FINANCE Secretary Kate Forbes said inflation was limiting Scottish government funding increases.
In a ministerial statement at Holyrood, Forbes outlined the government’s resource spending review which will give a boost to health, social security, including child benefits, and areas of environmental policy.
Budgets for local government, police, justice, universities and rural affairs are expected to fall by around 8% in real terms over the next four years, while spending on business, tourism and commercial promotion are expected to fall 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 plan since 2011, and child poverty campaigners have welcomed the focus on supporting those on low incomes.
Forbes told MSPs Scotland was facing an “unprecedented cost of living crisis”, adding that Brexit had made the problem worse and the poorest in society were hit hardest.
The Scottish Conservatives blamed the £3.5billion shortfall on the Scottish government’s ‘staggering incompetence’ and called for income tax to be brought into line with that of the UK.
The spending review, which is not a budget, outlines 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 tight supply chains have had an impact around the world, but inflation does not “affect them in the same way”.
She told MSPs: “The UK currently has the highest inflation of any G7 country – almost double the rate of France. Brexit has made this problem worse, with increases in food prices, hitting the poorest the hardest.
“We are going through an unprecedented cost of living crisis. Inflation is at 9%, its highest level in 40 years, and households are facing considerable difficulties.
“We are doing all we can in response, prioritizing additional funds to help households in need, but the limits of our fiscal and economic powers in turn limit the support we can offer.”
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Forbes added that after a 5.2% cut in the Scottish budget last year, funding will only increase by 2% in real terms over the next four years.
She said: ‘It’s not inevitable – it’s the result of a deliberate choice by the UK government – as it sits on its hands.
“While the Chancellor has provided welcome, albeit limited, support to households, the cold winds of Tory austerity are blowing when it comes to utility spending.”
Forbes added that the government will ask the public sector to become more efficient with a focus on digitization, public sector heritage and improving public procurement.
The reforms are “necessary” to enable more investment in tackling child poverty, achieving net zero emissions, growing the economy and improving public services, Forbes told MSPs.
Scotland’s Conservative shadow cabinet secretary for finance and the economy, Liz Smith MSP, claimed Scotland had received ‘record funding’ from Westminster this year and said the funding shortfall was due to ‘incompetence amazing” from the SNP.
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She added: ‘They must commit to bringing Scottish income tax levels back to the same as 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 put Scotland’s economic growth first.”
Forbes hit back: “If we ever needed proof of what Tory priorities are, on a day when a Glasgow University investigation confirms that UK Tory austerity is the reason for the stagnation of the life expectancy in Scotland and the UK – this is proof that we need to know where the Tories will prioritize their spending.
Peter Kelly, director of the Poverty Alliance, welcomed the focus on tackling child poverty, but warned local councils needed to be properly supported to achieve this in practice.
He said: ‘A lot of this is at least partly the responsibility of local councils – things like investing in free childcare when needed, free public transport, good public services , in social housing and in our social security system.
“Without adequate support from local councils, there is a risk that these actions will not happen – with direct consequences for the lowest income households.
“We need to fund the investments we need to achieve our poverty goals. The Scottish budget comes mainly from Westminster, but we also have income tax and local taxation powers. We hope to hear more details from the Finance Secretary on how she will use these powers to fund investments in poverty reduction measures.
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He said: “Government decisions can cast a much longer shadow than those of a single small business. For example, closing local public sector buildings could save money on paper, but it risks undermining collective efforts to transform city centres.
David Phillips, associate director of the Institute for Fiscal Studies, said that despite additional funding, health services could still struggle in the coming years.
Andrew McRae, policy chair of the Federation of Small Businesses (FSB) in Scotland, said the public sector and small businesses are still “reeling” from Covid and are now facing “increasing overheads” and to the challenge of inflation.
Here is our first opinion on #expenditure review. Many more analyzes to follow today and tomorrow but first thoughts: 🧵
— Fraser Institute of Allander (@Strath_FAI) May 31, 2022
He added: “Underneath these tough decisions are UK Government funding plans which look less generous than when they were set out last autumn due to higher inflation. But steep increases in social security spending and a relatively poor income tax performance also make the challenges more difficult, and this despite the fact that the Scottish Government implicitly assumes a further increase in income tax by compared 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 would be ‘strong’ on the public sector and local government .