Kate Forbes: Inflation has limited Scottish Government's funding increases

In a ministerial statement to Holyrood, Forbes set out the Government's resource spending review which will see a boost to health, social security, including child benefits, and environmental policy areas.

Budgets for local government, the police, justice, universities, rural affairs are set to fall by around 8% in real-terms over the next four years, while spending on enterprise, tourism and trade promotion is set to fall even further - by 16% in real terms, over the same period.

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It is the first time the Scottish Government has published a multi-year programme since 2011, and child poverty campaigners have welcomed the focus on supporting those on low incomes being prioritised.

Forbes told MSPs that Scotland is facing an “unprecendented cost of living crisis”, adding that Brexit had made the issue worse and that the poorest in society were being hit hardest. 

The Scottish Tories blamed the £3.5bn shortfall on “staggering incompetence” from the Scottish Government and called for income tax to be brought into line with the UK. 

The spending review, which is not a budget, sets out how the Scottish Government will target funding in certain areas as the country recovers from the Covid-19 pandemic and tackles the climate crisis and inequality. 

Forbes told the chamber that rising energy prices and constrained supply chains have had an impact worldwide, but inflation is not “impacting them equally”.

Forbes said that Brexit has made inflation worse in the UK

She told MSPs: “The UK currently has the highest inflation of any G7 country - almost twice the rate of France. Brexit has made this problem worse, with increases in food prices, hitting the poorest hardest.

“We are experiencing an unprecedented cost of living crisis. Inflation is at a 40-year high of 9 per cent with households facing considerable hardship. 

“We are doing all we can in response, prioritising additional funds to help households in need, but the limits on our fiscal and economic powers limit in turn the support we can offer.”

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Forbes added that following a reduction of 5.2% from the Scottish budget last year, funding will only grow by 2% in real terms in the next four years. 

She said: “It is not inevitable - it is the result of a deliberate choice by the UK Government - as they sit on their hands.

“While the Chancellor has provided welcome, if limited support for households, the chill winds of Tory austerity are blowing when it comes to spending on public services.”

Forbes said the support for households announced by the Chancellor is "limited"

Forbes added that the government will require the public sector to become more efficient with a focus to be on digitalisation, the public sector estate and improving public procurement. 

The reforms are “necessary” to allow more investment in battling child poverty, achieving net zero, growing the economy and improving public services, Forbes told MSPs. 

Scottish Conservative Shadow Cabinet Secretary for Finance and Economy, Liz Smith MSP claimed that Scotland had been given “record funding” from Westminster this year and said the funding gap was down to “staggering incompetence” from the SNP.

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She added: “They must commit to bringing Scottish income tax levels back on a par with the UK, so that Scotland is no longer the highest taxed part of the country. 

“They must address the ever-growing skills gap that is stifling our productivity, and they must take an economically devastating independence referendum off the table, to finally prioritise Scotland’s economic growth.”

Forbes fired back: “If we ever needed proof of what the Tories priorities are, on a day when an investigation by Glasgow University confirms that UK Tory austerity is the reason behind stagnating life expectancy across Scotland and the UK - that is the proof that we need of where the Tories will prioritise their spending.”

White said the Scottish government should take indyref2 off the table to "prioritise Scotland's economic growth"

Peter Kelly, director of the Poverty Alliance welcomed the focus on tackling child poverty, but warned that local councils need to be properly supported to deliver this in practice.

He said: “A lot of those actions are at least partly the responsibility of local councils – things like investing in childcare that’s free at the point of need, in free public transport, in good public services, in social housing, and in our social security system.

"Without proper support for local councils, there is a danger that these actions might not happen – which will have direct consequences for households on the lowest incomes.

“We need to fund the investment we need to meet our poverty targets. The Scottish Budget mostly comes from Westminster, but we also have powers over income tax and local taxation. We hope to hear more detail from the Finance Secretary about how she will use those powers to fund investment in anti-poverty measures.”

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He said: “Government’s decisions can cast a much longer shadow than those of a single small firm. For example, shutting down local public sector buildings might save money on paper, but it risks undermining collective efforts to turn town centres around.”

David Phillips, associate director of the Institute for Fiscal Studies, said that despite extra funding, health services could still struggle in the next few years.

Andrew McRae, the Federation of Small Businesses (FSB) Scotland policy chair, said that the public sector and small businesses are still “reeling” from Covid and now face “mounting overheads” and the challenge of inflation. 

Here is our first take on the #spendingreview. Much more analysis to follow today and tomorrow but first thoughts: 🧵

— Fraser of Allander Institute (@Strath_FAI) May 31, 2022

He added: “Underlying these difficult decisions are UK government funding plans that look less generous than when they were set last Autumn as a result of higher inflation. But big increases in social security spending and a relatively poor income tax performance also make the challenges more difficult, and that’s despite the Scottish Government implicitly assuming a further rise in income tax relative to the rest of the UK."

The Fraser of Allander Institute said the Scottish Government “deserves credit” for setting out a multi-year plan despite “significant uncertainty”, but added the impact will be “stark” on the public sector and local government.