I welcome the opportunity to update Parliament on the implementation of the 2015-16 Scottish budget and to provide a statement on the provisional budget outturn for the 2014-15 financial year.
The recently announced additional summer budget, scheduled for 8 July, is expected to set out further information about the United Kingdom Government’s approach to future public expenditure. It will be followed by a comprehensive spending review, conducted by the UK Government, which is likely to report in the autumn.
The Scottish Government’s 2016-17 budget will be presented after the publication of the UK spending review, and I will liaise with the Finance Committee on timings for the announcement of the budget once the date of the UK comprehensive spending review is made clear.
Turning firstly to this year’s budget, I know that many in Parliament share my concern about the impact of the Chancellor of the Exchequer’s announcement on 4 June that he is making further budget reductions in 2015-16. For Scotland, those amount to reductions of £91 million in our resource departmental expenditure limit budget and £16 million in our capital DEL budget, which come to a total of £107 million. Those reductions should be seen in the context of the 9 per cent real-terms reduction that we were already facing in our fiscal DEL budget over the current spending review period.
I have already made it clear that, in my view, it is unacceptable for reductions to be imposed in this financial year to a budget that has already been agreed by the Scottish Parliament. I met the chancellor on 8 June and urged him to reconsider his approach both to the in-year cuts that he has just announced and to his plans for future public spending. In parallel, the First Minister wrote on 4 June to all Scottish party leaders, inviting them to make similar representations to the UK Government.
The Scottish Government will continue to argue for an end to austerity and for a moderate increase in spending on public services of 0.5 per cent a year in real terms between 2016-17 and 2019-20. That would allow us to continue to invest in our public services while ensuring the sustainability of the public finances. However, while we continue to pursue that case, we have to consider how we might meet the challenge that is presented by cuts to our budget this year and the prospect of further cuts to come.
I confirm to Parliament that the Scottish Government will do everything possible to mitigate the impact of those cuts, and all decisions that we take will ensure that we continue to focus on our priorities of growing the economy, protecting public services and tackling inequality.
We await clarity from the UK Government about the detail of its intentions, but the Institute for Fiscal Studies has estimated that future cuts to departmental budgets will amount to around £24 billion, with a further £12 billion in cuts to welfare. The scale of those future challenges could require us to tackle some of the chancellor’s 2015-16 budget reductions during this financial year. Those could be given effect at the autumn or spring budget revision.
I will consider the impact of the reductions in this year’s budget in light of any further information that is provided by the UK budget on 8 July, and I will advise Parliament of the actions that I intend to take to address this issue after the summer recess.
Parliament should also be in no doubt, however, that as we approach the 8 July UK budget I will continue to make the firmest possible representations to the chancellor for a change in the UK Government’s strategy. Furthermore, I will continue to stress the importance of proper and effective consultation with the Scottish Government—and, indeed, other devolved Administrations—ahead of future budget announcements. I would welcome members’ support in those efforts.
I turn to the provisional outturn statement for the financial year 2014-15. Today’s outturn figures must be set in the context of continued UK Government reductions to the Scottish budget. Since 2010-11, the Scottish Government has managed a 25 per cent real-terms cut to the capital budget as part of dealing with the near 9 per cent real-terms decline in discretionary public spending over that period. We have managed that issue while doing all that we can to boost the economy and invest in public services.
Under the current devolution settlement, the Scottish Parliament is not allowed to overspend its budget. Attempting to spend the exact amount that is contained in the budget carries a considerably increased and difficult-to-justify risk of breaching the budget cap.
As a consequence, I have consistently adopted a position of controlling public expenditure to ensure that I live within the budget cap but remain able to carry forward any spending power resources for use in a future year. That is now a common—and, I would argue, prudent—feature of the Scottish Government’s financial strategy that drives the Parliament’s annual budget process.
In 2014-15 the Scottish Government has again demonstrated sound financial management. I can report to Parliament that within the fiscal DEL—the resources over which this Parliament has discretion—the provisional outturn for 2014-15 is expenditure of £28,598 million against a limit of £28,790 million.
That means that there is an overall fiscal DEL cash carry-forward of £151 million in resource spending and £41 million in capital spending. On resource, that reflects the carry-forward of budgets as part of our financial planning over the years 2014-15 and 2015-16. On capital, the £41 million reflects some movements in the profile of capital investment projects in 2014-15, such as the saving of £5.6 million in Glasgow’s fastlink programme and £16 million in housing capital receipts, among a range of other changes. The full £41 million, along with the £151 million in resource spending, will be carried forward for reinvestment in 2015-16.
There is also a provisional outturn of £12 million in respect of financial transactions that are ring fenced for loans and equity investment outside the public sector. That will be carried forward to support the investment programme in 2015-16.
Overall, including the financial transactions, that means that we will be carrying forward 0.7 per cent of the total 2014-15 Her Majesty’s Treasury budgets. My intention is that the full amount will be carried forward, utilising the budget exchange facility that has been agreed by the devolved Administrations and HM Treasury. That will ensure that there is no loss of spending power to the Scottish Parliament.
As I have previously informed Parliament, at this stage £150 million of the 2014-15 resource DEL carry-forward, together with a further £300 million of non-cash budget cover from HM Treasury, has been earmarked as contingency while the outcome of the Office for National Statistics classification review of the Aberdeen western peripheral route non-profit-distributing project is awaited.
The Scottish Government remains committed to the NPD programme, which is supporting additional economic activity and is delivering benefits in communities throughout Scotland. The Scottish Government and the Scottish Futures Trust believe that current project arrangements demonstrate consistency with the relevant classification guidelines, but while the ONS review remains in progress it is prudent to retain the contingency arrangements that are in place. The ONS operates independently, and I am therefore not in a position to advise when the process will finish, although the review is well under way.
Turning to non-cash DEL, based on the provisional outturn position, expenditure is lower than budget by £153 million. As the description suggests, those resources are not cash in nature; rather, they provide budget cover for differences between estimated accounting adjustments and the final amounts that are calculated. For example, £30 million relates to a lower than expected write-down of the carrying value of the income-contingent repayment student loan book. That is essentially an accounting adjustment.
When I reported those figures last year, some parties suggested that that money could be spent at my discretion on Scottish Government responsibilities. I make it absolutely clear to members in the chamber that those non-cash figures are not resources that are available to fund other spending. That is not at my discretion. I wish it were not the case, but it is a basic fact of Government finance that under rules set out by the Her Majesty’s Treasury over many years such budgets cannot be used to fund other services.
Today’s 2014-15 provisional outturn figures demonstrate once again this Government’s firm grip on Scotland’s public finances. As for 2015-16, I have made clear my view that it is unacceptable for reductions to be imposed in this financial year to a budget that has already been agreed by the Scottish Parliament.