Scottish Government

FOREWORD BY THE CABINET SECRETARY FOR FINANCE AND SUSTAINABLE GROWTH

In shaping the draft Scottish budget in 2010-11 for consultation with the Parliament and the people of Scotland, the Scottish Government has had to deal with a fundamentally different financial landscape. The Scottish Government's Departmental Expenditure Limit Budget for 2010-11 will reduce in real terms by 0.9% compared to this year. This is the first real terms cut in the Scottish Budget since devolution. The table below illustrates the year on year position.

In the midst of the economic recession, we argued for the acceleration of capital expenditure to assist the economy and retain employment. This has been secured and has benefitted the economy. But now, with recovery not yet underway and its timing still uncertain, our Budget will fall as a result of the need to repay that accelerated capital expenditure.

Coupled to this we have to deal with the Chancellor's decision to reduce the resources available to Whitehall Departments which in turn, through the HM Treasury's Barnett formula, reduces the funding for Scotland. This results in a reduction in our Budget by a further £500 million.

At a time when we should be focusing on recovering from economic recession, this financial settlement runs the danger of hindering that recovery.

If we want to support economic recovery, we need to build on the good work already underway as a result of accelerated capital spending and not stall it through budget cuts in 2010-11. The Chancellor can use his Pre-Budget Report this autumn to allow us to accelerate money into 2010-11, just as we have done this year, and go on supporting thousands of jobs across Scotland in these tough economic times. Without any further acceleration of capital expenditure, we will see steep falls in the resources available for housing, transport and other infrastructure activity that is essential to safeguard jobs and recovery.

As a responsible Government we have therefore had to face difficult choices about where to reduce planned spending next year. We will meet this challenge while continuing to work with our partners to achieve our priorities.

In meeting this challenge, our approach has been to protect programmes that matter most to the people of Scotland - spending on frontline public services; on our economic recovery plan, including support for hard pressed businesses; and on programmes that help protect households at a time of economic hardship. In taking this approach we are reaffirming our commitment to delivering our Purpose: to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth.

We are delivering sustained investment in Scotland's health service, prioritising frontline services and maintaining the fight against Hospital Acquired Infection. We are ensuring that Scotland is well prepared to respond to the influenza A(H1N1) pandemic, as well as maintaining the delivery of major public health programmes, including on alcohol misuse. We will continue to reduce prescription charges towards complete abolition in 2011.

We are maintaining our investment in the industries and new technologies of the future. We are supporting the further and higher education sector and investment in skills. We are providing the resources to continue to freeze the unfair council tax and maintaining our school building programme. And we will also continue to prioritise spending on action to combat climate change.

Our approach also ensures that money is available to meet commitments given in previous budgets such as increasing police numbers, additional investment in Modern Apprenticeships and the insulation programme. It also provides for unavoidable spending pressures - for example, unitary charge payments in respect of Schools PPP projects for which contracts were signed some years ago, increased teacher pension costs and resources to meet higher costs of police and fire pensions due to valuation decisions and court rulings.

We propose to meet these budget pressures by ensuring appropriate and adequate resources are available to all portfolios within the reduced total that is available. There are three additional actions we will take.

First, our Scottish Government Administration budget will be cut by £14 million in 2010-11, because we recognise in asking others to save money we should be prepared to rein back our own spending.

Second, we are asking local government to take their pro-rata share of the Chancellor's cuts. Scottish local authorities have indicated that they are prepared to manage within these reduced spending totals, and to approach the resultant challenges - which will be significant - in a spirit of partnership. We welcome local government's approach of placing the welfare of service users in Scotland at the heart of the agenda.

Third, additional resource savings will be found by reducing spending on a number of projects and programmes. These have been selected to minimise their impact on our immediate priorities and include giving up £20 million set aside next year to prepare for the introduction of a local income tax and a reduction in our Strategic Communications (formerly Advertising and Marketing) budget.

We can take some measures to mitigate the challenge on capital by drawing down all of our unspent end-year flexibility balances held by HM Treasury. This will assist in providing a cushion to the consequential reduction for Scotland of the UK Department of Health capital baseline reduction in 2010-11. But that will only apply for one year and the Government must act now to ensure the capital budget is sustainable in the years to come.

To do this we have therefore reluctantly decided also to cancel the Glasgow Airport Rail Link ( GARL) project - a project that lasts for some years. We will however support financially other measures to improve public transport in Glasgow to address connections to the Southern General Hospital and the Commonwealth Games.

A Budget that involves a real terms cut in public spending in Scotland requires all parts of the public sector to reassess how best we can deliver the services the public expect and deserve. We believe that this is a challenge that can be met successfully. The Scottish public sector already has an excellent record of setting and meeting challenging efficiency targets. Of course success in the past means progressively greater difficulty in achieving further reductions in future. However, sharply lower general inflation rates since budgets were first proposed in 2007 will provide some help. We want to work with public bodies, leaders and staff to ensure that we address the task of making these externally-imposed savings with minimum impact on service users and on the people of Scotland.

We recognise that under the normality of Independence or if the UK Government were to agree to implement the Calman Commission's recommendation that the Scottish Government be given ability to borrow - as seemed at one time to be a likely outcome - there would be no need to cancel or postpone projects and we could accelerate capital investment. These changes have been selected to minimise the impact on people in Scotland and they will be implemented in collaboration with our partners across the Scottish public sector as we pursue our key objectives of investing in frontline services and supporting economic recovery.

We face this challenge with a draft Budget, recognising that we must work with other parties in Parliament to secure a Budget next spring that commands the support of Parliament. We have made clear our willingness to engage constructively with other parties to secure this agreement and I reiterate that we will do so.

John Swinney MSP
Cabinet Secretary for Finance and Sustainable Growth.
September 2009