SCVO Scottish Budget Summary 2021

SCVO Scottish Budget Summary 2021

Following the Scottish Budget on the 9^th of December 2021 (2022-2023) SCVO produced this summary of commitments impacting the voluntary sector and analysis of these commitments.  

SCVO also held webinar on 14^th December 2021 to help voluntary organisations understand some of the high-level implications of the budget for the Scottish economy, the sector and the communities we work with. The recording can be accessed on YouTube. 

Background   

On 9 December 2021, the Cabinet Secretary for Finance and the Economy, Kate Forbes MSP, published the 2022-23 Scottish Government Budget, the first pre-Christmas Budget introduced since 2018.  

In addition to the Scottish Government’s spending and tax plans for the next year (2022-23), the Cabinet Secretary also published a Spending Review Framework, the Scottish Government’s first multi-year Resource Spending Review since 2011. A Medium-Term Financial Strategy (MTFS) and policy documents on public sector pay, equalities, and a climate assessment of the budget, were also published. 

The Scottish Fiscal Commission (SFC) released their forecasts for the Scottish economy, including estimated revenues from Scottish tax policies, social security spending, and economic growth (see end of document for details). 

The 2022-23 Budget is the first Scottish Budget developed in collaboration with the Scottish Green Party following the Bute House Agreement signed in August 2021. The Scottish Government said the Budget will deliver on the commitments in that agreement to accelerate efforts to become a net-zero economy while supporting people, businesses and communities to recover from the impacts of the pandemic.  

The UK Autumn Budget and Spending Review set out the unadjusted Scottish block grant from the Treasury to 2024-25. According to these figures, the Scottish budget is expected to grow by nearly 8% next year (after adjusting for inflation) before flattening in subsequent years.  

However, there is a political disagreement between the UK and Scottish Government on how the numbers are presented. The Spending Review presented the 2022-23 Scottish Budget as representing a 7.7% real terms (inflation adjusted) increase in Scotland. The Scottish Government, however, has presented the numbers differently, including the 2021-22 COVID funding in the baseline. The Scottish Government argues that as the pandemic is still with us and requires financial support, it is better to include COVID funding in the baseline.  The effect of presenting the numbers this way is to show the Scottish budget falling in real terms in 2022-23 relative to 2021-22. 

The block grant from Treasury is now adjusted to account for the devolution of tax and social security powers following the Scotland Act 2016. These block grant adjustments (BGAs) are based on Office for Budget Responsibility (OBR) forecasts. 

What's next?  

• As it’s expected that the Scottish Greens will have supported the Budget in advance, Scottish Government does not need votes for this Budget, they need to get it through Committees. 
• Parliamentary scrutiny of the Scottish Government’s Budget proposals will now take place. Committee and plenary discussions will weigh up the Scottish Government’s plans. MSPs have a crucial job in raising questions around whether these are the right choices for delivering the outcomes we all want to see. Parliamentary scrutiny is no less important, despite the likelihood that the Budget will be passed. 
• There will be debates in January/February 2022 (Stage 1 debate 27 January, 
  Stage 2 Committee 1^st February, Stage 3 debate 10 February) and the Budget will be passed in the middle of February 2022. 

• The Scottish Government’s Consultation on the Resource Spending Review Framework closes on the 27^th of March. The Scottish Parliament’s Finance and Public Administration’s call for views on the framework closes on Friday 21^st January.  

Key points of interest for SCVO priorities  

• The third sector fiscal resource budget will receive an £800,000 (3.5%) cut to its funding.  This budget line pays for many of the Scottish Government's recent commitments.  SCVO and other infrastructure organisations are among the funds recipients as are initiatives such as: Scotland's Volunteering Action Plan; a Programme for Government commitment to strengthen the influence of Third Sector Interfaces; The Community Capacity and Resilience Fund (CCRF); the Strengthening Collaboration initiative outlined in the Programme for Government.  This cut is also concerning as there will be more demands on the sector from the government this year, for example, as they look to bring forward legislation to improve Charity Law. See SCVO’s statement and letter to the Cabinet Secretary for Social Justice, Housing and Local Government.  
• Scotland's first Spending Review since 2011, should allow for 3–4-year resource spending.   

Big picture analysis  

• The Budget goes some way to support those on lower incomes. Despite this, rising prices are likely to worsen the cost-of-living crisis, especially for those on lower incomes (ProBono Economics) 
• Young people have the highest unemployment rate of any age group, and unemployment may rise (Pro Bono Economics) 
• The voluntary sector may see increased demand, especially from those on low incomes or in unemployment (Pro Bono Economics) 
• There is funding for the sector's contribution to different areas, and organisations in specific areas – such as mental health, climate, and housing 

• The Promoting Equality and Human Rights budget increased by 39% to £44.98 million 
• The Scottish Fiscal Commission (SFC) and Office of Budget Responsibility (OBR) forecasts suggest inflation and unemployment worsening in the short term. However, forecasts suggest a recovery in the next few years, for the voluntary sector and the rest of the economy (Pro Bono Economics). 

Broader points of interest   

Key themes:  

• Supporting low-income households and tackling poverty. 

(Doubling of the Scottish Child Payment to £20 a week; free bus travel for under 22s; extending free school lunches to Primary 5; and income tax rates will remain the same with starter and basic rates rising in line with inflation). 

• The environment 

(Low carbon spending £2 billion of low carbon spending on housing, transport, industry; funding for active travel; Free bus service for under 22s). 

• Health and social care spending increases 

(£18 billion on health including £1.2 billion mental health; £1.95 billion to launch Adult Disability Payments; rise in minimum wage for carers; rise in public sector wages). 

Mentions of the voluntary sector  

• The voluntary sector is recognised a few times in the budget document.  
• The fiscal resource line of the Third Sector Budget is reduced by £800,000.   

Analysis  

• The cut to the Third Sector Unit Budget will have a direct impact on the voluntary sector resulting in weakened support for voluntary organisations across Scotland, at a time of great uncertainty. 

EU funding and the Levelling-up fund  

Content 

• UK spending review undermined the devolution settlement and set Scottish councils against each other – through the Levelling Up Fund, and the encroachment of the Internal Market Act – while making up little for the funds lost by, and the impacts of, EU exit. 
• EU Structural Funds replacement, the UK Shared Prosperity Fund. Not only has the UK Government’s approach to date undermined the devolution settlement, but it has also left the Scottish Government – and in turn communities and industries – far short of the funding received from previous EU Structural Funds programmes.  

Analysis  

• Narrative that the UK Government are undermining devolution through the Levelling-up fund. 
• It is unclear if the UK Shared Prosperity Fund matches EU funding. 

Culture  

Content  

• £277 million funding Scotland’s Arts and Heritage 

Analysis  

• The proposed Creative Scotland Grant in Aid budget for 2022/23 has increased to £63 million, up from £60 million in 2021/22 (excluding Covid emergency funds) (Creative Scotland). 

Multi- year funding 

Content 

• Resource Spending Review in May 2022. A consultative framework document for that spending review was published alongside the budget, setting out the priorities and approach which will guide it. This will complement the already published Capital Spending Review to provide a comprehensive multi-year settlement for all public spending in Scotland. 
• For culture: The Resource Spending Review Framework published alongside this Budget sets out the intentions to deliver multi-year portfolio spending plans, “which will provide the culture sector with more certainty for future planning”. 

Analysis  

• The budget did not make any major commitments on innovative funding models. 
• The Scottish Government has cited the UK government’s lack of multi-year spending reviews as being the key barrier in place to delivering settlements beyond the next financial year. With the UK government publishing a 3-year spending review in October, including Scottish Treasury spending limits through to 2024-25, this barrier has been removed.  

• A Consultation on the Resource Spending Review Framework closes on the 27th of March.   

Barnett consequentials 

Content    

• The 2021 spending review states that: Resource and capital DEL budgets and the devolved administrations’ block grants from 2022-23 to 2024-25 have been set through multi-year budgets.  

Analysis  

• Delivers in real terms the largest block grants since devolution (SPICE)  
• Scotland will receive an additional £4.6 billion per year on average through the Barnett formula. A 2.4% real terms increase over the Spending Review period. However, this is front loaded with big real terms increases next year (+7.7%), followed by two years of the Scottish Budget standing still in real terms (SPICE).  
• However, there is a political disagreement between the UK and Scottish Government on how the numbers are presented. The Spending Review presented the 2022-23 Scottish Budget as representing a 7.7% real terms (inflation adjusted) increase in Scotland. The Scottish Government, however, has presented the numbers differently, including the 2021-22 COVID funding in the baseline. The Scottish Government argues that as the pandemic is still with us and requires financial support, it is better to include COVID funding in the baseline.  The effect of presenting the numbers this way is to show the Scottish budget falling in real terms in 2022-23 relative to 2021-22.    
• If Scottish Government funding increased by an average of £4.6 billion per year. How was this spent? All Barnett consequentials received in relation to health resource spending to the health and social care budget and increasing frontline health spending by at least £2.5 billion by 2026-27 (SPICE). 

Rates  

Content 

• Non-Domestic Rates Non-domestic rates (NDR), or business rates, (local tax levied on lands and heritages used for non-domestic purposes in the public, private and third sectors are administered and collected by local authorities, who retain all the revenue to fund local services).   The poundage rate will increase by 0.8p,  

• the Intermediate Property Rate at 51.1p (the poundage plus 1.3p), which will be charged on properties with a rateable value (RV) of between £51,001 and £95,000; 
• the Higher Property Rate at 52.4p (the poundage plus 2.6p), which is charged on properties with a RV above £95,000. 
• Taken together, these policies will ensure that at least 95% of properties are liable for a lower non-domestic tax rate than anywhere in the UK. 

For 2022-23, the Scottish Government proposes 50% rates relief for the first three months for RHL properties, capped at £27,500 per ratepayer.  

Analysis 

• The Chancellor announced a number of changes to non-domestic rates in England or business rates in England including: 

• Freezing the rate that is used to calculate the business rates bill for a property.  
• A 50% reduction in the business rates bill for the majority of retail, hospitality and leisure properties in England in 2022-23, up to a cash limit of £110,000. 

•  Ahead of the Budget Scottish Government claimed to have the “most generous non-domestic rate regime in the UK”.  There are more generous proposals for the same type of properties in England, with 50% relief for the full year capped at £110,000. However, Scotland does have a slightly more generous basic system for smaller properties with a rates poundage of 49.8p compared with an equivalent of 49.9p in England. (SPICE) 

Employment  

Content  

• There has been a real-terms cut to the education and skills budget. More than £5 million has been cut from the Skills Development Scotland budget. £10 million has been cut from the employability and skills budget.  
• The public sector pay policy secures a minimum inflationary uplift for employees earning up to £25,000 and announces a minimum wage of £10.50 per hour for bodies covered by the policy. Other public sector employers are encouraged to implement within their own pay proposals. 

• £23.5 million for our Green Jobs Fund - helping businesses create green employment through investment. 
• £225.6 million to deliver a range of national training interventions through Skills Development Scotland, including maximising apprenticeship starts, and delivery of the Scottish Government’s national redundancy service, and local careers information, advice and guidance services. 

Analysis  

• Increased funding for employability is a step in the right direction but more detail is needed on how skills funding will help firms address immediate challenges (CBI). 

Fair work 

Content  

• Target support for the lowest paid across the public sector. Recognised the challenges of rising living costs. Inflationary uplift of £775 for those earning up to 25000, 700 to those earning between 25000 and 40000 and 500 to those earning above 40000. For the public Sector. A minimum wage floor of £10.50 per hour (up from 10.02) across all bodies covered by the pay policy with specific funding to apply this for adult social care staff. 

Analysis  

• STUC says this is a real terms cut. 
• The public sector pay policy covers Scottish Government central departments and NDPBs/agencies.  It doesn’t cover councils, NHS, uniformed services who all have separate bargaining structures. 

Departmental Spend  

Content  

• The Promoting Equality and Human Rights budget increased by 39% to £44.98 million.  
• There is funding for the sector's contribution to different areas, and organisations in specific areas – such as mental health, climate, and housing.   

Analysis  

• The Promoting Equality and Human Rights budget funds several front-line voluntary organisations. 

Tax 

Content  

• Income tax revenues are to grow more slowly than in rUK, with significant implications for Scottish spending (Scottish Fiscal Commission, SFC forecasts). The different income tax policy in Scotland has not been enough to compensate for weaker employment and earnings growth and the differences in the taxpayer mix.   
• Income tax broadly the same: The Starter and the Basic rate bands will increase in line with September’s CPI (Consumer Price Index) inflation of 3.1%. The higher rate thresholds will remain frozen, meaning earnings of between £43,662 and £150,000 be taxed at 41%. The higher rate threshold will also be frozen, meaning a 46% rate for those earning over £150,000 (SPICE). 

Analysis 

• The freezing of the higher rate income tax threshold below inflation - raises much-needed additional funding for public services from higher earners (IPPR and many others). 
• Income tax rates will remain unchanged across the board but the threshold for starter and basic rates will rise in line with inflation. As a result, individuals on the Basic Band but whose pay rises in line with inflation will remain in the Basic Band rather than moving into a higher tax band. This will support those on low incomes (Pro Bono Economics). 

Volunteering 

Content  

• No mention of volunteering in the document. 

Digital  

Content 

• £9.2 million to harness the digital ambitions of our SMEs and strengthen our digital economy 
• £15 million to provide a digital device to every school-aged child by 2026. 

Local Government funding  

Content 

• A significant transfer will take place from the health budget to local government in respect of social care (£846.6 million), which includes the £200 million cost of increasing pay for adult social care staff to a minimum of £10.50. 
• For 2022-23, councils will have complete flexibility to set the Council Tax rate that is appropriate for their local authority area.   

Analysis 

• Scottish Government and COSLA agree that "core" revenue budget remains the same in cash-terms between 2021-22 and 2022-23. However, when the likely impact of inflation is factored-in, the "core" revenue budget reduces by £284 million, or -2.6%, in real terms between 2021-22 and 2022-23 (SPICE)  
• Once revenue funding transferred from other portfolios to local government is included, the total is £12,474 million. This represents an increase of £854 million over the year; a cash increase of 7.3% or a real terms increase of 4.9% (£557m) (SPICE). Much of this increase comes from funding for additional teachers and support staff, care at home, delivering a £10.50 minimum wage for adult social care staff, as well as other health and social care funding from the Health budget (SPICE) 
• COSLA argue that much of these additions relate to Scottish Government national commitments and are effectively ring-fenced. These commitments, COSLA believe, will be considerably more expensive for local authorities to deliver than the Budget assumes. COSLA calculates that these policy commitments and the resulting pressures will cost local government an extra £891 million, so £100 million more than the cash increase of £791 million set-out in the Budget document. 
• This only a one-year settlement for local government (and other portfolios of course), despite the UK Spending Review (SPICE). The one year funding for local authorities has a ripple effect for their voluntary sector partners (COSLA). 
• Councillors may not wish to raise significant revenues from council tax with local authority elections in May. 

• Councils are in a deliver role rather than a true partner and the opportunity to build on local work in partnership during Covid has not been taken (COSLA). 

Net-zero transition 

Content 

• £2bn will be invested in low carbon capital investment for public infrastructure to support decarbonisation.  
• The first £20m of the government’s ten-year Just Transition Fund for the North East and Moray will be invested.   

• £336m invested to support energy efficiency, low carbon and renewable heat, with £60m earmarked for large scale decarbonisation projects.  
• £53m invested in a range of energy transition and industrial decarbonisation projects.  
• £23.5m allocated for the government’s green jobs fund.  
• £150m invested in active travel infrastructure to support walking and cycling.  
• £43m invested in efforts to drive the circular economy.  

• £53m allocated for nature and peatland restoration, with a further £69.5m invested in woodland creation and the sustainable management of woodlands. 
• £205m in capital for SNIB to support investments as the industry transitions to net zero.  
• £25m to support sustainable and regenerative agriculture initiatives in farming and food production 
• £112 million to support a range of sustainable low and zero carbon transport initiatives 

Analysis 

• Funding for a just transition to net zero has been provided. While these commitments are good will they help us get to Net-zero or reach our targets? 
• Failing to use the non-domestic rates system to incentivise private sector investment in low carbon infrastructure feels like a missed opportunity (CBI) 
• This falls short of the transformational budget needed for the climate and nature emergency we still face (WWF Scotland). 

Other headlines and analysis 

• Scottish Child Payment will be doubled to £20 per week per child from April 2022. Analysis: This is a measure that will support 400,000 families and lift 30,000 children out of poverty.  To meet Scotland's legally binding targets on reducing child poverty, agreed by all parties in the parliament, we will need to see further action on poverty over the coming years (IPPR Scotland). 

• £30 million to support GP practices to continue providing a high level of care to patients through winter and into next year. 
• The health and social care budget is just over £18 billion in 2022-23.  Health and social care resource spending now represents 44% of the total resource budget (SPICE). 
• £50m is a welcome first step towards the commitment to invest £500m in the lifetime of this parliament on whole family wellbeing.  But it is a small step, and this initial investment must be invested wisely to ensure the remaining £450m is spent to best effect by 2026 (The Promise). 
• £1.2 billion for mental health with the aim to increase direct mental health funding by 25% and that 10% of all front-line NHS spend goes to mental health, by the end of this Parliament. 

Scottish Fiscal Commission (SFC) forecasts 

The SFC forecasts for the Scottish economy are better than in January this year, when the previous Budget (for 2021-22) was being framed. This is due to the opening up of the economy and the successful roll out of the vaccine. As a result, economic growth of over 10% is expected this year, with economic activity returning to pre-pandemic levels by the second quarter of next year – far earlier than previously predicted. Of course, there are economic risks, such as Omicron, and inflation. 

For 2022-23, the SFC is predicting that the Scottish budget will be worse off than it would be without income tax powers to the tune of £190 million. This is despite people living in Scotland paying around £500 million more in income tax overall than income tax payers south of the border. For Scotland’s public finances, the SFC expects this BGA income tax gap to grow over the forecast period, reaching £417 million by 2026-27. 

The Spending Review will be an important opportunity for the Scottish Government to take stock of the impact and sustainability of current spending priorities. 

Contact 

Sheghley Ogilvie 

Policy and Public Affairs Officer, SCVO 

sheghley.ogilvie@scvo.scot