SCVO Scottish Budget Summary 2023/24

Following the Scottish Budget 2023/24 on the 15^th of December 2022, SCVO produced this summary of commitments impacting the voluntary sector operating environment. This paper also includes analysis from key commentators on the impacts of these commitments.  

SCVO will host a webinar on 10^th January 2023 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.  

Background   

Ahead of the 2023/24 Scottish Budget, the Scottish Government shared that the budget’s key aims would be eradicating child poverty, transforming the economy to deliver net zero, and creating sustainable public services. These themes are similar to those in the Resource Spending Review. 

The Scottish Greens, who have a cooperation agreement with the Scottish Government, said the budget will be the greenest Scottish Budget since devolution. 

The Scottish Government’s Resource Spending Review, published in May this year, provided a blueprint for spending over this parliament. However due to the economic situation, there have been some changes to spending plans in the current financial year. Changing priorities may see further changes following the budget with high inflation expected to impact people, communities, and organisations for the next two years. 

High inflation has also eroded the value of the Scottish Government’s budget in 2022-23. The current financial year’s budget is worth about £1bn less in real terms, however, the UK Government’s Autumn Statement largely offset the impacts of inflation on the Scottish budget in 2023-24 by providing an additional £1.5 billion in Barnet consequentials.  

The Bank of England also increased interest rates on the 15^th of December by 0.5 percent to 3.5%. 

Opening remarks and key themes 

On the 15^th of December 2022 the Deputy First Minister and interim Cabinet Secretary for Finance, John Swinney MSP opened the Scottish Budget statement with an update on the current financial year stating over £700 million has been re-budgeted to tackle low pay. He recognised that the public sector is not immune to rising inflation and shared that changes worth £1.2 billion had been made in the current financial year (2022/23) through two Emergency Budget Responses. 

The DFM is still working to fully balance the current year's budget (2022/23). Unlike the current year, the budget for 2023/2024 assumes that nothing from 2022/23 year will be carried over. 

The DFM recognised that, energy and fuel costs are surging, the impacts of inflation, and that the UK economy has already begun to contract. In real terms the Scottish Budget will be lower in real terms than in 2021, as a result in some cases, it will take the Scottish Government longer to achieve their plans. 

The DFM said the Scottish Government had chosen not to follow the path of austerity and instead will invest substantial resources to those most in need citing the need to tackle child poverty, deliver net zero, and invest in public services. He said there would be an emphasis on early intervention and prevention. He also shared that he had reached out to many stakeholders, including the third sector, to hear their views. 

On the same day, Scottish Fiscal Commission (SFC) forecast that Scotland will follow the UK into recession with forecasts similar to the UK. 

Public sector pay policy was not published, due to inflation and ongoing negotiations on public sector pay. 

Next steps 

There is a cooperation agreement between the Scottish Greens and the Scottish Government. With the support of the Scottish Greens further votes will not be needed to pass the budget when the budget vote takes place. Instead, the focus will be on 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 to deliver the outcomes and progress towards the Sustainable Development Goals (SDGs). Parliamentary scrutiny is no less important, despite the likelihood that the budget will be passed.  

Following the publication of the Scottish Budget, each Cabinet Secretary or relevant Minister will provide a more detailed, written response to each committee on their pre-budget scrutiny reports. This will be provided within five parliamentary sitting days of the publication of this budget. 

There will be debates in January/February 2023 (Stage 1 debate TBC, Stage 2 Committee TBC, Stage 3 debate TBC February) and the budget will be passed in the middle of February 2023. 

There may be revisions to the Scottish Government’s Resource Spending Review. 

Key points of interest for SCVO policy priorities which focus on the voluntary sector operating environment  

The early reaction is that despite prioritising areas that the voluntary sector significantly contributes to, child poverty, net-zero, and sustainable public services, there were few mentions of the voluntary sector. In contrast, explicit commitments were made to invest in helping the public and private sectors to support them with rising costs and wages, issues which also impact the voluntary sector.   

SCVO and others welcome Scottish Government’s commitment to Fairer Funding Principles, including a commitment to multi-year funding. Follow-up on these commitments is needed to ensure progress on these areas which are central to a sustainable voluntary sector. 

Responses from across the sector suggest more could have been done to tackle child poverty and achieve net-zero but that the budget contained some welcome commitments. 

There is some concern about funding public services in the short and longer term despite the commitment to sustainable public services. 

SPICE noted different language between the 2022/23 Scottish Budget, the Resource Spending Review, and the 2023/24 Scottish Budget with emphasis in relation to child poverty shifting– from “reducing” to “tackling” to “eradicating”, and on public services, from “protecting and rebuilding” to “excellent” to “sustainable” across the three documents. 

Big picture analysis  

Key announcements included: 

• increasing taxation for higher income earners, an additional £1bn on health and social care spending, and uprating of social security entitlements delivered by Social Security Scotland in line with the rate of inflation.   
• Many voluntary organisations called on the Scottish Government to go further to help the most vulnerable people and communities. 
• All tax rates have been frozen and this will have an impact for those on lower incomes (Scottish Women’s Budget Group). 

Broader points of interest   

Mentions of the voluntary sector  

• There were references to the sector in both the announcement and the Scottish Budget document but these tended to be brief. 
• Recognised that the public, private and third sectors are operating within a challenging environment. 
• Recognised that it is not possible to eradicate child poverty, recover from COVID and keep The Promise without working in close partnership with COSLA, local government colleagues and partners in the third sector to achieve this. 

Funding and Procurement  

Content 

• In pre-budget Scrutiny Social Justice and Social Security Committee raised concerns about the impact of funding reductions and uncertainty on the third sector, calling for multi-year funding. Adopting Fairer Funding practice is something Scottish Government intend to progress in the next financial year. The Scottish Government will continue to work with the sector to tackle the barriers it continues to face. 

Analysis  

• SCVO look forward to a more detailed response to the committee in the next few weeks. 

Fair Work/Employment 

Content 

• In the current 2022/2023 budget, £700 million extra to enhance pay deals in the public sector with a particular focus on improving low pay.  
• Increasing investment in No one Left behind and Fair Start Scotland. 
• Provide an additional £100 million to support delivery of the £10.90 real living wage for adult social care, building on the increase provided in 2022‑23. 

Analysis  

• Recognises that paying higher wages is the biggest contribution the Scottish Government can make to help many families with rising costs. There are around 450,000 devolved public sector workers – over one fifth of Scotland’s total workforce, but to date similar commitments have not been made to the 135,000 voluntary sector workforce.  
• The costs of pay deals have recurring implications for budgets in future years. With over £22 billion invested in employee pay this year, equivalent to more than half the Scottish Government’s discretionary resource budget. 
• Recognises higher wages also represents Scottish Government’s commitment to sustainable public services, again what about the voluntary sector workforce. Focus on public sector employers does not recognise that public grants and contacts fund many people in the voluntary sector. 
• Wages for those working in social care will rise to the Real Living Wage (RLW) of £10.90, a step back from commitments made last year to create a minimum wage floor that was above the RLW. Last year this was £10.50 when the RLW was set at £9.90. To maintain the commitment to paying above the RLW a minimum wage floor for social care of £11.50 would have been a minimum to keep pace with inflation (Scottish Women’s Budget Group). 
• There was no mention in the budget of childcare workers’ wages, RLW for this workforce as standard remains some way off.  
• Cuts to employability programmes through the Emergency Budget Review are not to be long-term (Scottish Women’s Budget Group). 

Public services  

Analysis 

• Scottish Fiscal Commission’s forecasts imply that funding for public services is set to fall by 1.6% in real-terms next year compared to this year (Institute for Fiscal Studies) 

Local Government  

Content 

• Will increase the resources available next year by over £550 million and won't seek to agree a freeze or cap to council tax allowing councils to set their own rates as requested by COSLA. 

Analysis  

• This increase in local government spending is a departure from the Spending Review. Scottish Government also committed to working with local government to address their concerns. 
• The budget shows the total local government allocation for 2023-24 increasing by £637 million in cash terms, or £223 million in “real” terms, when compared to budget 2022-23 (SPICE).   
• Local government spend is always a contested. COSLA argues the increase announced by the Deputy First Minister will be smaller once existing policy commitments are taken into account.  COSLA focuses on “core” budget, which is the combination of general and specific revenue grants and income from non-domestic rates. This core revenue budget sees a real terms reduction of 0.2% between budget 2022-23 and budget 2023-24 (SPICE). 

Barnett consequentials 

Content  

• NHS Barnett consequentials will be passed on in full. 
• Other budget decisions mean NHS budget will be increased by £1 billion in the year 23/24   

Analysis 

• As in previous budgets, the health and social care budget has received significant additional resource.  It grows by 6.2% (2.8% in real terms) in 2023-24 (SPICE). 
• A significant proportion of extra funding will be absorbed by additional pay costs.   

Rates /Vat 

Content 

• The next non‑domestic property revaluation will take effect on 1 April 2023, based on rental values as at 1 April 2022 and draft values were published on 30 November 2022. 
• Freezes the Basic Property Rate (‘poundage’) at 49.8p. Delivering the lowest poundage in the UK for the fifth year in a row and is expected to save ratepayers £308 million compared to an inflationary increase. The average non‑domestic rates bill before any relief is applied will therefore be 10% lower than if there had been an inflationary uplift in the poundage. 
• Higher Property Rate threshold will increase from £95,000 to £100,000. The Intermediate Property Rate, at 51.1p (the poundage plus 1.3p), will be charged on properties with a rateable value of between £51,001 and £100,000; the Higher Property Rate of 52.4p (the poundage plus 2.6p) will be charged on properties above £100,000. 

Analysis 

• Non‑domestic rates (NDR), often described as business rates, are a local tax levied on lands and heritages used for non‑domestic purposes in the public, private and third sectors. 
• For NDR payers, bills next year will also be affected by the revaluation of non-domestic properties and, for smaller properties, changes to the Small Business Bonus Scheme. Transitional relief schemes have been announced to limit the impact of these changes on individual properties (SPICE). 
• There are no additional reliefs applied to hospitality and retail as is the case south of the border (Fraser of Allander Institute (FOA)) 
• Small Business Bonus scheme, now has a lower threshold and a taper system (FOA). 

Tax 

Content  

• Thresholds for starter and basic rate bands to be maintained. Higher level also to be maintained. The top rate threshold will be lowered from £150,000 to £125140 
• No changes will be made the starter, basic, and intermediate rates to protect those on low incomes. 
• Higher and top rates of tax will be increased by 1p each to 42p and 47p respectively. The extra penny will be taken for a specific purpose, the NHS. 
• No change to land and building transaction tax. 
• Additional Dwelling Supplement (charges on purchases of second homes) will increase from 4% to 6%, raising an additional £34 million in revenue next year.   

Analysis 

• Tax proposals will raise around £1 billion more than if they had followed UK tax powers. Income tax changes outlined will raise £129 million in 23/24 (SFC).  
• The majority of people will still pay less in tax than if they lived in another part of the UK. 
• Lowering the threshold at which the top rate is payable from £150,000 to £125,140 replicates UK tax policy. 
• All taxpayers earning below £27,850 will pay less income tax in Scotland than they would if they lived elsewhere in the UK. Those earning £50,000 will pay around £1,500 more in Scotland than they would elsewhere in the UK, while someone earning £150,000 will pay almost £4,000 more over the year (SPICE). 
• Since 2016/17 the higher tax rate threshold in Scotland has increased at a slower pace than the rest of the UK. This has resulted in a 23% rise in the number of taxpayers paying the higher rate of tax in Scotland, whereas in the rest of the UK, there has been a 10% drop (FOA). 
• Despite additional consequentials and further revenues from announced changes to income tax, most spending portfolios are set to see a real-terms decrease in budget (FOA). 

Volunteering 

Content  

• Not mentioned. 

Transparency 

Content  

• States the Scottish Government is committed to transparency around the public finances and the budget process.  
• Recognises the Equalities, Human Rights and Civil Justice Committee recommendation that transparency, participation, and accountability are critical areas for effective human rights budgeting. 
• Recognises the Finance and Public Administration Committee’s call for greater fiscal transparency in the budget process and establishing clearer links between spending priorities and National Outcomes. Will continue to improve this through corporate reporting, in year budget revisions, and long-standing membership of the Open Government Partnership. 

Net-zero transition/Climate/Energy 

Content 

• Over £500 million net zero initiatives announced. 
• Funding for cycling, walking and wheeling boosted to at least £189m. Up from £150m and now accounts for more than 5% of the transport budget. 
•  £366 planned investment to decarbonise heating. 
• £44 million in Scottish National Investment Bank. 
• £15 million Fair Fares review to include 6 month pilot to remove peak time rail travel to make rail travel more affordable and attractive. 
• Following Supreme Court ruling will use the finance earmarked for preparing for an independence referendum to increase the fuel insecurity fund. 

Other headlines and analysis 

• The Scottish Child Payment will remain at the increased level of £25 per child per week. However, Scottish Child Payment did not rise in line with inflation. This brings a real-terms cut to the value of this new benefit (Scottish Women’s Budget Group). Scottish Child Payment has been increased significantly in the last year, but it’s disappointing the £25 payment won’t hold its real-terms value next year (CPAG). 
• All other benefits will rise by inflation, 10.1%.  
• Justice increases include strengthening legal aid provision. 
• Cuts housing budget by £215 million in real terms.  
• All but one area of the government’s Culture and Major Events portfolio has been cut. In real terms the impact of these cuts is much higher, given record inflation, rising costs and a decade of erosion caused by stagnant budgets (Culture Counts). Further investment in culture and heritage is needed to ensure that museums can continue to support their local communities and provide fair pay to their staff (Museums Association). 

Scottish Fiscal Commission (SFC) forecasts  

SFC forecast judgements are key to determining the initial amount available for Scottish Government spending in 2023-24.  

The SFC, like the Office for Budget Responsibility (OBR) for the UK, said that Scotland has entered a recession which they forecast will last for six quarters, with a total fall in GDP of 1.8%. Similarly, the SFC expects the biggest fall in living standards (-3.3%) since Scottish records began in 1998. This squeeze will also impact Scottish Government spending. 

Wages, and thus tax receipts, are still not growing fast enough to offset the impacts of inflation. The SFC expects inflation to peak at 11% at the end of 2022. 

SFC forecasts the net tax position in May 2022 was -£265m, primarily driven by the negative income tax position of -£365m, due to lower than expected growth in the tax base in Scotland than in rUK (FOA). 

In 2022-23, the total amount needed to fund social security commitments above and beyond the amount of social security funding in the block grant was £374m; next year, it will be £776m, and in 2027-28 SFC estimates it will reach £1.4bn. The Scottish Government must fund these amounts out of revenues beyond the block grant.