Making ends meet: Spending public money in economically challenging times

With the coronavirus pandemic wreaking havoc on the public purse, finance minister Kate Forbes faced greater pressure than ever before balancing the books over the past year

There was not good news waiting for finance secretary Kate Forbes as last year’s summer recess drew to a close, with the publication of the Government Expenditure and Revenue Scotland (GERS) figures revealing that the country’s national deficit had more than doubled over the preceding 12 months.

Thanks to the huge increase in public spending required to combat the Covid-19 pandemic, the gap between the amount of revenue raised and spent in Scotland increased to £36.3bn, up from £15.1bn a year previously. Proportionally, the change meant the deficit moved from 8.6 per cent of GDP to 22.4 per cent.

Forbes did her best to paint the figures in a good light, pointing out that the UK as a whole had seen its deficit swell from 2.5 per cent of GDP to 14.2 per cent over the same period and noting that that – and the dismal GERS numbers – made the case for independence stronger.

The figures, she said, “strengthen our calls for additional fiscal and economic powers to manage our finances in a sustainable fashion, like every other advanced economy around the world will be doing.” “We simply cannot afford not to have the powers of a normal independent country,” she added.

The extraordinary situation of having to respond to a pandemic put enormous pressure on the public purse, so when Forbes unveiled her Budget in December – the first after the SNP signed a partnership agreement with the Greens last August – she said it was a “transitional Budget” written with an eye on the fact that “people, businesses and services” still had to get “back on their feet” following the pandemic.

With a total of £40bn to spend, she allocated almost half to health and social care, but admitted that, due to the additional Covid funding provided by Westminster being removed, “our day-to-day funding next year is significantly less compared to the current year, at a time when we undeniably need to invest in the economy and help public services recover”.

The extraordinary situation of having to respond to a pandemic put enormous pressure on the public purse

In the wake of the Budget announcement the Holyrood government faced intense scrutiny of how it allocated pandemic-related funds, with the parliament’s Finance and Public Administration Committee saying not enough information had been provided for its spending plans to be properly assessed.

Having taken evidence from experts including David Eiser at the Fraser of Allander Institute and Professor Graeme Roy at the University of Glasgow, the committee noted in particular that there was little transparency on how Omicron-related financial packages, which were announced after the Budget had been delivered, were going to be funded.

“With the Covid-19 pandemic continuing to require financial interventions, it is imperative that the Scottish Government continues to provide full, transparent and timely information on all Covid-19 allocations,” the report said.

“The committee also asks how the Scottish Government is assessing the effectiveness of its Covid-19 interventions. This type of information not only allows proper scrutiny of where, and how effectively, the money is being spent, it also enables us to identify any effects of diverting funds from other areas, and to learn lessons for any future health emergency.” 

This message was echoed in a June 2022 report from Audit Scotland, which noted that while Covid-19 was “the biggest fiscal and policy challenge faced by the Scottish Government, councils, and other public bodies since devolution”, and while the response had been swift and efficient, more needs to be done to “support scrutiny of Covid-19 funding and spending measures”.

Despite the committee’s concerns, the 2022-23 Budget ultimately passed in February, with Forbes making last minute additions such as a £150 payment to help poorer households deal with the cost-of- living crisis and allocating an additional £10m to help people struggling with fuel bills. 

Though the crisis lent an air of doom and gloom to the Budget, Forbes was decidedly more upbeat when she unveiled the government’s National Strategy for Economic Transformation in March. A 10-year vision for the country’s economy, the plan set out the government’s aim to “deliver economic growth that significantly outperforms the last decade, so that the Scottish economy is more prosperous, more productive and more internationally competitive”.

There are five key areas of focus – stimulating entrepreneurship, opening new markets, increasing productivity, developing skills and ensuring fairer and more equal economic opportunities – much of which is tied into Forbes’s other grand plan: to turn Scotland into a tech nation.

Implemented following a review by former Skyscanner chief operating officer Mark Logan, the ambition of the tech nation plan is to see up to 300 start-up businesses incubated across five so-called scaler hubs, while more computer science teachers will be hired and the workforce will be taught key tech-related skills.

The aim is to make Scotland a world leader in technological innovation. Yet while progress has been made in terms of Logan, who has a clear vested interest in driving his own vision forward, being appointed Scotland’s first-ever chief entrepreneur, at £45m the funding being made available for the potentially transformational strategy is vanishingly small.

Of the total, just £1m has been allocated to help people on benefits learn coding while £500,000 has been set aside to create a digital skills pipeline. Funding for school-level education – an area Logan has stressed must be overhauled if the long-term vision is to be achieved – is likewise miniscule, with just £1.3m allocated at the beginning of this year to “refresh” the teaching of computer science. From that, individual schools will be able to bid for grants of up to £3,000 to fund new equipment or teaching resources, something Meghan Gallagher, the Scottish Conservatives’ shadow minister for children and young people, said “won’t touch the sides”. 

Forbes’s wider 10-year strategy has likewise been dismissed, with the STUC describing it as “a strategy for the status quo”.

Deputy First Minister John Swinney is covering finance secretary Kate Forbes's maternity leave

With Forbes currently on maternity leave, for now it will be up to her temporary successor – deputy first minister John Swinney – to drive these plans forward and prepare for the SNP-Green government’s second Budget in the coming months.

The latest GERS figures are an improvement on last year’s, but at £23.7bn the deficit remained vast in 2021-22, and, with a second independence referendum on the cards for next year, Swinney will have some big decisions to make ahead of Forbes’ return on an as-yet unspecified date.

In a sign of things to come, the Treasury has already rejected a request from Swinney for more money to fund public sector pay rises after he told Chancellor Nadhim Zahawi that services would have to be cut without extra funding.

Things are unlikely to get any easier in the months ahead. 

 

Q&A with Cabinet Secretary for Finance and the Economy, Kate Forbes

 

Leaked papers reportedly show a black hole of up to £2.1bn in Scotland’s finances. Can the Scottish Government afford to continue with its spending plans, or are further austerity measures inevitable?

Claims of a black hole are simply wrong as the Scottish Government is required to deliver a balanced budget and has limited powers to carry over or borrow meaning there is simply no way of having a gap in the budget.

It’s worth noting that the Scottish Government has been mitigating the effects of UK Government austerity as best it can for over a decade, including through Discretionary Housing Payments to mitigate the bedroom tax, crisis grants through the Scottish Welfare Fund and advice to support households impacted by welfare reform.

In the current financial year alone, the Scottish Government has allocated almost £3bn to a range of supports that will contribute to mitigating the impact of the increased cost of living. This includes work to tackle child poverty, reduce inequalities and support financial wellbeing, alongside social security payments not available anywhere else in the UK.

The Scottish Government has been under sustained criticism for earmarking £20m for a second independence referendum. Do you stand by this measure – and will you continue to do so even if it is not possible to stage the referendum next year due to legal reasons?

The funding outlined in the Spending Review is the equivalent of 0.05 per cent of the entire Scottish Government budget, an important investment that will give the people of Scotland the opportunity to choose a better future.

The First Minister’s statement to the Scottish Parliament was clear - the democratic way to proceed would be for the UK and Scottish governments to together agree a process that includes a Section 30 order. That would be based on precedent, and it would put the legal basis of a referendum beyond any doubt.

But in the absence of a Section 30 order, asking the Lord Advocate to refer the Scottish Independence Referendum Bill to the Supreme Court seeks to deliver clarity and legal certainty. If the bill is deemed to be within the Scottish Parliament’s legislative competence, it will immediately be introduced, and parliament will be asked to pass it on a timescale that allows the referendum to proceed on 19 October 2023.

If the law says it is not within the Scottish Parliament’s legislative competence, the general election will be a ‘de facto’ referendum.

You’re in charge of the country’s finances at a time of rising consumer prices and anxiety for households. What can you do to reassure Scots that their economy is stable now, and what measures can you take to ease the cost-of-living crisis?

Households and businesses are facing a serious cost of living crisis which is exacerbated by Brexit – which Scotland rejected – and which is contributing to rising inflation and pushing up food prices. And we know that those on the lowest incomes are hardest hit. The Scottish Government is doing everything possible with the powers we have to ensure people, communities and businesses are given as much support as possible but right now Westminster holds most of the powers needed to tackle the cost of living crisis as well as borrowing and resourcing powers Scotland does not currently have.

Within our limited budget, we have allocated almost £3bn in this financial year to help families and households face the increased cost of living. This includes support for energy bills, childcare, health and travel, as well as social security payments not available anywhere else in the UK.

We are increasing the Scottish Child Payment to £25 per child per week when we extend it to under 16s by the end of 2022. This will mean a 150 per cent increase in less than a year and around 400,000 children eligible for this vital anti-poverty benefit.

The cost of living crisis did not happen overnight - it is a result of years of benefits cuts, pay freezes and failure to tackle rising energy bills by Westminster governments that Scotland did not vote for. With the full powers of independence we could do so much more to help tackle the cost of living crisis.

The pandemic caused serious harm to Scotland’s economy. With hindsight, what, if anything, would you have done differently to mitigate this harm?

The decisions we took were on the basis of what was known about the virus at the time and the impact on the economy was one of the four harms taken into account which had to balanced alongside protecting people’s health, our healthcare system and the social impact as we navigated through the crisis.

And keep in mind that Brexit and other UK economic policies have also harmed Scotland’s economy. But since the pandemic started, businesses have benefitted from over £4.7bn in support from the Scottish Government, including £1.6bn in Covid-19 related non-domestic rates relief. To date we have spent almost half a billion pounds more in support of Scottish businesses than the funding we received from the UK Government for that purpose.

We will continue to use powers available to us to tackle the cost of living crisis while we pursue independence for Scotland which would deliver full powers over economic policy and migration and mitigate the effects of the pandemic and Brexit by charting a different course.

What is the brightest spot in Scotland’s financial outlook and why is it cause for optimism?

The simple answer to that is Scotland’s people.

I think that despite the challenging circumstances we are currently facing, Scotland is holding its own thanks to the talent, skills and resilience of its people and its businesses. They are the brightest spot in our financial outlook.

We have an abundance of economic potential in established and emerging sectors due to our natural resources, heritage, creativity, academic institutions and business base. And that’s why the Scottish Government is using public investment to help scale-up innovative businesses which will enable them to compete on a global stage which in turn will drive productivity by backing our existing industries and investing in the industries of tomorrow.

If money was no object what would be the top of your shopping list for Scotland?

At a time when the economic outlook is immensely challenging, I want to focus on the biggest opportunities to drive sustainable regional economic growth. That would include capitalising the Scottish National Investment Bank at an even greater amount, transitioning to greener forms of energy at a faster rate and delivering the infrastructure investment plan, which includes school, hospitals and roads like the A9 and A96 in an even faster timescale.

You’re making history as the first cabinet secretary to take maternity leave and facing a work/life dilemma many working mothers face – and then some. How hard is it to step away?

Since I was elected in 2016, I’ve given everything I have to this job – it has consumed my time, energy and thoughts on an almost constant basis. To step away from it all, even for a short period of time, will inevitably feel very weird. As lovely as it will be to go on a new adventure with a baby, I’m sure I’ll be wondering how it is all going back in the office.

That might all change, of course, as I may be too busy with dirty nappies, washing baby clothes and dreaming of a good night’s sleep. Ultimately, government is all about serving citizens, including families, and this new adventure will give me a new perspective.

What kind of Scotland do you hope your new baby will grow up in?

I think every parent feels a sense of trepidation about the world their baby will grow up in and I am no different. As a politician, I can often see the worst and best of humanity and there is equal cause for worry and hope.

Ultimately, I want my child to grow up in a Scotland which values diversity of thought, freedom of expression and demonstrates great capacity to care. In other words, a Scotland with less fear and more acceptance, where our natural wealth and resources lift people out of poverty and addiction.

This article appears in Holyrood’s Annual Review 2021/22