Tackling climate crisis prioritised in future spending plans
Net Zero Secretary Michael Matheson has pledged to maximise the use of public funding to accelerate the delivery of plans to tackle climate change.
The Resource Spending Review, published this week, commits to increased spending on heat in buildings, active travel and peatland and woodland restoration.
Capital spending on programmes will also increase by over half a billion pounds over the next three years, to speed up the reduction in greenhouse gas emissions and build climate resilience across Scotland.
The Scottish Government has also committed to increasing its efforts to leverage private sector investment in the just transition to net zero, to make better use of limited public funds.
Key commitments in the Resource Spending Review include:
up to £75 million per year to deliver the Heat in Building Strategy, enabling £1.8 billion investment towards targets to decarbonise over a million homes and 50,000 non-domestic buildings by 2030;
up to £95 million towards meeting woodland creation targets of 18,000 by 2024/25;
£46 million to introduce the community bus fund and an increase in funding for concessionary travel schemes as well as investing up to £150 million of resource and capital across the spending review period in active travel, as part of a shift of transport funding to walking, wheeling and cycling – supporting our commitment to cut car kilometres by 20 per cent by 2030;
investment of over £12 million in peatland restoration to double current restoration rate and put us on track to hit our target of 20,000 in 2025/26;
£4 million of resource spending alongside £150 million capital and financial investment for the North East and Moray Just Transition Fund;
Rollout of the agriculture National Test Programme to enhance farmers and crofters’ awareness of their climate performance.
Net Zero Secretary Michael Matheson said: “This spending review comes at a critical point in the global challenge to address the climate crisis. Tangible global action is becoming ever more urgent, and Scotland is committed to playing its part with some of the most ambitious, legally-binding targets in the world.
“That is why our future spending plans prioritise investment in the package of measures to tackle climate change and deliver a just transition – as set out in our updated Climate Change Plan.
“But, as the Finance Secretary set out earlier this week, the challenging fiscal environment in the coming years means we must redouble our focus on efficiency, structural change and collaboration.
“That is why I am committed to ensuring we maximise every penny of public investment, working collaboratively with the private sector and our communities to accelerate delivery of public policies that will reduce emissions, build resilience to the impacts which are locked in, tackle biodiversity loss and help to create a fairer, greener society.”
HOUSEHOLDS ACROSS EDINBURGH TO BE SUPPORTED BY £23 BILLION
As communities across Edinburgh recover from the pandemic and face a Tory made cost of living crisis, yesterday the SNP Government’s spending review outlined record social security spending to help households facing increasing pressures. The Scottish Government allocated around £23 billion for social security over the course of the parliament.
The focus on supporting households under increasing pressure reflects the SNP’s commitment to create a fairer Scotland by tackling child poverty, reducing inequalities and supporting financial wellbeing in Edinburgh, and builds on current efforts to help families and mitigate Westminster welfare cuts.
The Resource Spending Review outlined over £23 billion worth of payments, with a total of almost £1.8 billion for the ‘game changing’ Scottish Child Payment alone. By 2026-27 the budget for Social Security Assistance will have increased by £6.3 billion.
This is despite the Scottish Budget for this year being cut in real terms by 5.2 per cent by the Tory UK government and the SNP government already spending almost £770 million on cost of living support, including several measures for families in Edinburgh not available elsewhere in the UK, such as:
Doubling the ‘game changing’ Scottish Child Payment to £20 per child per week with plans to increase it to £25 and extend it to under 16s by the end of the year – reaching a possible 450,00 young people.
Investing £86m to mitigate the Tory Government bedroom tax and benefit cap and support 90,00 people in their tenancies
Uprating eight Scottish social security payments by 6 per cent
A brand new Low-Income Winter Heating benefit that guarantees a £50 annual payment to over 400,000 low income households in winter 22/23
The Carers Allowance Supplement which will support around 90,000 carers with an additional £450 a year
Providing everyone in primaries one to five and over 140,000 eligible children and young people access to a free school lunch
Making free bus travel available for nearly half of Scotland’s population through concessionary travel
Additionally, the Scottish Government is making investment in areas like energy efficiency to bring down costs and the spending review set out how the SNP will build on these over the coming years.
SNP MSP for Edinburgh Pentlands, Gordon MacDonald, said: ““I am very glad to see this record investment in social security by the SNP Government, putting such a strong focus on tackling child poverty and helping households both across the Edinburgh Pentlands constituency and the wider city who are facing severe pressures right now which seems likely to only increase for the next while.
“Many families across Edinburgh are already benefitting from support like the Scottish Child payment, a £150 council tax reduction, the Scottish Welfare Fund and Discretionary Housing Payments which mitigate Westminster’s cruel bedroom tax.
“These are policies that build on the SNP’s current efforts. They will make a real difference to people’s lives and build on long standing measures that we benefit from every day – such as free prescriptions, free university tuition, free personal care, and 1,140 hours of free early learning and childcare which will continue to be maintained.
“When times are tough, Governments have to make tough decisions and I’m grateful the SNP government continue to focus on what matters most to people but, it is acting with one hand tied behind its back as Westminster continues to inflict its cruel austerity agenda at a time when people need support the most.
“Once again, it is clear that only with the full powers of independence, that we can stop spending a fixed budget on protecting households against Tory cuts and start to properly build a fairer, more equal Scotland.”
An ‘ambitious but realistic’ public spending framework has been published which outlines how more than £180 billion will be invested to deliver priorities for Scotland.
The Resource Spending Review, which is not a budget, outlines how the Scottish Government will focus public finances in the coming years to tackle child poverty, address the climate crisis, strengthen the public sector as Scotland recovers from Covid and grow a stronger, fairer and greener economy.
A targeted capital spending review has also been published to address a reduction in capital investment by the UK Government. As well as supporting the NHS and affordable housing, the capital spending review will invest around £18 billion up to 31 March 2026, with over half a billion of additional funding directed to net zero programmes compared to previous plans.
Finance Secretary Kate Forbes said: “We are of course still recovering from the Coronavirus pandemic. There is still acute pressure on the NHS, on business and the wider economy. The illegal Russian invasion of Ukraine is a humanitarian crisis, which is affecting the global economy. Rising energy prices and constrained supply chains have affected countries worldwide. While inflation is also impacting other countries, it is not impacting them equally.
“The UK currently has the highest inflation of any G7 country– almost twice the rate of France. Brexit has made this problem worse, with increases in food prices, hitting the poorest hardest. We are experiencing an unprecedented cost of living crisis. Inflation is at a 40-year high of 9 per cent with households facing considerable hardship.
“Today’s Resource Spending Review is not a Budget. However, it is essential to share high-level financial parameters with public bodies, local government and the third sector, so we can plan ahead together.
“Today I set out an ambitious but realistic public spending framework for the years ahead. It does not ignore the realities of our financial position, but neither does it roll back on our ambitions for change.”
Further changes to Scotland’s fiscal position and to tax and social security forecasts are expected to change the funding picture ahead of annual budgets.
The spending review however does prioritise sending in key policy areas.
These are:
Tackling child poverty and supporting households and businesses with the cost of living
£22.9 billion for social security assistance
increasing the Scottish Child Payment from £10 to £25 and expanding eligibility by the end of this year
providing universal free school meals to primary school children in P1-5 and expanding provision beyond that
uprating devolved benefits
Securing stronger public services
investing £73.1 billion in health and social care including developing a National Care Service
increasing investment in frontline health services by 20 per cent over this Parliament
spending more on primary and community care to ensure people get the right treatment in the right place
funding of £42.5 billion for local government for the delivery of services
investing £11.6 billion in the justice system
Achieving net zero and tackling the climate crisis
up to £75 million per year to deliver the Heat in Building Strategy, enabling £1.8 billion investment towards decarbonisation
up to £95 million towards meeting woodland creation targets
£46 million to introduce the community bus fund and an increase in funding for concessionary travel schemes
investment of over £12 million in peatland restoration
£4 million of resource spending alongside £150 million capital and financial investment for the North East and Moray Just Transition Fund
Building a stronger, fairer and greener economy
capital investment of £581 million to support the economy, including our enterprise agencies and the Scottish National Investment Bank
continuing through the Inward Investment Plan to attract high quality inward investment in areas such as energy transition and the space sector
pushing forward with the export growth plan A Trading Nation to scale up Scotland’s international reach
embedding entrepreneurship in education, to give young people opportunities to start and grow businesses
The spending review provides a platform for engagement ahead of the next budget on how best to reform Scotland’s high performing public sector to become more efficient, to deliver ambitious outcomes. That means rapidly digitalising the public sector, maximising revenue through public sector innovation, reforming the public sector estate and the public body landscape, and improving public procurement.
The annual Medium Term Financial Strategy has also been published to provide the economic and fiscal context for the Resource Spending Review and Capital Spending Review, including the fiscal challenges that lie ahead.
COSLA has stated that the implications of the Scottish Government’s spending plans for the rest of the parliament are deeply concerning for communities across Scotland and fail to recognise the fundamental role Local Government has in addressing the Government’s own priorities of child poverty, climate change and a stronger economy.
The ‘Resource Spending Review’, published on 31 May, shows no prospect of an increase to Local Government’s core funding for the next 3 years, which is especially concerning in the current context of soaring inflation and energy costs.
This “flat-cash” scenario gives extremely limited scope for recognising the essential work of our staff, whose expectations around pay continue to be, quite rightly, influenced by Scottish Government’s decisions in relation to other parts of public sector. Put simply, the plans as they stand will mean fewer jobs and cuts to services. COSLA is seeking an urgent meeting with the First Minister and Cabinet Secretary for Finance to discuss this further.
COSLA’s Resources Spokesperson Gail Macgregor said “Every year at Budget time, COSLA argues for fair funding for Local Government to maintain the essential services our communities rely on.
“No increase in our core funding damages these services and yesterday’s announcement will see this continue for at least the next three years. Our communities are starting to see and feel the difference”
Yesterday, the Fraser of Allander Institute also immediately recognised the impact on councils – “The local government budget will decline by 7% in real terms between 2022/23 and 2026/27…….the real terms erosion of the funding allocations of local authorities represents the continuation of a longer trend”
Commenting on the resource spending review, a spokesperson for the Scottish Children’s Services Coalition commented: “The Scottish Government’s resource review, which highlights a spending gap of around £3.5 billion by 2026/27, points to highly challenging times ahead for our public services (1st June 2022).
“The Fraser of Allander Institute noted that, within this, councils will see real term cuts of 7 per cent between 2022/23 and 2026/27, the implications of which are highly disturbing for those with additional support needs (ASN) who we support.
“Those with ASN make up around a third of our children and young people, including autism, dyslexia and mental health problems, many of whom were already facing considerable barriers to support and not receiving the care they need when they need it.
“While we have witnessed a more than doubling in the number of these individuals over the last decade, putting an immense strain on services, there has been a cut in spending on additional support for learning and a slashing in specialist educational support.
“Covid-19 has had a further major impact, denying care to many, and with these latest swingeing public service cuts we are potentially facing a ‘lost generation’ of vulnerable children and young people.
“We would urge the Scottish Government and newly elected councils to work together to ensure that those children and young people with ASN are made a priority, able to access the necessary support to allow them to reach their full potential.”
The STUC have yet to comment on the Spending Review.
Tomorrow (Tuesday 31 May) the Scottish government will publish a Spending Review and a Medium Term Financial Strategy. At the same time, the Scottish Fiscal Commission will publish updated economic and fiscal forecasts for the period to 2027.
This article by DAVID EISER at the FRASER of ALLANDER iNSTITUTE considers six key things to look out for:
How much detail will the government provide about its spending plans?
The government has said that its resource spending review will ‘outline resource spending plans to the end of this Parliament in 2026-27’. This will, it says, ‘give our public bodies and delivery partners greater financial certainty to help them rebuild from the pandemic and refocus their resources on our long-term priorities’.
What has remained unclear is the level of granularity at which the government intends to set its spending plans.
A spending review is not a multi-year budget, and we shouldn’t expect it to look like one. But we have no idea whether the government is going to set out spending plans at portfolio level, or in more detail than this. Portfolio-level plans would be useful, but some organisations would, justifiably, point out that Portfolio level plans provide them with little if any certainty about their own allocations.
There is a possibility too that the government does not in fact set-out portfolio level spending plans, but instead provides information about its spending plans for only a selective list of its policy ‘priorities’. This sort of approach would certainly represent a missed opportunity.
How will the government address uncertainty?
The UK government’s Spending Review in October set out spending allocations for the Scottish government for each year until 2024/25. These allocations aren’t necessarily set in stone, but whilst they might well increase a bit, they almost certainly won’t be reduced.
The Scottish government does not have confirmed allocations for 2025/26 and 2026/27 and there is significant uncertainty around what the government’s allocations will be in these years.
It will be interesting to see how the Scottish government addresses this uncertainty in the spending review. Will it set out plans for a single scenario only? Will it set out a central scenario, together with spending plans under alternative scenarios? Or will it provide broad ranges over which it expects spending on different public services to fall?
There is a reasonable case for the government to adopt a different approach for 2023/24 and 2024/25 than it does for 2025/26 and 2026/27. But it shouldn’t use the uncertainty in the last two years of the parliament as justification for providing less detailed information in the next two years.
What insights will we get into the government’s policy commitments… and the implications for non-prioritised areas of spending?
The Spending Review should give us some further clues about the government’s emerging plans in various areas. For example, the timescales for, and financial implications of, plans to establish a national care service may emerge more clearly.
What is less clear is how much the spending review will tell us – explicitly – about levels of spending for non priority areas.
The Scottish government’s MTFS in December pointed out that the difference between its spending aspirations and its likely budget was over £2bn in 2024/25 (see Figure 6). This is a substantial funding gap (although it is not clear what assumptions lie behind it).
The spending review framework notes that ‘With limited resources, increased investment in the Scottish Government’s priorities will require efficiencies and reductions in spending elsewhere: we need to review long-standing decisions and encourage reform to ensure that our available funding is delivering effectively for the people of Scotland.’
It will be interesting to see whether the spending review document itself is as candid about where spending reductions are taking place as the framework document implied it might be.
How significantly will the economic outlook deteriorate?
The last set of SFC forecasts were published in December 2021. A huge amount has changed in the five months since then.
The December 2021 forecasts described an economy that had recovered from the pandemic more strongly and smoothly than had been anticipated earlier that year. The economy was forecast to grow 2.2% this financial year and 1.2% next.
Unemployment was forecast to peak at 4.9% in 2022, down from an expected peak of over 7% in its previous forecast. Inflation was expected to increase in 2022 to around 4.4% – enough at the time to cause the SFC to forecast a fall in real earnings.
We live in a different world now. By March 2022, inflation was 7%, and by May the Bank of England was expecting inflation to peak at 10% this year. The rise in inflation, together with tax increases, leads the Bank to forecast that 2022 will see the second largest annual fall in disposable household incomes since the 1960s.
The SFC’s forecasts will inevitably paint a similarly gloomy picture for real household incomes in Scotland, which in turn will result in a contraction of its forecasts for economic growth, and probably a deterioration in its medium term outlook for the labour market. Exactly how the SFC sees the cost of living crisis play out will be interesting to see.
In May the Bank of England’s forecast implied prolonged stagnation in UK economic activity, although it did not (quite) forecast a recession in a technical sense. If the SFC does forecast a recession in Scotland, this will no doubt dominate headlines, but it will be important to look closely at how different the UK and Scottish economic forecasts are in a tangible sense.
What will be the implications of the fiscal forecasts for income tax and the Scottish budget?
The SFC’s economic forecasts will have implications for the Scottish budget, via the income tax forecasts in particular. These implications are not as immediate as you might think – Tuesday’s forecasts do not themselves have major significance for Scottish government spending this year, since the forecasts made at the time of the budget are what really matters until tax outturn data is available.
But Tuesday’s forecasts will give an indication of whether the outlook for the contribution of income tax to the budget has improved or deteriorated since the budget forecasts in December.
Its very difficult to predict the outcome. Its quite conceivable that the forecasts for Scottish income tax revenue will be revised up, if the SFC believes that higher inflation and recent further falls in unemployment will drive up earnings growth. But what ultimately matters is how the SFC’s judgements play out alongside the OBR’s equivalent judgements for the UK (since these are what determine value of the income tax block grant adjustment).
The December forecasts painted a gloomy picture. Scottish income tax in 2022/23 was forecast to raise £190m less than what was taken out of the block grant to account for tax devolution, and £257m less in 2023/24.
Kate Forbes will be hoping for any signs of an improvement in the outlook. But whatever the implication of Tuesday’s income tax forecasts, they will in reality need to be taken with a pinch of salt, given the differences in timing between the OBR and SFC forecasts.
The other really important element of the fiscal forecasts will be what they say about the outlook for devolved Scottish social security spending, relative to the related uplift in the block grant.
Spending will inevitably be substantially higher than the level of additional resources flowing through the block grant, as a result of policy divergence in Scotland (in relation to disability benefits, carer’s allowance, and the new Scottish Child Payment). But the extent of the gap will have implications for the resources available to the Scottish government in other areas of devolved spending.
What will the MTFS tell us about the government’s wider strategic ambitions?
The Medium Term Financial Strategy sets out risks to the devolved budget over a five year period. We can expect the MTFS to analyse issues including uncertainties relating to inflation and the implications for public sector pay.
But past MTFS documents have also given a steer about some of the government’s wider strategic fiscal objectives and asks. It will be worth looking at what this year’s MTFS says about these issues – which potentially include positioning statements in relation to further tax devolution, or extension of borrowing and budget management tools – particularly in the context of the upcoming review of the fiscal framework.
David Eiser is Senior Knowledge Exchange Fellow at the Fraser of Allander Institute
Finance Ministers from across the devolved nations have joined forces to call for flexibility, fairness and clarity from the UK Government.
For the first time, all three finance ministers – Kate Forbes, Rebecca Evans and Conor Murphy – today made co-ordinated statements in their respective legislatures.
The ministers are asking the UK Government for greater fiscal flexibility to manage the implications of coronavirus (COVID-19), meaningful involvement in the Spending Review to enable planning of budgets and an assurance that lost EU funding will be replaced in full and brought under the control of devolved administrations.
Finance Secretary Ms Forbes said: “Today the finance ministers of the devolved administrations are taking this unprecedented step to demonstrate the level of concern we share across the different nations of the UK, across different parties and across different legislatures.
“The importance of these issues cannot be overstated. They directly impact our ability to respond to COVID-19, to manage our nations’ finances and to support our communities and businesses during the pandemic.
“As representatives of our three nations, we are calling for the UK Government to provide the clarity, certainty and flexibility we require. These calls must not go unanswered.”
Ms Evans said: “I am focused on protecting the people of Wales from the worst impacts of the pandemic, while laying the foundations for recovery based on jobs, our young people and the environment.
“However, the Chancellor’s decision to cancel the UK autumn budget, alongside the uncertainty of the Spending Review and the complete lack of information on replacement EU funding, all contribute to making our task harder still.
“Wales, Scotland and Northern Ireland are today calling on the UK government to provide the fairness, flexibility and clarity we need to support and protect our communities and businesses.”
Speaking in the Northern Ireland Assembly, Mr Murphy said: “As Finance Ministers we represent over 10 million people and today we speak with one voice. We are calling for more fiscal flexibility to manage the implications of COVID-19.
“We are calling for proper involvement in the Spending Review so we can plan our Budgets. We are also calling for lost EU funding to be replaced in full, and brought under local control.”
