelligence on content and timing of pay deals when appropriate.

Tackling poverty

Eradicating child poverty is the Scottish Government’s top priority and we are using our powers to do this, for example through the Scottish Child Payment, helping the families of over 325,000 under-16s who currently receive it. We welcome the UK Government’s launch of a new ministerial taskforce on child poverty and the announcement that a new UK child poverty strategy will be published in Spring 2025. We are committed to working with you to deliver the change needed for families.

However, it is critical that the UK Government acts now to lift children out of poverty. There is clear evidence that the two-child limit is increasing poverty among children and families affected. Recent analysis from the Institute for Fiscal Studies highlights that abolishing the two-child limit could immediately lift 360,000 children out of poverty across the UK, rising to 500,000 by the time the policy is rolled out in full. The Autumn budget provides an opportunity to do this.

Beyond the two-child limit, further action is needed to restore the link between entitlement and need within the UK social security system, and to make the system fairer. I am keen for the UK Government to deliver on plans for a complete review of Universal Credit, and to use this to address punitive caps and limits, and to make progress towards an Essentials Guarantee. Scottish Government officials and ministers stand ready to work with the UK Government on this review and would welcome engagement at an early stage.

The Scottish Government is currently spending £134 million in this year’s budget to mitigate policies put in place by the previous UK Government. In addition to continued investment in our Scottish Welfare Fund, this includes allocating £90.5 million to local authorities to spend on Discretionary Housing Payments, helping to mitigate the ‘bedroom tax’, Benefit Cap and shortfalls in Local Housing Allowance rates. Changes to UK welfare policy would remove the need for us to provide such mitigations, enabling us to use that funding for services like our NHS or on further ambitious anti-poverty measures.

I am also keen that we work together to promote and increase the take-up of benefits to those who are eligible, including by making use of data available to government departments to ensure that households across the UK receive the help they are entitled to. Similarly, we look forward to working with you to protect social security payments for disabled people and ensuring that they continue to receive the financial assistance to which they are entitled. I look forward to constructive engagement between the UK and Scottish governments on these matters.

Infrastructure investment

The sustained high levels of inflation we have seen in the construction sector over recent years has permanently increased the costs of delivering infrastructure. At the same time, we are forecasting significant reductions to both our capital funding and financial transactions allocation which is impacting on our ability to deliver on our key infrastructure priorities.

We discussed these challenges in Glasgow last month and I would appreciate clarity over the future of our Financial Transaction allocation for 2025-26 and beyond. Increased investment in infrastructure is vital to boosting economic growth and I am keen to work with you to ensure Scotland has the capital budget required to continue to make progress towards eradicating child poverty, achieving net zero and maintaining high quality public services.

I welcome the launch of the National Wealth Fund with the aim of boosting investment in national infrastructure projects and catalysing private sector investment. We are keen to have early sight of the UK Government’s legislative plans for the National Wealth Fund including timescales and content of the Bill.

I am encouraged by the positive engagement already underway and hope this continues in the context of the devolution settlement, taking account of bodies such as the Scottish National Investment Bank. We are also seeking greater clarity on interaction between the National Wealth Fund, Great British Energy, the new UK Government Industrial Strategy and forthcoming Global Investment Summit. I am keen that we receive further detail on these points and that there is appropriate opportunity for discussion.

Taxation

In my introductory meeting with the Exchequer Secretary to the Treasury, we agreed on the importance of building trust between our governments. In the spirit of openness, I would welcome early engagement on reserved tax changes that may have an impact in Scotland to ensure the distinct nature of the Scottish devolved tax system is fully considered. This is especially important if UK tax changes have the potential to directly impact the Scottish budget, such as changes to Capital Gains Tax, Inheritance Tax or tax relief on pension contributions.

I am keen to explore areas where we can work together, and with the other devolved governments, to take a four-nations approach to developing tax policy. Reform of motoring taxation is a strong candidate for this approach. In February 2022, the UK Parliament’s Transport Committee highlighted the urgent need for reform to avoid a £35 billion “fiscal black hole” developing over the next 20 years as the transport sector decarbonises. The Budget presents you with an opportunity to set out a programme of reform that puts motoring taxation on a fiscally sustainable footing in a way that meets our shared commitment to a fair and just transition to Net Zero.

Work to design and deliver a successor motoring taxation regime must involve all the governments in the UK to ensure our different communities are properly represented, with particular emphasis on the distinct needs of Scotland’s rural and island communities. Collaboration on the Emissions Trading Scheme provides a good model for motoring tax reform, with each government fairly and equally represented. I would welcome further engagement with you and the Exchequer Secretary on this matter.

UK Spending Review

You updated me last month on your plans for the UK Government’s approach to multi-year spending reviews, which I welcome. Improved multi-year information would support all governments and public bodies to secure value for money. It is important that there is meaningful involvement of the devolved governments throughout the spending review process. This includes plans for replacement EU funding, including your commitment to restore decision-making over the allocation of structural funding to the representatives of Scotland, Wales, and Northern Ireland. It will be important to recognise the responsibilities of devolved governments in deciding spending priorities in devolved areas and I am keen to discuss further.

I appreciate that you will be faced with difficult choices in this budget but, as outlined above, I urge you to prioritise increased funding for public services, investment in infrastructure and meaningful action to lift children out of poverty.

I would be happy to discuss any of this with you and look forward to further detailed engagement at ministerial and official level on the issues raised in this letter. I am copying this letter to the Chief Secretary to the Treasury, Rt Hon Darren Jones MP and the Exchequer Secretary to the Treasury, James Murray MP.

Yours sincerely,

SHONA ROBISON