Scottish Government

Chapter 1 Addressing the Budget Challenge

KEY MESSAGES

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 - provides the foundation for this Spending Review and Draft Budget 2011-12.

Our commitment to focus government on outcomes that deliver our Purpose remains crucial in the face of the worst financial settlement for Scotland in a generation, which threatens our economic resilience and recovery, in addition to Scotland's social fabric.

This settlement will see spending reductions of over 11 per cent in real terms between 2010-11 and 2014-15, with a 36 per cent cut in our capital budget over the same period.

Without additional financial and economic powers in Scotland, we are left to deal with a budget settlement which is a product of UK interests and choices. This is wrong for Scotland. The UK Government is threatening our economy by cutting public expenditure, particularly investment, too far and too fast.

Scotland must have enhanced financial powers to ensure we are never again placed in this situation.

Earlier this year, we highlighted the scale of the challenge we face, and we have shown leadership in driving forward public service reform and efficiency savings to absorb the worst impacts of these cuts.

We have also been open with the people of Scotland about the challenges we face. In February of this year, we established the Independent Budget Review and, since it reported in July, people across the country have joined us in a conversation to help inform our key priorities and choices.

But given the scale of the financial challenge, and despite all we are doing to lessen the impact of spending reductions, cuts in services across Scotland are unavoidable, and we have had to prioritise our spending. These decisions have been governed by our strategic framework to ensure economic recovery, protect frontline services and ensure our competitive advantage in tackling climate change.

To deliver our Purpose, we have therefore taken decisions which:

• give priority to economic recovery, by restraining pay to protect employment, supporting business through the Small Business Bonus Scheme and investment in Scotland's infrastructure;
• protect our health budget, and provide welcome relief for households by continuing with the freeze in council tax, at a time of increased UK taxation and other pressures on family budgets; and
• take forward action on climate change and maximise the opportunities of the low carbon economy by investing in Scotland's unrivalled renewable energy resources.

INTRODUCTION

Our fundamental strategic priorities central to this budget are:

• to support economic recovery and deliver our Purpose of increasing sustainable economic growth;
• to protect the public services on which people depend and which are most effective in tackling deep seated problems and delivering real benefits and better outcomes for the people of Scotland; and
• to establish a competitive advantage through the opportunities offered by taking action on climate change.

This first chapter re-affirms that our Purpose remains at the heart of what we do and sets out the scale of the spending cuts Scotland faces, the scope for limiting their impact, and the approach the Scottish Government has taken in reviewing the options and discussing priorities and choices with the people of Scotland.

Chapter 2 sets out the economic conditions for Scotland's budget for 2011-12, describes measures to strengthen economic recovery and describes how we are creating the conditions for long-term sustainable economic growth.

Chapter 3 summarises the approach we propose for 2011-12 to maintaining and improving Scotland's physical capital and announces a new pipeline of revenue financed investment through the non-profit distributing model, within a clear framework of affordability.

Chapter 4 sets out the case for greater fiscal responsibility for Scotland, to give the Scottish Parliament and the Scottish Government the full range of fiscal and economic powers to drive long-term reform, improve economic performance and support investment in our vital public services.

The balanced budget for 2011-12, set out in the portfolio chapters, will make every pound count. In the face of deep cuts, it is a budget that works for Scotland by maintaining the resilience of our people, our households, our businesses and our environment.

In accompanying statements we summarise:

• how we have considered equality issues and how our plans will make a difference to the lives of people disadvantaged by discrimination and inequality; and
• the carbon assessment of the budget.

There are no easy answers: the Scottish Government and the Scottish Parliament face hard choices in tough times.

So in tackling the challenges we now face, we have used all the mechanisms available to us. We are:

• driving out further efficiencies, with a clear target of 3 per cent improvement in 2011-12;
• securing further savings from procurement;
• selling surplus assets and making assets work harder for us;
• deploying innovative approaches to funding infrastructure investment;
• freezing pay, cutting the pay bill of the highest earners, implementing a living wage of £7.15 per hour and providing a minimum annual increase of £250 for employees earning less than £21,000;
• continuing to simplify the public bodies landscape;
• requiring further savings from scrutiny functions; and
• maximising income within existing powers.

However, given the scale of Westminster's cuts, it is simply not possible to find all the savings required through these mechanisms. We must therefore make cuts to projects and services which, while highly desirable, are no longer affordable.

But by taking difficult choices, we are able to protect spending on services and activities that are integral to the very fabric of Scottish society.

At the heart of our decision-making has been our desire to reinforce our social contract with the people of Scotland. In difficult economic times, the Scottish Government has acted to create new economic opportunities, protect household income and support frontline services.

OUR PURPOSE AND SCOTLAND'S BUDGET

The Government Economic Strategy, which we published in 2007, set a bold vision for the future of Scotland, focusing government and public services on increasing sustainable economic growth. We remain committed to the Purpose set out in our Economic Strategy:

Our Purpose is even more relevant in tough times. It guides the choices we have to make in setting Scotland's budget for 2011-12 and in setting the direction for future years.

The scale of the challenge is unprecedented. Over the next four years, Scotland's budget will suffer the greatest cuts for more than a generation. Reductions of over 11 per cent in real terms between 2010-11 and 2014-15 and cuts of 36 per cent in our capital budget have been imposed by Westminster.

We have shown leadership in preparing Scotland for the tough choices that must follow.

OUR ACHIEVEMENTS SO FAR - BETTER LOCAL SERVICES AND BETTER OUTCOMES

Since taking office, our radical, outcomes-driven approach - co-ordinated through the National Performance Framework - has driven real improvements. Services are now better aligned behind our Purpose and Outcomes, leading to effective co-operation across the public, private and third sectors and significant savings. Public satisfaction with public services has increased, and through the Public Service Reform Act we have streamlined the delivery and scrutiny landscape, establishing the foundations for a period of further rationalisation.

Scotland's communities have seen real advances over the last 3½ years:

• Health - NHS waiting times are at their lowest ever and there have been marked reductions in mortality rates from cancer, heart disease and stroke.
• Local government - our funding of the council tax freeze has protected hard pressed households across Scotland, and we have increased in each year the share of the Scottish Budget allocated to Councils, to support local services the length and breadth of Scotland.
• Education - Curriculum for Excellence is raising standards in learning and teaching, equipping young people with the skills and knowledge they need, and 303 school building projects have been completed since May 2007, lifting over 120,000 pupils out of poor quality schools.
• Social care - we are improving the lives of older people by preserving existing eligibility for free personal care.
• Community Safety - recorded crime is at a new 32 year low.
• Police - the number of police officers on the streets of Scotland is at an all-time high.
• Neighbourhood satisfaction - 94 per cent of people rate their area as a good place to live.
• Youth diversion - over 300,000 young people participated in CashBack for Communities activities.
• More effective and visible justice - implemented major reforms to the summary criminal courts to ensure that people committing less serious crimes are punished quickly and effectively, and that distress and inconvenience to victims and witnesses are minimised.
• Housing - over 8,000 properties were made available through the Affordable Housing Investment Programme in 2009-10, equal to a 30 per cent increase over the financial year.
• Municipal waste - the amount of waste collected by, or on behalf, of local authorities and sent to landfill has reduced.

The Scottish Government is absolutely committed to building on these advances and to retaining the focus on outcomes in all that we do.

Underpinning these specific achievements, we have made strong progress across the board on efficiencies and reform. Key achievements include:

• delivering cash savings of £839 million in 2008-09 and £1,470 million in 2009-10 through the current Efficient Government programme;
• procurement savings of £160 million in 2008-09 and £312 million in 2009-10 delivered through the groundbreaking Public Procurement Reform Programme;
• promotion of local accountability and greater flexibility in the use of funding by reducing significantly the number of ring-fenced funds for local government;
• the Simplification Programme, which is on track to deliver a 25 per cent reduction in the number of devolved public bodies in Scotland, delivering estimated net savings of around £125 million by 2013 and estimated net recurring savings of around £39 million per year thereafter;
• delivering £111 million of net savings to public infrastructure investment through the Scottish Futures Trust in 2009-10; and
• a simplified set of scrutiny bodies, reducing the direct costs of scrutiny and introducing more co-ordinated and proportionate approaches to scrutiny.

We have also supported the vital contribution made by the third sector in delivering public services. With third sector partners, the Convention of Scottish Local Authorities ( COSLA) and the Society of Local Authority Chief Executives ( SOLACE), we have developed the third sector contribution to Single Outcome Agreements. Almost every Community Planning Partnership now has active engagement with the sector through a range of linkages which also provide strong support to the growth and performance of the sector itself, leading to improved services.

THE SCALE OF THE CHALLENGE

Under the current financial arrangements, the Departmental Expenditure Limit ( DEL) for Scotland sets the upper limit for what the Scottish Government can spend each year. Scotland's DEL for each of the next four years has been set by the UK Government in its Comprehensive Spending Review ( CSR).

The scale of the challenge imposed by Westminster is unprecedented. Over the period to 2014-15, the cut in our total spending power in real terms is over 11 per cent, and within this the cut in capital spending power is 36 per cent.

In contrast, between 2000-01 and 2009-10, the Scottish Government Budget grew by over 5 per cent per year on average in real terms. While this in part reflected the transfer of additional responsibilities from Westminster to Holyrood, it also was a result of a period of sustained real increases in the resources available to fund public services in Scotland - which ended in 2010-11 with the first real terms reduction in the Scottish budget since Devolution.

Given their scale, the cuts will not only affect Scotland for the next few years but will have lasting implications for at least the next decade.

We have been actively preparing for these cuts for the last year. Under the plans of the previous UK Government, it was clear that our Budget would be cut significantly. The new UK Government has chosen to increase the depth of cuts.

We are clear that the UK Government is cutting spending too far and too fast. While a credible budget strategy is vital in returning the public finances to a sustainable footing, it is essential that the recovery is not put at risk. But this is exactly what the UK Government has done. In October, in an unprecedented display of unity, we joined with the Welsh and Northern Irish administrations in issuing a joint declaration to the Chancellor outlining our collective concerns.

In April, the Scottish Government's Chief Economic Adviser published a report to inform the Independent Budget Review, which forecast the potential medium to long-term pressures on the Scottish Government Budget arising from the possible spending cuts that the previous UK Government had planned. This analysis was updated after the current UK Government's Emergency Budget in June. A revised version appears below with, for the first time, updated figures from the CSR.

Assuming a return to spending growth consistent with the wider UK economy by the end of the period of spending cuts, the analysis shows that it could take until 2025-26 for the Scottish Budget to return to 2009-10 levels in real terms - an adjustment period of 16 years. This implies a cumulative real terms loss of approximately £39 billion from the base year of 2009-10, as illustrated in Figure 1.

Figure 1 Estimated Scottish DEL - 2009-10 to 2026-27

Source: Scottish Government calculations

For the period of the Spending Review, the table below shows that the one-year cash terms cut in total DEL set out in the CSR settlement between 2010-11 and 2011-12 is 4.5 per cent. After taking account of estimated GDP deflators, the cut in real spending power is 6.3 per cent.

Table 1.01

Compared with spending in 2010-11, our budget for 2011-12 is being cut by £1.3 billion. Of that, £530 million has been cut from the money for vital public services (Resource DEL). Another £790 million has been cut from capital - the money spent building and maintaining our transport networks, hospitals, schools and other essential public assets.

These figures show that the Chancellor is achieving as much as possible of his spending cuts through slowing and stopping capital investment in infrastructure. We believe this could cause serious damage to Scotland's recovery and long-term economic prospects. So we have taken action to cushion the capital cuts as far as we can.

Figure 2 below demonstrates the cut in the capital budget available to the Scottish Government between the current financial year and 2014-15, compared to the position in recent years. This unprecedented scale of reduction will inevitably slow down Scotland's infrastructure programme.

Figure 2 Scottish Government Capital DEL budgets

Note: Capital DEL budgets for 2005-06 to 2009-10 are outturn figures. 2010-11 total is from the 2010-11 draft Budget. For 2011-12 to 2014-15, Capital DEL allocations are from the UKCSR.

These spending cuts mean that the Scottish Government and the Scottish Parliament face difficult decisions about services, spending and policies for the people of Scotland. In turn, Scotland's councils, NHS Boards and other public services, and the partners and communities they work with and for, face equally difficult decisions about priorities and efficiencies.

CONSIDERING THE CHALLENGE

The Scottish Government set up the Independent Budget Review ( IBR) in February 2010. Its members - Crawford Beveridge CBE, Sir Neil McIntosh CBE and Robert Wilson - were asked to bring their knowledge and experience of public budgeting and service delivery to the task of advising on the challenges facing Scotland in 2011-12 and beyond. The Panel had access to financial projections published by the Scottish Government's Chief Economic Adviser. Meetings and evidence gathering took place between March and June 2010. Further details are available at www.independentbudgetreview.org.

The Panel's report was published in July. It was widely welcomed, and has helped to set the scene for discussions about public spending priorities over the summer and autumn.

The conclusions of the IBR report focus on five broad areas:

Since the IBR Panel reported, the Scottish Government has engaged in dialogue with the people of Scotland about the spending challenges and choices that Scotland faces, the priorities for our communities, and the services that matter most.

The dialogue started with the launch of the Scottish Government's online consultation which offered everyone in Scotland the chance to join the public spending debate. Our web pages on the budget challenges ahead have received over 46,000 hits to date.

Budget consultation meetings took place between August and October in many parts of Scotland. These gave a wide range of people the opportunity to present their views to Ministers. Community Planning Partnerships and the main business organisations were also invited to contribute, and the public was engaged actively during open meetings as part of the series of Summer Cabinet events across Scotland. Nearly 1,000 people took part in these meetings. Issues raised and points made across Scotland have been taken into account by the Scottish Government in drafting this Budget for the Scottish Parliament's scrutiny.

In addition, we have drawn on the considerations of the Parliament's Equal Opportunities Committee and the work of the Equality and Budget Advisory Group to help us shape a Budget which takes account of equality considerations. This is outlined more fully in the accompanying Equality Budget Statement.

The work of preparing a balanced Draft Budget has been done in the light of comments from the Scottish Parliament and its Committees, from the Independent Budget Review Panel, from the Equality and Budget Advisory Group, from key stakeholders who deliver public services, from organisations such as the Scottish Trades Union Congress ( STUC), Confederation of British Industry ( CBI Scotland) and the Scottish Council for Voluntary Organisations ( SCVO) and through our dialogue with the people of Scotland.

Throughout this process, we have set out clearly our strategic priorities and our responsibilities as a government charged with leading Scotland through hard choices in tough times.

We remain committed to our fundamental strategic priorities:

• to support economic recovery and deliver the Government's Purpose of increasing sustainable economic growth;
• to protect the public services on which people depend and which are most effective in tackling deep seated problems and delivering real benefits and better outcomes for the people of Scotland; and
• to establish a competitive advantage through the opportunities offered by taking action on climate change.

ADDRESSING THE CHALLENGE

The Scottish Government has examined options for reducing the impact of the cuts - by deferring them where possible, by ensuring that every pound available to us works as hard as possible, and by using our limited existing financial powers to maximise the resources available to us.

Soon after the UK General Election of May 2010, the UK Government announced cuts in public spending across the UK in this financial year (2010-11) which totalled £6.2 billion. Scotland's share of these cuts was calculated at approximately £330 million.

The Scottish Government took the view that such a large immediate cut would stifle demand in the Scottish economy at a time when recovery from recession was fragile and uncertain. There was a significant risk of stopping recovery in its tracks, damaging businesses and jobs across Scotland and disrupting public services when people needed them most. The economic context is described in more detail in chapter 2.

In tackling the challenges we now face, we intend to use the full range of mechanisms which are available to us.

Driving out further efficiencies

We are building on efficiency work that has already seen Scotland deliver £839 million in efficiency savings in 2008-09 and £1,470 million in 2009-10. This exceeded our targets by £300 million and £400 million respectively and out-performed Whitehall in each of the last two years. But we must go further. In the past, efficiencies have enabled us to improve services from the same budgets. In future, efficiencies will help to maintain services in the face of budget cuts.

Together with our partners, we will lead a culture of efficiency and effectiveness, identifying opportunities to improve public services, identifying and tackling blockages and challenging inaction. In particular, we are seeking efficiency savings across public services of 3 per cent for 2011-12, with each delivery body expected to report publicly on their plans to improve the efficiency of public services, actions undertaken and results achieved. As a contribution to making these savings, we will make further progress on the use of shared services.

Further savings from procurement

We will continue to lead the Public Procurement Reform Programme, and to deliver efficiency savings from collaborative procurement. Improved Scottish Government-led procurement will deliver savings of £61 million in 2011-12, and some £200 million over the next three years. More detail can be found in Efficiencies from Procurement, which is published today.

Selling surplus assets and making them work harder

In the face of a UKCSR outcome on capital that is worse than predicted, we are maximising receipts from the sale of surplus land and buildings. To further boost capital spending, the Scottish Futures Trust ( SFT) is developing proposals to increase revenue from land and property assets.

Innovative approaches to funding infrastructure investment

The public sector has a vital role in capital investment to maintain and improve Scotland's infrastructure and so support our economic performance. The swingeing cuts in capital budgets described above present a major challenge. As noted, chapter 3 sets out the steps taken in this Budget to undertake rigorous prioritisation and management of our capital spending. We also intend to carry forward £100 million from 2010-11 to support capital investment in 2011-12. Within our capital budget, a number of major national infrastructure projects will be taken forward.

In the absence of borrowing powers, the Scottish Government will also work with SFT and local authorities to generate additional funding to support higher levels of capital investment. Through a new pipeline of revenue financed investment and through the use of innovative measures such as Tax Increment Financing, we will be able to support higher levels of capital investment in Scotland than would be possible through the capital budget alone. SFT is making a substantial contribution to achieve additional value from capital investment across the public sector through its work to drive down costs and improve collaboration.

Freezing pay and constraining the highest earners

The IBR report pointed out that, when budgets are declining, any pay increases have to be funded by employing fewer people. Our aim is to maintain public services in Scotland and the jobs of the people who provide them. This requires very firm control over pay. Consequently, in 2011-12 we will, for staff groups under our control:

• freeze basic pay;
• impose unrelenting downward pressure on pay costs for senior staff;
• reduce Senior Civil Service costs by 10 per cent in 2011-12, and by 25 per cent by 2014-15;
• suspend bonuses and non-consolidated pay across all staff groups whose pay we control;
• require employers to negotiate pay settlements that retain as many jobs as possible through increasing flexibilities and reducing pay costs such as overtime and allowances; and
• protect family incomes for the lowest paid by introducing a Living Wage of £7.15 an hour and providing a minimum increase of £250 a year for those paid less than £21,000.

Our pay policy is being published separately today.

Continuing to simplify our public bodies

We will continue the successful programme of simplification, looking for further opportunities to simplify and streamline our public bodies. We will take every opportunity to reduce costs and bureaucracy and improve service delivery.

In October, we announced the establishment of the Scottish Education Quality and Improvement Agency, initially bringing together Learning and Teaching Scotland ( LTS) and Her Majesty's Inspectorate of Education ( HMIE). This will improve efficiency and drive forward innovation and dynamism in education by ensuring that the best possible national level systems are in place to support and challenge teachers, schools, colleges and local authorities as we move forward with Curriculum for Excellence.

At our request, the General Register Office for Scotland ( GROS), the National Archives of Scotland ( NAS) and the Registers of Scotland (RoS) undertook a review to explore ways of working together more closely, and the potential for amalgamation. We have agreed that GROS and NAS will be amalgamated. These bodies will also work together to maximise savings from shared services. This will further reduce the number of public bodies, improve service to customers and build upon existing joint work and branding of the ScotlandsPeople service.

Further savings from scrutiny functions

Achieving more proportionate, focused and effective scrutiny of public services is part of our overall commitment to improvement. We have delivered significant advances already. We will maintain a focus on scrutiny improvement which will enable us to deliver savings of at least 20 per cent in the overall direct costs of scrutiny over the next four years. These savings will be focused to reflect variations in service risks, the vulnerability of service users, and the different levels of external assurance required across services and service providers.

Maximising income within existing powers

The limited financial powers available under the existing devolution arrangements mean we cannot do nearly as much as we would like to cushion the impact of spending cuts. There is little scope to re-profile spending or increase our spending power. Our opportunities to vary taxes are limited to the Scottish Variable Rate, which no Scottish administration has chosen to use since Devolution, and some discretion over non-domestic rates. We confirm that we will not use the Scottish Variable Rate power as this would increase taxation for individuals at a time when they face significant tax rises from the UK Government. On the question of non-domestic rates, the scope to act is, in practice, small if we are to avoid damaging the competitiveness of Scottish businesses compared to those in England. However, we propose to use these powers to help increase resources in 2011-12 by increasing business rates paid by the largest retail properties, including supermarkets and out-of-town retail parks. This will serve also to support our town centres. Our proposals are subject to the consent of Parliament.

SPENDING CUTS

These measures demonstrate what we are doing, and will continue to do, to deliver a balanced budget that:

• makes every pound count, by extracting maximum impact from efficiency and redesign;
• prioritises spending to protect economic recovery and front-line services; and
• maintains capital investment as far as possible given the cuts we face.

Given the scale of Westminster's cuts, it is simply not possible to find all the savings required through these mechanisms. Further reductions in spending - impacting on services and projects - are unavoidable if the budget is to balance. We must therefore make these reductions to programmes and services which, while highly desirable, are no longer affordable. In making these cuts to existing spending levels, we have been guided by the need to protect key services and economic recovery. The spending reductions are explained in the portfolio chapters. Key points are:

• We have reduced the budgets which we provide to Learning and Teaching Scotland and the Scottish Qualifications Agency for national support and challenge, while ensuring that their resources are targeted at the implementation of Curriculum for Excellence.
• The Scottish Funding Council's budget will fall, but we have agreed with the further and higher education sectors that they will work collaboratively and efficiently to manage this reduction without reducing overall learning opportunities, and both sectors have agreed that core college and university student places will be maintained.
• Skills Development Scotland will receive less money this year, but this reflects the fact that we expect them to become more efficient and redesign the services they offer.
• There will be a reduction in the budgets for the Scottish Environmental Protection Agency and Scottish Natural Heritage. These bodies will further improve efficiency to help reduce the impact of these cuts.
• We have reduced the budget for some components of the Scottish Rural Development Programme. There will be fewer and more focused rounds, and we will review the size of grants awarded to ensure that the benefits of these schemes are more evenly spread.
• Maintenance of the prison and courts estates will be reduced to the minimum sustainable levels, and we will not be proceeding with the redevelopment of the criminal court infrastructure.
• On transport, with a few notable exceptions such as the new Forth Crossing, on capital spend we will prioritise existing projects over new. Expenditure on maintenance of the motorway and trunk roads network has been reduced.
• Enterprise and tourism budgets have been reduced, partly by building on our earlier reforms and seeking further reductions in staffing levels, increased efficiencies within the bodies and the removal of lower priority activities.
• The costs of the Senior Civil Service will fall by at least 10 per cent by the end of 2011-12, and by 25 per cent by 2014-15 (taking 2010-11 as the base year). There will be firm control of pay, in line with Scottish Government public sector pay policy.

OUR PRIORITIES

Making these difficult choices enables us to protect spending on those areas that we believe are most important.

In preparing this Budget, we are maintaining the underlying resilience of the economy through supporting our people, households and businesses to mitigate the worst impacts of the recession. This also provides a springboard for economic recovery, which meets our Purpose in increasing sustainable economic growth.

For example, we have acted to mitigate, as far as we can, the immediate impact on Scottish families and jobs as a result of the recession. And we have sought to address the disproportionate burden falling on particular groups and the poorest members of society as a result of the Chancellor's unnecessarily harsh stance on cutting public spending. These fundamental choices have guided our approach to efficiency, value for money, priorities and the savings we are required to make to live within the reduced spending totals set by the UK Government.

The recession continues to have a major effect on employment prospects and thus on average household incomes, as do tax changes such as the rise in Value Added Tax ( VAT) and in National Insurance rates. These matters are reserved to the UK Government.

In preparing this Budget, we have chosen to prioritise the services and activities described here. Subject to the acceptance by individual councils of the terms of the agreement reached between the Scottish Government and COSLA's Leadership, we will:

• make available a further £70 million in 2011-12 to those councils which freeze their council tax rates at 2007-08 levels for a fourth consecutive year. This will help hard working families by keeping money with people when they need it most;
• maintain the total number of police officers at 1,000 more than were in post before this government came into office;
• maintain the pupil-teacher ratio in the crucial early years of primary school;
• provide places for all probationer teachers through the induction scheme in August 2011, and reduce teacher unemployment; and
• in recognition of the wider pressures on the health and social care system, provide £70 million from within NHS Board allocations for a new Change Fund in 2011-12 to support the redesign of services and help shift the balance towards primary and community care.

We will also:

• protect real terms spending on running health services in Scotland;
• abolish - as we promised - remaining prescription charges, finally removing this tax on ill-health;
• continue to focus on and invest in reducing Healthcare Associated Infection, as part of our comprehensive approach to patient safety;
• invest a further £42 million in tackling the health and wider social problems associated with alcohol misuse across Scotland;
• introduce a new Early Years and Early Intervention Fund with initial start-up funding of £5 million;
• continue our commitment to supporting investment in the schools estate across the length and breadth of Scotland;
• continue to invest in skills, including the introduction of 34,500 new training opportunities in 2011-12, while upholding our commitment not to introduce tuition fees;
• support economic growth with an extra £600 million investment in new affordable housing supply, through use of £55 million of new Government funding;
• support Urban Regeneration Companies ( URCs), with priority investment in Clyde Gateway URC to support delivery of a successful Commonwealth Games;
• implement the National Renewables Infrastructure Plan, establishing the £70 million Renewables Infrastructure Fund, which will receive £17 million in 2011-12;
• contribute significant sums to the development of the V&A at Dundee Project, which is key in the regeneration of the Dundee waterfront;
• spend over £11 million on broadband interventions to support our Digital Ambition for Scotland, putting in place the broadband infrastructure needed to support innovation;
• invest a further £11.9 million in support of Scotland's outstandingly successful food and drink sector, building on existing progress towards our target of increasing turnover in the industry to £12.5 billion by 2017;
• maintain the International Development Fund at £9 million - significantly more than double the 2007-08 level - to support the most vulnerable people in developing countries;
• invest £31.9 million in continuing to tackle drug problems, including £28.9 million invested in front-line drug treatment services, maintaining expenditure at 2010-11 levels;
• maintain existing eligibility criteria for free personal care and concessionary travel, saving money for elderly people and continuing to offer them quality of life benefits that some seek to remove; and
• help to maintain job numbers, family incomes and public services throughout Scotland as far as possible through exerting firm restraint on public sector pay.

We have also taken action to support small businesses by:

• maintaining the valuable Small Business Bonus Scheme, helping smaller companies through the difficulties many face in the present climate that will help tens of thousands of small businesses around Scotland during tough times; and
• establishing the Scottish Investment Bank to support new, innovative businesses through the provision of early stage risk capital and to provide established, viable growth and exporting businesses with access to debt finance through the creation of the new Scottish Loan Fund.

By prioritising these areas, we are seeking to limit the social and economic cost of the recession at a time when unemployment remains a real threat to many, when personal and household incomes are being squeezed, and when the business environment is uncertain. These actions also help to maintain spending power in the Scottish economy, maximising the positive impact of the public sector on the economy as a whole.

We have also chosen to maintain the front-line services on which Scotland's people depend, particularly the most vulnerable in our society. We have protected current expenditure on the NHS in real terms and have worked closely with COSLA and our local authority partners to maintain police services, school education, and adult social care services. This provides added stability throughout the economy by providing key services for all communities. And of course this supports employment and income levels throughout the economy too.

Our spending plans for 2011-12 for each Scottish Government portfolio are set out in chapters 6 to 14.

BETTER PUBLIC SERVICES

This Government is proud of all that it has done, together with delivery partners, to support and reform services so far. But we need to increase the pace of our reforms. The challenges to our public services were already formidable: deep-seated social inequalities; increased public expectations; an ageing population; and the low carbon imperative. We now know that, on top of these structural issues we face the most serious budget reductions for at least a generation. Simply doing what has always been done, even doing it better, will not get us to where we need to be.

Our public services must remain focused on our greatest economic asset - our people. The development of Scotland's people and society - through support for education, learning and skills and through services to improve health and wellbeing - is a critical element in the creation of a productive economy that is responsive and adaptable to rapid global change. Enhancing the skills and wellbeing of Scotland's people is a central theme in this Budget, supported by the central proposal to increase spending on running health services in Scotland and the decision to maintain the proportion of total spending that is available to local authorities.

There is no doubt that the first year in the UKCSR period is the toughest, and the Scottish Government has prepared a budget which tackles the challenges that this presents. We know this is more than a one-year challenge, as public expenditure is constrained for a number of years. We know that without fundamental change in how we deliver public services that challenge will not be successfully addressed. A crucial requirement of this approach is to ensure that we maintain the social cohesion of our country. It is vital that, in these difficult times, we continue to invest in social partnership and maximise the economic impact of our public spending. This is why we are establishing the Commission on the Future Delivery of Public Services, to be led by Campbell Christie CBE.

The Commission will make recommendations about the future provision of our public services, advising on how excellent, sustainable public services can be delivered in the future to continue our drive for improving outcomes, to examine the structures, functions and roles that help improve the quality of public service delivery and what this means for users, stakeholders and public sector workers. The Commission's recommendations will be vital in informing the medium to longer term choices that will face us in the years ahead.

The Commission's remit and membership will be announced shortly and will be invited to report with recommendations by the end of June 2011. The Scottish Government has made clear that, should this administration be returned to office, we will draw on the Commission's recommendations in taking forward a Spending Review to conclude in September 2011, setting out spending plans for the period 2012-13 to 2014-15.

WORKING TOGETHER FOR SCOTLAND

It is the job of the Scottish Government to propose a balanced budget for the coming year. This chapter has outlined the context in which we have done so. But the Scottish Parliament must take the final decision on how to distribute the funding available to support public services in Scotland.

This Administration will engage fully in the process of Budget scrutiny by the Scottish Parliament and we confirm our willingness to work with others to build a consensus and to achieve Parliamentary approval. We propose the balanced budget set out in this document in that spirit.

The following chapter sets out in more detail our projections for Scotland's future economic circumstances, and the actions we are seeking to take to maximise growth and reduce the risks to early-stage recovery.