Spending Review 2011

John Swinney

Spending Review 2011

Finance Secretary John Swinney

Statement to Scottish Parliament

Wednesday, September 21, 2011

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Presiding Officer, in this statement, I welcome the opportunity to present to Parliament the Scottish Government's Draft Budget for 2012-13 and our spending plans for the subsequent two years.

This Spending Review falls at a defining moment. It is a moment that is uniquely challenging - with a fragile global economy and savage reductions in the real value of the Scottish budget. Yet at the same time it is a uniquely hopeful moment - in the optimism that exists in our country and the trust placed by the people in this government.

Throughout our first term in office, we applied careful stewardship to the public finances. 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.

Yesterday I wrote to the Convener of the Finance Committee to advise Parliament that in 2010-11, we have delivered efficiency savings of over £2.2 billion, £673 million more than the target we set. I would like to pay tribute to staff throughout the Scottish public sector for this sustained achievement.

Over the last four years, our minority government secured parliamentary support for its budget, balanced the budget in each year and thereby demonstrated its financial competence. That is a record of which we are proud.

The impact of the recession since 2008, has created a serious economic context for our actions in Government.

We responded quickly and decisively with a detailed Recovery Plan which helped support 15,000 jobs across Scotland.

We have attracted major international companies and new investment to Scotland and supported jobs directly, particularly in the construction sector, through our bold programme of infrastructure investment.

We have delivered the Small Business Bonus Scheme which has removed or reduced the burden for tens of thousands of businesses across Scotland and established the Scottish Investment Bank which is now helping Scottish companies to access finance to stimulate businesses across the country.

These, and other measures we have taken have resulted in a recession that - while damaging - was shorter and shallower than that experienced by the UK as a whole.

We are making progress towards economic recovery. 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. At the same time, employment levels have increased by 36,000 over the year - 12,000 more than the increase for the UK as a whole. Scotland now has the highest employment rate of any UK nation. So, to those who give out lectures on growth - and are presiding over stagnation - we say, learn a lesson from the record of investment, job creation and balanced budgets being delivered in Scotland.

Now we face further financial challenges as the Westminster Government has imposed the most swingeing public spending cuts the country has seen since the Second World War. In 2011-12, we have already been forced to reduce public spending by £1.3 billion compared with last year, with an £800 million 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% and a real terms cut to our Capital budget of 36.7%.

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.

Programme for Government Economic Strategy and Spending Review

Against this stark backdrop, we are determined to make the very best use of the constrained resources available to us and to build on the progress we have made over the past four years.

We, in Scotland, will steer a distinct course. We are committed to prioritising capital investment, protecting public sector employment and supporting household incomes as key drivers of economic recovery.

The Programme for Government set out how we want to continue to change our country for the better and how we will take forward the Manifesto that secured widespread backing from the people of Scotland.

The Government Economic Strategy identifies strategic priorities for driving economic growth.

The Strategy highlights how we will make full use of those economic levers currently devolved to the Scottish Parliament, with the aim of improving Scotland's rate of sustainable economic growth. However, many of the key job creating powers - particularly in relation to taxation and key elements of economic and fiscal policy - lie outside the remit of the Scottish Government.

For example 90% of Scottish tax revenues are controlled by Westminster and are set with neither reference to economic circumstances here nor the preferences and needs of Scottish households or businesses.

We have made clear that our immediate constitutional priority is to see economic teeth added to the Scotland Bill - and we have already made the case for new powers on corporation tax, the Crown Estate and more extensive capital borrowing powers.

But, with independence we could do so much more. Independence would provide the freedom to best capture the unique opportunities in Scotland's economy to maximise our potential and put us on a par with other successful independent nations. However, for the purposes of this Spending Review, we must work within the existing financial and constitutional framework, and today I set out my financial plans for the future.

Supporting economic growth

Our focus in the Spending Review is to:

  • accelerate economic recovery
  • deliver an ambitious public sector reform programme
  • deliver a Social Wage for the people

Vital to economic recovery is the size of our capital investment. The Government has agreed to take further decisive action to boost investment in the infrastructure Scotland needs to prosper, supporting jobs and promoting growth.

The Government is using every lever available to it to maximise investment. We are:

  • 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
  • maximising the use of Network Rail's Regulatory Asset Base to fund new rail projects
  • prioritising key projects such as the new Forth Crossing, the New Glasgow Southern Hospitals Project and our school building programme
  • funding manifesto commitments to deliver 30,000 new affordable homes over this Parliament
  • And we have decided, over the period until 2014-15 to switch from resource expenditure to our capital programme a total of over three quarters of a billion pounds

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.

I am also delighted to inform Parliament that the Government's capital programme makes funding available to meet in full the Government's commitments to upgrade the A82 at Crianlarich and Pulpit Rock, to implement the core phase of the Glasgow Fastlink Proposal, to construct HMP Grampian and to support the development of the V&A at Dundee.

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 the lifetime of this Parliament, a record level, and delivering on our commitment that every 16-19 year old in Scotland neither in work, part of a Modern Apprenticeship scheme nor receiving education is offered a learning or training opportunity.

We will also ensure our approach to procurement is used as a lever for job creation by ensuring that recipients of public contract work deliver training and apprenticeship opportunities.

And this Spending Review settlement, guarantees that the University sector in Scotland will remain internationally competitive and closes the funding gap with England in full. In addition to keeping our manifesto commitments on free access to higher education, we will also introduce a minimum income for the lowest income students, as we promised during the election campaign, of at least £7,000.

A priority for the spending review period is to deliver the ambition of next generation broadband to all by 2020, with a particular focus on rural communities and we expect significant progress by 2015, as set out in Scotland's Digital Future: A Strategy for Scotland. We will also ensure that businesses across Scotland have the skills and aspiration to enable them to innovate and compete in the global digital economy. Over the next four years the Government will provide over £62 million in funding for the digital economy and broadband infrastructure and we will lever in a further up to £25.5 million of investment from EU funds, as well as additional funding from local authorities and the private sector.

In this Spending Review, we will continue to provide business with the most generous package of 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 in tough economic times. I will bring forward legislation to reform empty property relief from April 2013, which will introduce incentives to bring vacant premises back into use, reduce the prevalence of empty shops in town centres and support urban regeneration. The Government will embark on a review of the operation of Business Rates in advance of the next revaluation in 2015.

Key initiatives highlighted in the Government Economic Strategy and funded in this spending review include:

  • introducing four Enterprise Areas in Scotland to maximise their economic impact and attractiveness to investment
  • developing a Regeneration Strategy that will support more disadvantaged communities
  • providing advice and support to help SMEs to grow
  • promoting Scottish exports to capitalise on opportunities in growth markets - particularly in new emerging markets such China and India - with an ambitious target to deliver a 50% increase by 2017
  • increasing our support for the development of the food and drink industry and its exporting potential

Low-Carbon Economy

Presiding Officer, Scotland has a massive competitive advantage in terms of low carbon economy. That is why the Government Economic Strategy established the Transition to the Low Carbon Economy as a new Strategic Priority.

That reflects the opportunity we now have to secure further investment and jobs from this growing sector and ensure benefits of this transformational change are shared across the economy and our communities.

The National Renewables Infrastructure Fund will help leverage private investment into Renewables, part of over £200 million of investment in Renewables that we commit to throughout this Spending Review.

We are delivering on our Climate Change targets with ambitious annual emissions reductions targets in place to 2022, and further targets will shortly be in place until 2027. Today we also publish our Carbon Assessment that sets out the impact of our spending plans in terms of emissions.

  • Investment in climate change is helping to deliver jobs and growth as well as bringing down household bills and bringing other benefits for communities:
  • continuing to deliver the hugely successful Climate Challenge Fund, empowering around 350 communities across Scotland to take forward their own solutions
  • our Energy Assistance Package and Universal Home Insulation Schemes, have helped over 200,000 people on low incomes reduce their energy bills and keep their homes warm, tackling fuel poverty head on
  • our business resource efficiency programme Zero Waste helped more than 800 Scottish business to reduce their waste and make better use of scarce resources

And we will take forward the commitments made in our Manifesto which include working to a 70% target for recycled waste and a maximum of 5% to be sent to landfill by 2025.

We will press for the Scottish Parliament to take on responsibility for the Crown Estate Commission so that the resources generated in Scotland can stay in Scotland for the benefit of our communities and the wider renewables agenda.

Of equal importance to the global agenda is the need to ensure that the actions we take to cut emissions also deliver benefits to the people of Scotland.

As I have mentioned energy and resource efficiency will be a priority - assisting people and businesses to use less energy will help to save them money and will be vital in tackling fuel poverty. We are working with the energy companies to strengthen their activities in Scotland and further announcements will be made in due course.

We will also act to reduce the impacts from transport, reducing congestion and supporting better public transport, active travel and low carbon vehicles.

Managing spending pressures

Presiding Officer, this Spending Review confirms an ambitious programme of delivery that we will take forward over the life of this Parliament.

However, the scale and profile of Westminster's cuts also mean we have been forced to make tough choices. As we have done so, we have given due regard to our equalities ambitions and commitments.

The Equality Statement published today sets out the impact of our approach to continue to invest in building a society where people achieve, regardless of their background and where the barriers to participation and opportunity are removed.

To live within our means and deliver on all of our commitments, we must strive for yet greater productivity, reduce further the costs of Government, pursue a policy of pay restraint and push forward renewal of our public services.

Across Government we have taken a strategic and collective approach to identifying our priorities and savings.

We are reducing organisational costs, including a reduction of 18% in the core Scottish Government's operating costs over three years and with a requirement that all public bodies will bear down on their own comparable costs.

We will continue in our relentless pursuit of further efficiency, taking forward the recommendations in the McClelland Review of ICT Infrastructure, working with the Scottish Futures Trust to deliver efficiencies in our infrastructure programme and building the approaches that have seen us exceed our efficiency target for 2010-11 by some £600 million.

McClelland Review and Efficiency

We also need to ensure that we are responding to the public appetite for services to be delivered in ways convenient to them. The McClelland Review looked at achieving better value for money from ICT investment and on using ICT to support and drive multi-agency working and more effective sharing of services.

In setting out the Government's spending plans today, I expect every public sector organisation to demonstrate how they will contribute to the potential savings identified in that report of up to £1 billion in the next 5 years.

I have also considered the options for raising additional income, to help support investment.

The updated Infrastructure Investment Plan, which will be published later in the autumn, highlights the range of activities taking place across sectors to improve asset management and release savings. Building on the work of the Scottish Futures Trust, we will take forward an Asset Management Strategy for the central Scottish Government estate to reduce its size by at least 25% over the next five years and to achieve savings of around £28 million a year in operating costs by 2016.

Public Sector Pay

Last year I had to ask public sector workers to bear some of the burden in dealing with the fall in public spending. We did that to protect employment in the public sector which is a valuable part of our economy and an essential foundation of our public services. Public sector pay accounts for around 55% of the total Scottish Resource budget spending and decisions we take in this area are vital to our overall financial position.

Our Public Sector Pay Policies for 2012-13 published alongside the Spending Review today balance difficult decisions on tight pay restraint with the need to sustain employment opportunities across the public sector. To help maintain staffing levels it is essential that we continue to control pay growth and keep pay at an affordable and sustainable level. The pay policy for 2012-13 therefore extends the freeze on basic pay and suspends access to bonuses for a further year.

In implementing a freeze on basic pay for all staff we have again been able to provide measures to support the lower paid. We will ensure that any employee earning less than £21,000 continues to receive at least a £250 rise in their salary, and I can announce to Parliament that we will be maintaining our commitment to the Scottish Living Wage, uprating this to £7.20 an hour. Ministers will also be freezing their own pay in 2012-13 for the fourth year running.

My aim is that 2012-13 will be the last year of a pay freeze and we may be able to see modest increases in the years that follow.

I wish, today, to express my gratitude again to the many thousands of public sector workers whose commitment to their valuable work has continued in spite of tight settlements and actions to restrain pay. Our objective is to protect public sector employment to support economic recovery.

One of the threats to that objective comes from the UK Government decision to increase Employee Pension Contributions directly affecting public sector workers in Scotland. The Scottish Government has made it very clear that at a time of pay constraint and pressure on household finances, an increase in employee contributions is unwarranted and disruptive. But as the First Minister set out last week, should these increases not be applied, the UK Government will reduce our Budget by £8.4 million per month, £102 million in one year. That would reduce public sector employment and run contrary to the direction of our employment policy.

We believe the UK Government is taking the wrong course of action and we re-iterate our call for them to change direction. Should the UK Government refuse to change its position, the Scottish Government will have no choice but to apply the increases in Employee Pension Contributions for NHS, teachers, police and fire schemes in Scotland. We will put in place protection for the low paid and we will leave decision making on the Local Government Pension Scheme to those who manage that Scheme. We will not impose on Local Government in Scotland what the UK Government has imposed on us.

The pensions issue illustrates exactly the need for this Parliament and Government to become responsible for our own resources and revenue, instead of being held to ransom by a United Kingdom Government that the people of Scotland didn't vote for.

Given the impact of these changes on public sector workers, the Scottish Government makes clear we will continue in 2012-13 our policy of no compulsory redundancies for those areas under our direct control. Within this commitment, we will pursue agreements on flexible working practices which reduce costs while maintaining headcount and services.

Public Service Priorities

The people of Scotland attach the highest value to their public services and the Government shares this view. We have invested and improved key services and the public recognise the benefits of those actions.

As we promised in our manifesto, 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 significant 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 will continue to work in partnership with local government. We have discussed and agreed with the COSLA leadership an approach to delivering Joint Priorities between national and local government. Consequently this settlement will enable local authorities to maintain the delivery of shared commitments that impact positively on households throughout the country including:

  • Freezing the council tax which is helping families during tough economic times
  • 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
  • Meeting the needs of our most vulnerable and elderly through the NHS and councils working together to improve adult social care

Local Government will be offered a settlement that maintains their 2011-12 level of revenue funding inclusive of resources to freeze the Council Tax, but with additional resources to maintain teacher employment. Local Government throughout the Spending Review will receive a larger share of the funds controlled by the Scottish Government (including business rates), than the position we inherited in 2007-08.

I also confirm that from 2012-13 onwards, the Government will honour its commitment to ensure that no local authority receives less than 85% of the average per capita support of Scottish local authorities.

In addition, I have taken a decision on the local government capital settlement that, maintains their share of the total capital funding across the period, but will be reprofiled over the remainder of this Parliament. This reflects the Government's wish to maximise the availability of capital spending and recognises that local government has the power to borrow in order to supplement their capital budgets. We will work with our partners in local government to see to what extent this can sensibly be used to maximise capital expenditure, which is critical to economic recovery.

Public Service Reform

This strong support for key public services in local government and the NHS provides the foundation for setting out the way ahead in public service reform.

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 and the Commission on the Future Delivery of Public Services chaired by Campbell Christie CBE. Today alongside the Spending Review I am publishing a response to the Christie Commission. These Reviews have informed our decisions for the future.

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.

Ministers have already set out our plans for the creation of a single police and a single fire and rescue service as the best way to safeguard the vital frontline services communities depend on.

The case for reform is clear - single services for Scotland will retain local services for local communities while giving all parts of Scotland access to national expertise and assets whenever and wherever they are needed.

Estimated savings of £130 million per year can be achieved by making sure money is spent on the frontline and not on unnecessary duplication across eight services.

We have also announced a significant programme of reform of post-16 education, Putting Learners at the Centre. This work will reflect our determination to make the whole post- 16 education system deliver better outcomes for individuals, employers and ultimately the economy.

A reformed system will prioritise provision for young people, help learners develop the skills employers need now and for the future, and support the development of growth businesses and sectors.

As part of the public sector reform agenda, we will give full consideration to the proposals from Local Government to deliver savings by removing the need for authorities to advertise public information notices, to strengthen their constitutional role and to extend the duty of Best Value across the public sector. We have also made clear our intention to more closely integrate health and social care services to improve outcomes for older people.

There will be four principal themes to our Public Service Reform agenda.

Firstly, the focus on improving outcomes for our people will see greater emphasis on integration of services driven by better partnership, collaboration and effective local delivery. Building on progress achieved in the last four years, we will sharpen the focus of public services on place as a magnet for partnership and the basis for stronger community participation in the design of local services. The Government will drive greater collaboration in service design and delivery 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.

Secondly, we believe there should be greater investment in people who deliver services through enhanced workforce development and reject the argument that suggests that public-sector employment is a drain on the nation's resources. We assert that the work done by public-sector workers is essential to underpin our national prosperity, confidence and quality of life. We have done our utmost to safeguard frontline posts by pursuing responsible pay restraint and, going forward, we are committed to the further development of the capabilities of the public service workforce and its leadership.

Thirdly, we are committed to creating an open and rigorous performance culture within Scottish public services, to create greater clarity around objectives and establish clear lines of accountability that bolster standards of service and improve outcomes.

I am also keen to ensure that external scrutiny such as audits and inspections support public service reform. Such scrutiny can assist local authorities and their Community Planning partner bodies to work together to deliver even better outcomes. I have therefore written today to the Accounts Commission asking them to work with others to explore how best scrutiny activity can promote effective practice in Community Planning Partnerships.

Preventative spending

Despite the acute financial pressures we face, we must never lose sight of our duty to equip our country for the challenges that lie ahead. That is why a key feature of this spending review is the setting of a long-term course for our country and its finances.

The decision of the people to give this Government a Parliamentary majority provides us with the opportunity to take bold action for the future.

I am delighted Presiding Officer to announce that this spending review marks a decisive shift towards preventative spending within Scotland - the fourth and final element of our Public Service Reform agenda.

Focussing 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 tax payer. It will help to tackle persistent inequalities and ensure the sustainability of our public services as demand for a range of acute services reduces over time.

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 that will only be available for 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 a total of over £500 million.

In order to support the shift to preventative spending, I have looked to increase revenue for this purpose. Scotland's health and social problems associated with alcohol and tobacco use are well documented and are something we are firmly committed to addressing. These problems affect not only the health of population, but create additional burdens on policing, local authorities and the NHS. As such, I propose that the business rates paid by large retailers of both tobacco and alcohol will be increased by a supplement from 1st April 2012.

The estimated income this will raise will be used to contribute towards the preventative spend measures that will be taken forward jointly with the Scottish Government, Local Authorities, the NHS and the Third Sector.

These funds will be complemented by the launch of the Scottish Futures Fund which we promised at the election. 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 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 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 which will form part of the preventative spend agenda. The other three funds contribute to delivering the infrastructure of the future across Scotland: superfast broadband; energy-efficient homes; and low carbon travel.

The move to preventative spending. The launch of the Scottish Futures Fund. These are the actions of a Government building a nation fit for the future.

Social Wage

At the heart of this Government's work is our partnership with the Scottish people. The social wage is one part of our tangible commitment to building a fair society. It means that at a time of financial constraint for households, the Scottish Government seeks to give those households a helping hand. It means that where the council tax is frozen, prescriptions and personal care are free, concessionary bus travel is available and access to higher education is based on the ability to succeed rather than the ability to pay, we all share a part of the Scotland we want to be.

Despite the financial pressures we face, we believe that to be the correct approach for Scotland.

Conclusion

Presiding Officer, the Government has today published a Budget and future spending plans that equip Scotland for the challenges that lie ahead. I stand ready to support Parliament's detailed scrutiny of these proposals over the months to come.

We have set out spending plans that confirm the delivery of the commitments we made in May to the people of Scotland - commitments on Jobs, Health, Education, Communities, Equalities and on Sustainability.

We have set out our response to the challenges that we face, making tough choices where required. Our decisions are designed to equip Scotland for economic recovery, for sustainable public services and for new opportunities for our people.

I commend the Budget to Parliament.