Today, I present the Scottish budget for 2020-21. This is a budget that offers vision and leadership at a crucial moment for our country. Last week, the United Kingdom formally left the European Union and entered the transition period that is intended to last until December. That was not an outcome of Scotland’s choosing, but, until Scotland has the opportunity to choose a different path, we must deliver the best possible outcomes for the people we represent. This budget provides an early opportunity for us to do that. It sets out a bold and ambitious programme, which we believe will have widespread public support and, as a result, should command the support of this chamber.
We will confirm today significant investment in our response to the global climate emergency and in strengthening our economy and improving our public services, because it is a budget that has wellbeing and fairness at its very heart. It is a progressive budget, and it will provide extra help to those who need it most, tackling inequalities and poverty, especially child poverty. Our wellbeing approach to the budget prioritises actions that have the greatest impact in improving lives across Scotland now and creating the conditions that are required to ensure the wellbeing of future generations.
However, it is also a budget that is presented in the context of the UK Government’s decision to defer its budget last November. That decision has obliged us to make significant changes to this year’s budget process. With support from the Finance and Constitution Committee, we have a bespoke budget process this year. The late UK budget has required the Scottish Government to present tax and spending plans for Scotland without certainty of our fiscal position next year. The timetable that has been agreed with the Finance and Constitution Committee should see the budget bill passed on 5 March—the week before the UK budget, on 11 March. We will have passed into law our spending plans, doing what we can to provide certainty and stability on behalf of the people of Scotland.
However, the financial and economic risk will not end there. The UK budget will still present a significant risk to the Scottish budget. This budget contains our best-estimate, minimum level of funding that will be available to the Scottish Government in 2020-21. Updated economic forecasts and block grant adjustments will be available only when the UK budget is published. That requires the Scottish Government to use provisional forecasts as the basis for setting budgets, in line with the up-to-date forecasts of devolved tax income and social security expenditure that have been undertaken by the Scottish Fiscal Commission.
We have had to make assumptions about the Barnett consequentials that will be added to the Scottish block as a result of the UK budget, and we have had to take decisions about devolved tax policy without knowledge of future UK policy. That position is not of our choosing, and it creates unnecessary challenges for public bodies, businesses and taxpayers right across Scotland.
The current timetable provides for royal assent by 30 March. Delaying the Scottish budget further would have undermined parliamentary scrutiny, increasing the risk that we would run out of time to pass the budget bill. Such an outcome would be in nobody’s interest. Today’s budget aims to provide as much certainty as possible to taxpayers, to public bodies and, above all, to local authorities, which urgently need to set their budgets for the year ahead.
It is hoped that all members of Parliament will unite behind our tax and spending plans. The Scottish Government is, of course, open to discussion with all parties about how we can best achieve that, but the clock is ticking.
A focus on fairness and our collective wellbeing underpins the measures that we are taking to drive an inclusive economy, tackle poverty and respond to climate change through a just transition. That focus also drives our approach to Scotland’s public services. The budget will protect and improve those services, as part of our strong social contract with the people of Scotland.
In total, the budget provides—for the first time ever—funding of more than £15 billion for our health and care services. We are providing the capital for our programme of elective care centres; we are investing more than £9.4 billion in health and social care partnerships; we are investing £117 million in mental health; and we are delivering an increase of nearly 60 per cent in funding to reduce harm from alcohol and drugs, including support for the work of the new drug deaths task force.
We are also providing a real-terms increase in local government revenue support, as part of an overall funding package that delivers our key commitment on early learning and childcare; funds a fair pay deal for our teachers; and invests more than £120 million in closing the attainment gap, with an additional £62 million provided outwith the settlement through the attainment Scotland fund.
To maintain low levels of reported crime and keep our communities safe, we are providing an additional £37 million for the Scottish Police Authority resource budget. That is well above the real-terms increase that we had promised, and it will ensure that Police Scotland has the money that it requires to maintain officer numbers at the current levels. That is coupled with an extra £6.5 million for community justice interventions, as part of our efforts to reduce reoffending rates. The budget provides capital funding of nearly £70 million for the prison estate, including a replacement for HMP Barlinnie and investment in the female estate.
The budget and the economy are, of course, inextricably linked—and both are being impacted by EU exit. Last week, the Bank of England downgraded its projections for the UK economy. The Scottish Fiscal Commission’s forecasts for the Scottish economy, which were published today, again confirm not only that uncertainty about leaving the EU has held back growth over recent years but that EU exit will continue to be bad for our economy, holding back growth in trade and productivity.
Despite those challenging economic conditions, the economy continues to grow. We have a strong labour market with high employment and low unemployment, and with earnings growth that is outperforming previous forecasts. However, we must remember that the economic and fiscal forecasts that underpin the budget assume that a sensible agreement will be reached between the UK and the EU. Should that not be the case, we may be forced to reconsider our spending plans across all portfolios in order to mitigate, as much as we can, the unnecessary harm that will be caused if no agreement is reached.
The economic outlook has informed the progressive approach to tax that is taken in the budget. We already have the most progressive, fair and balanced income tax system in the UK, which raises additional revenue from those who can most afford it and protects public spending. That helps us to make Scotland the kind of country that we want it to be. It funds our public services, supports our economic infrastructure and helps those who are most in need.
In 2017, in the interests of providing certainty, the Scottish Government made a commitment that Scotland’s income tax structure was settled for at least the duration of this parliamentary session. Today, we are keeping that promise. There will be no increase this year to any of the rates of income tax. No Scottish income tax payer will pay more income tax in 2021 on their current income than they do this year.
To cement the progressivity of our tax system, we will increase the basic and intermediate rate thresholds by the level of inflation, to protect our lowest and middle-earning taxpayers. The higher and top rate thresholds will be frozen. That will ensure that 56 per cent of Scottish taxpayers will pay less than they would if they lived elsewhere in the UK. Scotland will continue to be the lowest-taxed part of the UK for the majority of income tax payers.
The independent Scottish Fiscal Commission has forecast that our decision to freeze the higher rate threshold will raise an additional £51 million in 2020-21, compared to an assumed inflationary increase. The commission’s forecasts show that, in total, Scottish income tax will raise more than £12 billion in 2020-21, partly driven by continued growth in earnings.
On land and buildings transaction tax, we are proposing to introduce a new 2 per cent band for non-residential leases only, which will apply to transactions in which the net present value of rental income over the period of the lease is more than £2 million. The move to a three-band structure will ensure that our tax system continues to be seen as progressive and fair, in keeping with the Scottish approach to taxation. Legislation will be introduced to the Scottish Parliament to enable the change to come into effect from 7 February 2020, but it will not apply if the contract for a transaction was entered into prior to 6 February 2020. There will be no further changes to LBTT, which will provide certainty to taxpayers who purchase land and property.
We will use the resources that are raised through the tax decisions in this budget to support our public services and meet our ambitious targets on child poverty, including through initiatives such as the Scottish child payment. This Government believes that that is the right decision for Scotland.
On the basis of previous commitments in the UK Government’s autumn budget 2018, we do not expect income tax divergence between Scotland and the rest of the UK to increase in 2020-21. If there is any divergence, it will not be because of decisions that are made here; it will be because the UK Government is yet again cutting taxes for high earners.
I turn to the further spending commitments that are announced in this budget. Last year, the First Minister led the way in acknowledging the climate emergency. Across the world, we are seeing an increasingly unified response to what is a fundamental issue for us all and for future generations. We promised that this would be a budget that steps up the delivery of our ambition to tackle climate change, and today we are delivering on that promise.
Scotland’s transition to net zero emissions is a national endeavour, and changes are needed across the whole of society. We will all share in the opportunities that our commitment to delivering a green new deal and securing a just transition will bring. This budget confirms that the Scottish Government will play its part, guided by the expert advice of the Committee on Climate Change and the climate emergency response group.
I can therefore announce that we are meeting our pledge to increase the proportion of investment that is directed towards low-carbon infrastructure each year, with £1.8 billion of capital investment in specific projects to reduce emissions. That is an increase in low-carbon investment of over £500 million compared with last year. The budget provides additional funding in the key areas of transport, agriculture, heat and energy. Promoting a greater shift to public transport will be key to our success, and we are increasing overall funding for rail and bus services, including concessionary travel, by £286 million to a total of £1.55 billion in 2020-21. Investment in active travel will increase to over £85 million, promoting cycling, walking and more sustainable transport.
The £83 million future transport fund will see us invest in low-carbon and other transformational initiatives, including low-emission and electric buses, bus prioritisation, electric vehicle charging point infrastructure and the switched on towns and cities programme. We are providing £5 million to help with the shift to electric vehicles in the justice sector, and we are increasing to £35 million the low-carbon transport loan fund, supporting those who need to drive to transition to low-emission vehicles.
Emissions from agriculture and other land uses need to reduce as part of our climate plan, but we need to work in partnership with farmers and other land managers to achieve that. We are providing an initial £40 million investment in the agricultural transformation programme to help to develop the tools and techniques that are needed. We are also increasing our investment in forestry from £59 million to over £64 million in 2020-21 as part of our response to the Committee on Climate Change’s recommendation that we need to move towards planting 15,000 hectares per year as soon as we can.
We confirm today a new £120 million heat transition deal, which recognises the need to boost the scale and pace of growth in decarbonising our homes and buildings. That will ensure that we seize the huge economic opportunity that renewable heat will present as part of a just transition, delivering thousands of new green jobs. The heat deal will include a £50 million heat networks early adopter challenge fund for local authorities and a £10 million fund to support hydrogen heat demonstrator projects. The budget also secures an increase to £151 million in capital funding for energy efficiency measures.
Those measures alone represent a substantial plan of action for the year ahead, but we must—and we will—go further. The climate emergency demands immediate action, but it also requires genuine long-term commitment if we are to deliver against our statutory emissions reduction targets. I have three further announcements to make that underline the depth of this Government’s longer-term commitment.
First, we will incentivise local authorities to use the assets and levers at their disposal to reduce emissions and boost the economy, by unlocking up to £200 million of revenue-financed investment in projects across Scotland through our green growth accelerator.
Secondly, we commit now that we will ring fence an additional £2 billion of transformational infrastructure investment over the next session of Parliament for measures to support the delivery of the climate change plan. Let nobody doubt that this Government will prioritise multiyear investment in low-carbon measures at the scale that is required to help to tackle the climate emergency. Those measures will build on the recommendations of the infrastructure commission, with further detail to be provided in the infrastructure investment plan later this year.
Thirdly, all the evidence suggests that one of the most effective ways of locking in carbon is to restore our peatland. That offers a clear nature-based solution to the climate crisis. The Committee on Climate Change has shown that every £1 that is spent on peatland restoration brings £4 of social benefit through reduced emissions, improved water quality and flood mitigation.
Not only will we increase investment in peatland restoration to £20 million next year—an increase of £6 million compared with this year—we will go further. Today, this Government commits to investing more than a quarter of a billion pounds in peatland restoration over the next 10 years. That will enable the development of large-scale restoration projects: enhancing biodiversity in some of the most important habitats in Europe, supporting jobs in the rural economy and, based on initial estimates, delivering greenhouse gas emission reductions of up to 0.8 million tonnes a year by 2032.
The move to net zero will have many impacts, including on our economy, as consumption patterns change and ways of doing business adapt. There will be challenges, but there are also new opportunities. This Government is committed to helping Scotland’s economy adjust, at a time when we must also work hard to mitigate the impacts of EU exit, drive productivity and ensure that we are globally competitive.
Infrastructure investment remains key to our success. Overall, today’s budget, backed with increased capital borrowing, will boost infrastructure investment by nearly £1 billion in the first year of our national infrastructure mission to increase annual investment between 2019-20 and 2025-26 by one per cent of gross domestic product. That includes further investment in sustainable transport, in digital through the reaching 100 per cent programme, and more than £800 million of investment in affordable housing, as we continue to progress our target of 50,000 affordable homes.
The coming year will also bring important progress in our network of support for Scotland’s businesses. We are establishing the Scottish national investment bank, with £220 million of direct investment in 2020-21 by the Scottish Government. South of Scotland enterprise will receive £28 million of funding, to provide targeted support for businesses in that area. Our approach will reach across Scotland, as we provide £201 million funding for city region and growth deals, including provision for new deals in Stirling and Clackmannanshire, Tay cities, Ayrshire and the borderlands.
We are pleased to maintain the most competitive business rates regime in the UK, with the lowest poundage anywhere in the UK, and we will implement a new lower intermediate property rate for properties that have a rateable value of between £51,000 and £95,000.
Taken together, those decisions will halve the number of properties that are liable for the higher property rate, and will ensure that over 95 per cent of properties pay a lower poundage than they would in other parts of the UK.
The budget maintains a generous package of reliefs that will benefit over 150,000 properties, including the small business bonus scheme and business growth accelerator—reliefs that are worth an estimated £744 million in 2020-21.
We are pleased that sense has prevailed and that the Parliament has supported the Scottish Government, the business community and the Convention of Scottish Local Authorities in approving the Non-Domestic Rates (Scotland) Bill, which delivers on agreed measures from the Barclay review. The bill supports growth, improves the administration of the system and increases fairness for ratepayers.
This budget delivers a range of other measures that will support growth in our economy. We are providing an additional £16 million of support for the national manufacturing institute Scotland, and we are increasing the trade and investment budget by a quarter.
We are also investing in the fundamentals of our future economy, through increased resources for Skills Development Scotland and real terms increases for our world-class universities and colleges, with total investment of more than £2 billion, helping to ensure that we have the skills and research base that our economy needs.
In total, this budget provides a multibillion pound package of support for the economy, using all the levers at our disposal, just when it needs it most. At a time when the UK Government seems to have cast our economy aside in favour of Brexit, the Scottish Government will work tirelessly to bring certainty and inclusive growth to the economy of Scotland.
We must also build a wellbeing economy—one that values growth but also strives to be inclusive and fair. We know that challenges in our economy often have the greatest impact on those who are already vulnerable. That is why we are announcing a progressive budget that targets support at those on lower incomes and most in need of support. It is also one of the reasons why we fought hard to win greater control over social security. This coming year will be truly transformational, for two reasons.
First, we will see an uplift of nearly £3 billion in the total value of social security expenditure under our control as we administer the attendance allowance, disability living allowance, industrial injuries disablement allowance, personal independence payment and severe disablement allowance for the first time.
Secondly, we will provide £21 million of funding for the game-changing new Scottish child payment of £10 per week, with initial roll-out commencing later this year. It is estimated that at full roll-out in 2022 that will lift 30,000 children out of poverty. When powers rest in Scotland’s hands, rather than under Westminster’s control, we will use them wisely and decisively to build a fairer, country.
We are also providing wider support to tackle poverty and to help with progress towards the target to halve child poverty by 2030. We will continue to invest from the £50 million tackling child poverty fund and we will increase the Scottish welfare fund by more than 7 per cent to provide more support to people hit by Tory welfare cuts.
Through our public sector pay policy, we will provide a 3 per cent increase in basic pay for people earning up to £80,000, with additional support for those on lower incomes through an underpin of £750 for those earning £25,000 or less, and we will continue to pay and promote the real living wage.
We will provide additional funding to help the most disadvantaged to access further and higher education, and we will invest £645 million in our radical expansion of early learning and childcare. From August this year, we will provide 1,140 hours of high-quality childcare that will boost the education of children at a crucial time in their development and reduce the financial burden of childcare costs on young families.
In total, based on previous estimates, we expect to spend no less than £1.4 billion in 2020-21 on supporting low-income households, before taking into account the remaining devolution of social security benefits. The impacts of austerity continue to be felt and we face an uncertain future due to Brexit, but rest assured that this Government can be relied upon to act with compassion, investing in the fairer and more equal society that we would all like to see.
In a Parliament of minorities, good governance demands compromise and pragmatism on all sides. This budget speaks to the priorities of the country. I am sure that every party can find a reason to agree with it, but those who wish to find partisan reasons to oppose it should understand the devastating consequences of doing so.
The emergency provisions enshrined in the Public Finance and Accountability (Scotland) Act 2000 are wholly inadequate for the Parliament of a modern economy. If no budget is passed, the law mandates that public expenditure should be capped at the level of the previous year. There would be no £1 billion increase to our health and care service, nor the additional £500 million for local authorities, and our police, universities and colleges would all be denied a real-terms increase in their budgets. Worst of all, as a consequence of the further devolution of social security payments nearly £3 billion of vital support would be denied to those people in our society who need it most.
Now is not the time for brinkmanship. At a time when Westminster is far from representing Scotland’s interests, it is time for Holyrood to demonstrate clearly and with purpose that we are willing and able to act in the national interest.
In order to achieve that, the Government will be willing to compromise, but we want to be clear on the parameters of that compromise. This is a budget that fully allocates the resources at our disposal and addresses the priorities of the nation. It reflects our ambition for our country and our determination to eliminate child poverty, accelerate the transition to a net zero economy and improve the collective wellbeing of our society through first-class public services and a social security system that is built with human dignity at its core.
In allocating those resources, we have used every fiscal lever that we have to the fullest extent. Every penny is accounted for, including the £100 million in the reserve, which is held to ensure that we can manage future tax reconciliations and any volatility in social security expenditure. Any party in the chamber that seeks spending increases, or tax cuts, or both, as some parties do, will need to be clear with the Scottish people about not just what it wants but how it will be paid for.
In presenting its budget to the Parliament today, the Scottish Government has made an assessment of the promises that have been made to the people of Scotland by the UK Government. This budget relies on the UK Government fulfilling its commitments. We have had little choice but to take the Tories’ promises at face value—after all, their majority at Westminster was won on the back of a promise to end austerity. We have heard those promises before, yet the crippling reality of Tory austerity continues to bite. Just last week, there were widespread reports that all UK Government departments were being ordered to identify savings of 5 per cent. That order was issued by none other than Boris Johnson and Sajid Javid. It seems that old habits die hard for the Tories.
If the UK Government does not live up to its promises, we will have to take the unprecedented step of returning to the chamber with budget revisions that make cuts to the spending plans that I have outlined today. If that happens, the responsibility will lie clearly at the door of the UK Government.
As a Parliament, we face a choice. Time is of the essence, and we must choose soon. We propose a budget that delivers for our public services, invests in the path to net zero emissions, boosts our economy and, through the new child payment, delivers a game changer in the fight against child poverty. This Scottish Government’s choice is clear—this budget delivers for the people of Scotland, and I commend it to the chamber. [Applause.]