Today, the Cabinet Secretary announced significant in-year reductions across Scotland’s public sector, in order to fund higher than anticipated public sector pay deals and balance the budget. This is the third year in a row that the Scottish Government has made in-year changes to the Budget passed by Parliament just a few months previously.
It may also not be the end of the story. Earlier in the day it had been announced that Unison members had voted to reject the latest council pay offer for members – potentially meaning industrial action by waste and recycling workers at 13 councils, and for education and early years staff at five councils. This leaves uncertainty over the final pay package that will need to be funded.
What was announced?
The Cabinet Secretary announced a total of £933 million in measures to assist in balancing this year’s budget. The adjustments are to be achieved through a combination of reductions in existing spending plans and use of revenues from leasing for offshore windfarms (Scotwind). The plans were presented in detail in a letter to the Finance and Public Administration Committee, and included the following measures:
- Up to £60 million will be found from emergency spending controls, including recruitment freezes and restrictions on overtime, travel and marketing costs – initially within the Scottish Government, but potentially across the wider public sector.
- As announced recently, the Scottish Government will end the removal of Rail Peak Fares, and the concessionary fares extension to asylum seekers pilot. As has also been reported in the press, the Scottish Government has 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 £65 million of savings.
- A further £188 million 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”. However, more than half of the total (£116 million) will come from reduced spending on health and social care.
- Planning to drawdown £460 million of Scotwind revenues.
- Diverting £160 million previously planned for Winter fuel payments.
Debate will no doubt rage over the extent to which the Scottish Government is thinking about fundamental sustainability of the public finances with this approach, given that pay commitments will endure beyond this financial year.
For example, the £460 million in Scotwind monies can only be spent once. The Cabinet Secretary indicated her regret at having to utilise this resource, and indicated she would attempt to keep any use of the monies to a minimum (presumably by using underspends to balance the budget as far as possible). Scotwind monies used to fill in fiscal cracks in current expenditure cannot be used in the future to fund, for example, green investments to tackle the climate emergency.
Similarly, £160 million in monies received for the winter fuel allowance this year, if used to balance the budget, will need to be repaid to the UK exchequer at a later date via a reconciliation process. In future years, the money provided for the winter fuel allowance will be in line with the reduced expenditure planned in this area, with the Scottish Government planning to replicate the UK government’s proposal to make this payment only to the lowest income pensioners.
Many of the changes announced today will be put through the books formally in the 2024-25 Budget Revisions – one of which will be published later this autumn and one next spring.
Questions for the Parliament’s Budget scrutiny process?
As mentioned at the top of this blog, this is the third year in a row that the Scottish Government has made in-year changes to the Budget passed by Parliament just a few months previously.
The Scottish Fiscal Commission (SFC) Fiscal Update report published last week concluded that the Scottish Government will have to make difficult decisions to balance the budget and to ensure decisions taken now are sustainable in the future.
“As we set out in December 2023, in our role as the independent fiscal institution for Scotland we encourage the Scottish Government to plan its Budget over the short, medium, and long term. We note this can be challenging because of the inherent uncertainties in the Scottish Government’s funding sources, but this makes it even more important to plan funding and spending recognising the potential variations in future levels of funding to ensure decisions made now are sustainable in the future.”
The implication of this is a clear steer from the SFC that the Scottish Government needs to be planning for the short, medium and long term regardless of how uncertain the outlook. The UK context of single year budgets and no Spending Reviews in recent years, has undoubtedly made the Scottish Government’s position more difficult – they have had little clarity as to the overall Scottish budgetary position. But the SFC seems to be saying that this makes medium and longer term scenario planning even more essential.
The trend in recent years of single year Scottish budgets is far from ideal. It has resulted in significant in-year movements (presented in the Budget Revisions) that increase uncertainty across the public sector. Major in-year changes raise questions for the Scottish Parliament about accountability if the Budget that the Parliament spends months scrutinising, debating and passing for the next financial year is then subject to significant changes a few months later (and on a scale beyond the typical in-year revisions we’ve had in the past).
It can only be hoped that the move by the new UK government to publish a Spending Review in spring 2025, and then every subsequent two years, moves the Scottish Government into a similar medium term planning space. Setting public sector budgets on a multi-year basis, and moving to multi-year (rather than annual) public sector pay settlements will be widely welcomed by public bodies in Scotland (who have been calling for this for some time) and provide greater certainty across Scotland’s public sector.
Budget to Budget or in-year Budget to Budget issue raises its head again
There follows a perhaps niche, but nevertheless important point…
In-year changes also add a potential future headache for parliamentary scrutiny. The Budget when it comes in December will be presented on a Budget 2024-25 to Budget 2025-26 basis. This means that the baselines for next year’s spending will be on the basis of plans which have now been superseded by these in-year changes.
If the Scottish Government is going to present an accurate Budget to Parliament, and support effective scrutiny, it should provide next year’s plans alongside the latest in-year position for 2024-25. Last year the Scottish Government provided some data reflecting in-year changes, but not alongside the budget meaning it couldn’t be used by committees and parliament during the scrutiny phase. It would be helpful if this is published alongside the Budget this year, to allow parliamentary scrutiny and analysis by SPICe and others.
Ross Burnside
Senior Researcher, Financial Scrutiny Unit (FSU)