The Pre-Budget Fiscal Statement – key takeaways

The Finance Secretary presented a Pre-Budget Fiscal Update to parliament this afternoon, to formally set out the challenges the Scottish Government faces in balancing their budget for 2024-25. This formal statement will be welcomed, given the information that dribbled out in a slightly messy way over the summer.

Shona Robison started off by setting out the reasons that there had been a material change in circumstances since the budget was first presented to parliament in December 2023. In the main, she laid the responsibility for the difficulties they are facing at the feet of the new UK Government in Westminster.

Specifically, she pointed to the Chancellor’s spending audit which was published in late July, which set out that public sector pay deals that had been agreed with workers in England would have to be partially funded from reallocating within departmental budgets.

Had she funded the pay deals entirely from new borrowing instead, there would have been equivalent Barnett consequentials to help pay for deals north of the border.

Is it reasonable to blame UK Government for the lack of new money coming to Scotland?

We have commented extensively in recent weeks that this is not entirely fair (if you want the detail of this, listen to our podcast or read here). Indeed, the Scottish Fiscal Commission, in their publication last week, said that “much of the pressure comes from the Scottish government’s own decisions”, citing the council tax freeze, more generous public sector pay deals in previous years and social security reforms.

A really important point in the SFC’s report was highlighting the much higher median public sector pay in Scotland vs the UK, which means that is will cost relatively more in Scotland to settle the same level of pay deal. This would mean that even if the Chancellor had set out that pay deals would be funded from extra spending, the consequentials would not likely be enough to cover a similar deal in Scotland.

So… where are the cuts going to fall?

We’ve highlighted that this approach to budget planning may lead to spending being cancelled which can be stopped, rather than what the government may have chosen to stop if all these choices had been weighed up prior to the budget being set.

The finance secretary set out that there was pay pressure of roughly £800m, and other in year spending pressures. There was still not an actual articulation of the funding “gap” as they see it. She set out the detail of the savings that had been identified –

• Up £60m will be found from emergency spending controls, including recruitment freezes and restrictions on overtime, travel and marketing costs.
• As announced recently, they will not progress with the removal of Rail Peak Fares, or the concessionary fares extension to asylum seekers pilot. As has also been reported in the press, the SG have also agreed with Local Government that they can draw on specific existing programmes (e.g. flood defence spending, funding for tablets for some children) to fund the pay deal offered to council refuse workers. Together these decisions amount to a further £65m of savings.
• A further £188m has been identified from “additional specific savings across all portfolios”. According to this statement, this includes a reduction in resource spend on sustainable and active travel, and “increased interest income on Scottish Water loan balances” (we’re checking into the detail of exactly what this means). The detail of these reductions has been set out in a letter to the Finance and Public Administration Committee, and we’ll be scrutinising the detail of this carefully. The details include an £19m cut to mental health services: the Annex in the letter is worth looking through.

The money that had been allocated at the time of the Scottish Budget for the delivery of the devolved version of the Winter Fuel Payment (which has now been delayed) gives another £160m of funding that can be used in this year (but will have to be paid back in future years through a reconciliation process).

The Cabinet Secretary has also said she is planning on the basis of using £460m of Scotwind revenue funding, to make up the remaining shortfall.

So, the measures announced free up £60+65+188+160+460 m = £933m, which leads us to the Cabinet Secretary saying “the measures being announced today to support the 2024-25 Budget total to up £1 billion”.

What else is happening this week?

Tomorrow, John Swinney will present his first Programme for Government as First Minister. This had been planned a few weeks after he came to power as First Minister in May, but had to be delayed due to the UK General Election being called on 22^nd May.

The Scottish Government’s Programme for Government is an annual statement that outlines the government’s legislative and policy priorities for the upcoming year. It is supposed to serve as a roadmap for what the government intends to achieve over the remainder of the parliamentary session, and is the closest equivalent in the Scottish Parliament to the King’s Speech.

Given the delay to this and other policy documents, we have yet to see precisely what a John Swinney-led administration looks like – and the extent to which it is a break from the previous administration led by Humza Yousaf.

Look out for more coverage of the PfG from us later in the week.