Official Report 565KB pdf
Budget (Scotland) Act 2025 Amendment Regulations 2026 [Draft]
The next item is an evidence session with the Minister for Public Finance on the draft Budget (Scotland) Act 2025 Amendment Regulations 2026 on the spring budget revision. The minister is joined by the Scottish Government officials Craig Maidment, senior finance manager; and Claire Hughes, head of corporate reporting. I welcome our witnesses to the meeting and invite the minister to make a short opening statement.
Good morning.
As we approach the end of the financial year, the Scottish Government is, once again, on track to balance its budget. That demonstrates our robust in-year financial management practices. The spring budget revision allocates £600 million of additional funding to support our vital public services. More than £100 million is provided to the health service, while the economy and Gaelic, housing, transport, and education and skills portfolios all receive additional funding to support services.
In line with our robust practices, we continue to set aside contingency funding, which is required annually, to support any year-end audit adjustments as well as to guard against any final changes in 2025-26 forecasts. Those funding additions are offset by a reduction in social security benefit expenditure, £100 million of forecast European structural funds income and slippage in capital projects, as well as a £350 million technical adjustment relating to police and fire pensions.
The funding position has also been updated to reflect the latest forecasts and figures. Planned capital borrowing and ScotWind utilisation have been revised down and align to the position that the Cabinet Secretary for Finance and Local Government set out in the 2026-27 Scottish budget. There remain wider financial challenges that have required to be navigated in recent years. As part of the 2025-26 budget, we had to consider carefully how best to support the 2026-27 budget, with a £150 million underspend assumption.
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The technical, Whitehall and internal transfers are presented in the document in the usual way. The supporting document to the spring budget revision and the finance update prepared by my officials provide further background on the net changes as well as updates on information that was requested by the committee.
I am happy to answer any questions that the committee may have.
Thank you, minister, for that and for the amount of detail that the Scottish Government provides for spring and autumn budget revisions—there are 186 pages in the meeting papers document. Previously, we have seen a fraction of that. There has certainly been an improvement in transparency over the years, which is greatly appreciated.
The document says that the budget revision does not affect the Government’s spending plans. However, for the technical changes, we are talking about a net increase in the budget of £3,777.6 million. Based on that alone, it looks as though the budget is getting something in the region of a 5 per cent increase—more than that, in fact; it is more like 6 per cent. Can you talk us through those technical adjustments?
I will do my best, but I may rely on my officials.
I think that I am right in saying that the biggest of those adjustments relates to student loans. That is dealt with at a UK level, and there has been a reassessment of how the risk—for want of a better word—is categorised in relation to those loans. As a consequence, some technical adjustments have been made. Those apply across the UK, and the implications for our budget are around £3 billion. However, as I said, it makes no difference to the amount of money that we have to spend. As you know, because we do not have tuition fees in Scotland, our student loan position is very different from that of the rest of the UK. It is a technical adjustment based on the risk profile that is covered by the UK Government. In any event, it does not impact our day-to-day spending in any way.
It seems strange that it has been attached to the budget, given that it does not have any impact on it.
Yes—if I were an accountant, perhaps I could give you a more technical explanation.
John Mason is an accountant, so he will explain it for us all.
Follow the rules in that regard.
In your opening statement, you touched on the £252 million that is being held centrally within the finance and local government portfolio. Of that, you have said that £200 million is being
“held as contingency for emerging pressures in January to March 2026 and year-end audit adjustments”.
It is understandable that that contingency was held, but why was a specific sum of money selected as opposed to £250 million, £150 million or any other sum?
Are you asking why it is not a round number?
It is a round number—well, the £200 million certainly is. There is potentially a £52 million carry forward, and I am wondering how that sum was arrived at.
In terms of that year-end adjustment number, we always have to make an assessment of what the potential impact is. Those sound like big numbers, but they are in the context of a £60 billion-plus Scottish budget. We need to make our final decisions on borrowing in the middle of March, so there is still scope for changes at that point. Historically, there have been changes—of more than £100 million on occasion—as a consequence of year-end audit adjustments.
We need to keep some money for that and for anything that happens in the final few weeks of the financial year. However, as I said, nothing is lost there, because anything that is still there carries forward into the following financial year.
It looks like a large sum of money, but it is barely a day’s resource expenditure for the Parliament when one thinks about it in those terms.
The social justice portfolio has a funding reduction of £226.2 million. I found it interesting that the adult disability payment is £208 million less than anticipated—that is about 6 per cent less than was originally anticipated. The documents said, more or less, that fewer people were applying and that perhaps there was a tightening up of the way in which those payments were being assessed. Is that a fair description?
I have a couple of points to make. First, these numbers originally come from the Scottish Fiscal Commission, which makes its assessment of what we need to put in the budget. That is the right way to do it—there is the independent assessment, and then we work within that.
Secondly, the numbers are big, but, in the context of the whole social security budget, it is about 3 per cent. However, you are right that, in relation to that specific benefit, it is a significant number in absolute terms, and, as you say, it is demand led. I am sure that there are many and various factors that drive that demand, and Social Security Scotland will respond to the applications and the demand side of the process.
On your comment about being stricter, it is important to recognise that certain numbers are quoted in this regard—it is not my portfolio, so I am not across all the detail of it—but a lot of the original assessment was based on individuals who were transferred from the UK system, who had already been through various checks. Therefore, when people talk about a very small number being changed following on from that, it is important to recognise that those individuals had already been through the UK process.
Social Security Scotland prides itself on its dignity and fairness approach, but I am conscious that it is looking after public money, so all of that needs to be treated in the round.
The amount for the Scottish child payment is £14 million less than was anticipated. Is that because, for example, the parents moved into a level of employment such that the children were not eligible?
Again, those are forecast numbers from the SFC. They will be based on a range of different factors and assumptions, and those assumptions could change. The eligibility for the Scottish child payment is driven largely by universal credit eligibility, as well by as a number of other factors. If people find themselves in a position where they are earning more than they thought they would, the claim will be less. As I say, a range of factors could affect the position.
The amount is about 3 or 4 per cent off the forecast. I wonder whether that is good news, in a way, if you think about it. If fewer people require the Scottish child payment, surely that is a positive story when it comes to the health of the Scottish economy.
That is one possible driver. We work hard to make sure that people are claiming the benefit, but underclaiming could be an issue. However, assuming that all else is equal, it would indicate that fewer people are in need of the benefit, which, as you say, would be a positive thing.
A lot of people would baulk at the fact that £24.7 million had to be provided for the additional costs incurred as a result of the United States presidential and vice-presidential visits. Is there any possibility of getting that money back from the Government of the United Kingdom of Great Britain and Northern Ireland?
We do not give up hope, and we will continue to press on that.
Not even by splitting the difference?
We can continue to engage with the UK Government, but it has not been helpful in that regard. I find it an interesting situation, given that the Prime Minister was very keen to come on a plane to Scotland and engage with the President but then claimed that he did not want to pay for the privilege of having that engagement on world matters. I found that strange.
Was the Vice-President not on holiday? It still cost us millions. Could you not ask him to go somewhere else—Majorca, maybe—the next time he fancies a visit, to save us a few quid?
I do not know what the Prime Minister discussed with the President, but I imagine that it was not just chit-chat and that international affairs were mentioned.
We have talked about the Scottish child payment and whether there might be good news in that regard. The number of claimants is not as high, which I would hope is good news in terms of the economy. However, it does not look like there is good news in the transport portfolio, because we have slippage of £38.4 million in projects within ferry services, which is quite substantial.
I do not have all the detail on that, but I can get back to you if there are specifics that you want more information on. Clearly, there will be big projects in there, and for capital projects you make the projection of what you will spend and then, when you are in year, a period of time later, there will be variables that could affect that projection.
There will be things that will speed up and things that will slow down. There will always be movement, and, again, that is in the context of a significant capital budget overall.
I am not convinced that there has been a lot of speeding up going on. On the transport portfolio, the spring budget revision document says:
“Ferry Services has been reduced by £38.4 million. This is driven by reprofiling of vessel procurement and harbour works, drydock repairs and a reduction to resilience payments required.”
If less is required by way of resilience payments, that might be a good thing, but, given the amount of time for which the ferries that serve my island communities have been in dry dock over the past year, it is concerning that there has been a slippage as a result of reprofiling of work that is undertaken to ensure that the fleet is up to scratch and service provision can be optimised.
I take the point. As I said, there will be specific reasons for that. If you would like more information, I could get that from transport colleagues.
Thank you. That would be helpful.
I have just a few more questions, because colleagues are keen to come in.
Funding for the climate action and energy portfolio is being reduced by £157.6 million. Other political parties may claim that climate change is a hoax, but none of the parties that are represented around this table believe that it is, so it is a concern that there has been considerable slippage in funding for that portfolio. The fact that spending on offshore wind is being reduced by £102.9 million is a particular worry. Can you talk us through that?
The offshore wind spending will be partnered up with private sector investment, and it is not always possible to have a complete assessment of that in advance of when the budget is laid. As a result, funding might not be deployed at the rate that we thought it would be, depending on other factors that are outside our control.
Okay. When you refer to factors that are outside your control, what are you talking about?
If the money that we provide leverages in private sector investment, we have to make an assessment of when that will happen in advance of when the budget is laid, but that may or may not come through in the timeframe that we expect, because other people make decisions on that.
There is one last issue that I want to touch on. There are others that I would like to ask about, but I am sure that colleagues will raise them. If not, I will revisit them at the end.
On the housing portfolio, we have good and bad news. There is a net funding reduction of £6 million, due in part to the £15 million of additional financial transaction receipts and the £27 million reduction in demand-impacted heat in buildings capital expenditure. The good news is that £36 million more has been provided for affordable housing. It is swings and roundabouts, but there is a net reduction of £6 million. Can you talk us through those items?
I have no specific information on that, but we can come back to you. In the context of the overall budget, that £6 million is a relatively small number.
That is fair enough. I will leave other issues until the end, if necessary. I am sure that colleagues will cover most, if not all, of them.
The convener has touched on several issues already.
The McCloud adjustment is £34 million. We have discussed that with you before. Could you clarify what that £34 million is?
That goes back to the on-going conversations that the committee is having with the Scottish Public Pensions Agency. I understand that Dr Pathirana will be appearing before you again shortly. As you know, I am working very closely with the SPPA. I have regular calls with the agency and have visited it. We have put in additional funding to support its asks for additional resources. An extensive amount of automation is being undertaken to speed up the process.
We know from the history of the issue that the original timelines were unrealistic, given that clarification from His Majesty’s Revenue and Customs on the tax treatment of the calculations was received very late in the day. There were other challenges, too.
In effect, that is an allocation from the UK Government in anticipation of what payments it was thought would have been made in that financial year. That did not happen, because the SPPA—along with all the other public sector pension providers across the UK—is not where it would want to be with regard to making those payments.
There is simply a delay in the payments. It will eventually come back through again.
Yes. Exactly.
There may be one or two things in that category.
I will ask a question on social security, in relation to the adult disability payment. More people are exiting the scheme than was expected. I did not quite understand why people would be exiting the scheme. Is it because they have got better or they have got a job? They should get the payment whether they get a job or not, should they not?
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I would not know. I would need to check whether ADP tapers out eventually; I am not sure whether it does or not. However, Mr Mason is right that, if people are exiting, then it is because they will no longer be eligible for the benefit, for whatever reason. They may have got better, which is a good thing.
Hopefully, yes. I am still intrigued by that. However, I accept that we are still fairly new on some of the benefits and that they will take time to settle down.
Could we dig a little deeper into the student loan valuation? Could you, or one of your officials, explain it to me?
I do not know who wants to explain the ins and outs of that to Mr Mason, accountant to accountant.
Is it that we are now expecting to write off more, so there is a greater cost? I accept, however, that the net effect is nil.
A new model was implemented for the devolved nations in 2025. England gradually moved to that model over the course of a number of years, up to 2022. As part of that, the valuation of the loan book was overstated, and there is an impairment to bring it down to a lower level. The level of adjustment is a one-off correcting adjustment, rather than something that we would expect to see annually. However, it brings the loan book down quite significantly as a consequence.
We are more pessimistic than we were as to how much will come back in.
Exactly. In the new UK-wide model that is being used to forecast repayments, the earnings projections are lower than those previously used. As the level of people’s earnings impacts when they start their repayments, that is flowing through into the net book value of the loan book.
It is good that the valuation is more accurate—fair enough.
I note that
“The Deputy First Minister, Economy and Gaelic portfolio will receive £127.4 million of budget cover for other technical adjustments. This includes £80 million for the Scottish National Investment Bank to offset changes in the value of the bank’s existing investments”.
Is that because we are writing things off?
I do not know whether officials have any more detail on that. However, the investments that the SNIB makes are an on-going process and some will be more successful than others.
It will be a write-down on the value of carrying investments, and not necessarily a write-off.
That is what I was wondering.
It will be a carrying value, rather than a crystallisation of a write-off.
I think that there is SNIB money in Orbex, for example, around which there is—as I understand it—a bit of uncertainty. However, it might be that there is still a value in it, but a reduced value, rather than its having gone bust completely.
Yes. Because the budget is coming through as a technical adjustment, it will be like an annually managed expenditure budget cover to reflect accounting impairments, rather than a formal write-off, which would potentially have a resource hit, as it would cost the departmental expenditure limit budget.
Right, okay. That touches on the next question that I was going to ask. We do not really have DEL and AME, do we? Those are Westminster terms, as I understand it. We simply have resource.
Officials will keep me right on the technicalities. AME funding comes from the UK Government as non-cash to support pensions and other such things that are funded by it. Again, we cannot access that money to spend it. The UK Government manages and funds those things.
We were discussing that, if social security is overspent, because it is demand led, the UK can treat that as AME. Is that right? In Scotland, however, we cannot, because we do not have that AME facility. Or do we?
We do have AME. Things such as our pensions are funded through AME. There are certain rules for something to be funded through AME: per the statement of funding policy, if something is volatile, or is comparable to the UK, we can fund it through AME. The reason why our social security benefits are funded through DEL is that we are not comparable to the UK, because our benefits are more generous and more expensive. Therefore, we do not have the option to fund them through AME and we have to fund them through DEL.
Okay. I will leave that one just now. I am not sure that I totally got on top of it, but that is fine.
On landfill tax—if I can find the right page. Again, I am a little bit unsure about this. The block grant adjustment has changed. Is that partly because the UK has been more successful at reducing landfill than we have? It is on page 16 of the guidance—paragraphs 77 and 78, I think.
The block grant adjustment will be based on the revenues that the UK Government expects to receive from landfill tax. If the BGA is increased, the UK Government presumably expects to have performed worse than anticipated in reducing landfill, because people are paying more to landfill their waste.
So it is a negative block grant adjustment?
Yes. Our funding is reduced by an amount to offset the fact that we can collect landfill tax and land and buildings transaction tax—the equivalent of stamp duty—which is devolved to the Scottish Government. An increase in a negative means that the UK Government is collecting more taxes, if that makes sense.
I may have lost the room.
The UK Government is collecting more taxes, so we have been more successful in landfill than it has.
Within the budget revision, our receipts have gone up as well; there has been an increase in landfill receipts in Scotland as well. You need to look at the net position. Overall, that is successful. It is a net increase, in terms of the receipts—
Are those not falling? That is the intention.
The trajectory over a period is a fall. However, for this year, the forecasts were lower than the figures appear to have manifested.
Have ours fallen faster than the UK’s, then?
I am not sure.
The negative block grant adjustment has increased, which means that there is more of a block grant adjustment.
That reflects the fact that the UK Government will be receiving more landfill receipts, so it will strip that out from our block grant.
I will leave it at that.
Craig Hoy, you can pop back in.
Convener, I have been playing a bit of budget bingo, ticking off things that other colleagues have brought up. I will dip in and out of some of them, if I may.
Minister, I accept that the reductions in ADP are as against the forecast that was independently created. An FOI request that was published in January showed Social Security Scotland’s expenditure on benefits advertising: in 2024, there was advertising of the adult disability payment; in 2025, there was advertising of the Scottish child payment. Have you done any work as part of the public service reform programme to see whether there is any linkage between advertising a benefit and its take-up against the forecast? Why, for example, would you stop advertising the adult disability payment now, given that, presumably, people are coming into adulthood with disabilities? If you wanted to promote uptake of the benefit now and into the future, Social Security would, presumably, sustain that expenditure—unless it is having a detrimental impact on take-up, making it ahead of and above expectations.
I do not know the detail of that. Decisions to deploy advertising to publicize the availability of benefits were made within Social Security Scotland and the relevant portfolio. To go back to a point that the convener made, uptake depends on a number of factors; however, if people are not aware that they are entitled to benefits, it is clearly a role of the Government and its agencies to make them aware. I can take a look at whether there is any analysis on the specifics of how that might drive uptake and how that is quantified, and come back.
The paper that I am looking at says,
“While application volumes have remained relatively stable, the authorisation rate has been lower than forecast”.
Has there been any change to the authorisation methodology that might mean that more people are being refused the benefit, or taken off it at annual review?
As I said, there are a number of factors. With the transition of the benefit, there will be one pool of people who have been through various processes—in the UK context, obviously—and there will new applicants coming through who will not have been through that process or been assessed by Social Security Scotland under its mechanism. I am not close to the detail on that, but I would expect it to continually reassess its processes to ensure that they are appropriate.
I want to ask about something that falls within your portfolio. The invest-to-save fund has reduced by £12.4 million, reflecting several projects that are less delivery-ready than initially anticipated. My understanding is that that fund was £30 million for the previous year. That means that about 50 per cent of that fund was not spent. What does that tell you about the Government’s capability to reform at speed, if half of that fund has not been spent?
You have to remember that that is one part of a suite of things that are happening. It is the first time that we have undertaken that novel approach. We focused on tackling a specific problem: reducing costs in one part of the system in a different financial year when the cost is included in another part of the system in the current financial year.
Clearly, in the normal run of events, there is no incentive for the portfolio that is seeking to make that expenditure to spend it out of the current year’s budget when someone else gets the benefit in several years’ time. We designed the system to cope with that. We invited applications from multiple portfolios to work together, and there is a clawback mechanism whereby a proportion of the fund comes back in future years, based on the assessment of the savings that they make in the other portfolios.
I will be honest with you—we did not know how that was going to work. We have had some uptake, which is good, and a number of very successful projects. We pitched a number of proposals where we thought they might land. However, because it is quite a different way of budgeting and deploying resources, portfolios are working at pace to get their heads round how they engage with the process. It would have been good had there been more take-up, but that tells us that we have more work to do to get people to focus on preventative opportunities, because they did not previously have a mechanism to resolve that.
When we talked about the number of applications to the fund, one would assume that you may have been keen to get shovel-ready projects to show that the scheme was working. You have to admit that it is quite concerning that nearly half of that budget has not been spent, given the need—because of the budget imperative—for you to reform at pace and at scale.
I would not read into that that the whole PSR programme has a challenge. This is one specific part of it, which focuses very much on cross-portfolio and multiyear preventative opportunities. As I said, it has signalled that we have more work to do to get directorates and agencies to understand the funding stream and how they are able to use it, because it is quite different from what they are used to. Usually, funding is provided and that is it. This measure has funding with strings, and it requires integration and co-operation, so it is moving into quite a different space.
The fact that we are doing that is very important, because it changes the tone and the approach across Government and the wider public sector. We have learned some lessons this year as to how we can increase take-up going forward. As you know, we are repeating the funding in the next financial year.
I have a final question. In the transport portfolio, £15.3 million in additional funding is being provided, of which £10 million relates to an increase in the forecast cost of concessionary fares. Do you have any understanding as to why that cost has risen by £10 million in a year?
I would expect that that is because more people are using the service. If I am not mistaken, operators make a claim on the funding based on usage. I can double-check that. However, if that is an indication of more people who are eligible for concessionary travel travelling more on buses, I suppose that I would say that that would be a positive thing. I can check the specifics on that for you.
Yes—if you could. Equally, I do not have a detailed understanding of it, but one operator has told me that they are compensated fully for one of the two schemes, but a fixed amount is provided for the other scheme. I do not know whether that relates to the under-22s scheme or the over-60s scheme, but there may be a similar overspend that has to be absorbed by bus companies. Mr Harvie might be aware of how it operates. It would be interesting to see whether that relates to one specific scheme or whether it is just a general oversubscription against forecast.
We will check the detail on that and get back to you.
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I will go back to public service reform. On pages 5 and 6 of the spring budget revision document, you highlight two different and, in the overall picture, relatively small amounts of money. There is a £12 million reduction in the finance and local government portfolio for public sector reform and a £1.5 million reduction in the funding for education reform. Will you give us any detail as to why that is the case?
I do not have any information on the smaller number—the £1 million or so. The bigger number comes back to the point that Mr Hoy made about the invest-to-save scheme. As I said earlier in relation to the uptake of the £30 million scheme, it is only one part of what is happening. It is tackling a specific challenge of portfolios perhaps not taking up opportunities because of the way in which the budget process has traditionally worked. The scheme is a mechanism to alleviate that problem. Because it is a different way of doing business, it is not necessarily something that the portfolios would have been looking for, and so it was perhaps always going to be a bit of a challenge to get everything right in the first year.
Is the £12 million part of the £30 million scheme?
Yes.
I have a question that relates to an answer that you gave to the convener. You said that, when a decision relates to the private sector, you cannot automatically assume what the decision will be. Will you update us on the discussions that are taking place in the Government—you have referred to those discussions in the chamber, and the Deputy First Minister has referred to them a lot—about collaboration between the private and public sectors, particularly on infrastructure investment? What stage are you at with those discussions, given the fiscal constraints that exist on infrastructure development?
The Government’s focus with regard to investment, which the Deputy First Minister leads on, is to understand the appetite in different parts of the investment community. There is a wide and varied landscape when it comes to investment in public sector opportunities. A lot of work is going on in the relevant directorate on the InvestScotland portal, which is identifying projects that the private sector may have an interest in. Work is on-going to get those projects to a level of detail and granularity so that the prospectus can be what we would call investor ready, which is when investors are able to use it to identify and understand how a business case stacks up. The mechanisms that could be used for that will depend, to some extent, on the nature of the opportunity.
I ask that question because the committee has stated a few times that, when it comes to infrastructure development, there are huge fiscal constraints—such as the priorities that are put out for building new roads, or whatever it might be. It is therefore helpful to see the priorities with regard to which infrastructure projects should happen and how quickly they should happen. Some of those projects would also benefit from collaboration with the private sector. After the election, will the Scottish Government consider being transparent not only about those discussions but about the kind of activities that are in play, in order to ensure that there is better investment?
As I said, the process is on-going. It is about working hard with investors, who can be anything from venture capitalists—we have talked about pension funds—to international investors, sovereign or otherwise. There is a whole range of partners that could be engaged with. The Deputy First Minister is just back from a trip to the Emirates, where there was extensive discussion with potential investors about things that it might be appropriate for them to invest in.
There are many different priorities. There are things that the Government would assess as priorities that require investment, and we are now going through a budget process in which Opposition parties are, to a lesser or greater extent, saying what their priorities are. However, the picture is complicated by how those priorities are married to what private investors think that their priorities are.
The point is that such collaboration could provide the Government with some extra funding. When there are complaints about certain roads not being adequately dualled, certain bridges needing to be rebuilt or infrastructure problems in certain parts of Scotland, it will be helpful to our successor committee to have more discussion and a greater focus on how that sort of approach can be put into operation to ensure a greater supply of investment funds, potentially, to allow some of those things to be delivered.
There are a number of parts to that. For a start, there is extensive engagement with investors, led by the DFM, and I have given examples of how that is continuing apace. There is also the investment portal, where specific projects are identified, and obviously that is publicly available.
At the end of the day, we might want something done, but that does not necessarily mean that that is where investors want to put their money, and marrying those things up is a key part of the process. In any case, this is not free money that we are talking about—it comes at a cost. Yes, you can increase the amount of money that you have for capital investment in the here and now but, depending on how the deal is designed, there will be a payment to make in order to pay back that investment, and that might or might not make sense as we move into the future.
I think that Craig Hoy was inviting me to ask a question on bus subsidy earlier. The only thing that I would say is to reassure him that public transport subsidy will work much better once we have taken the system back from the notoriously inefficient private sector. I hope that he is looking forward to that.
I want to pick up on the comments that the convener made about the reduction in the climate and energy portfolio. It is a significant reduction, minister, and I understand the arguments that you have made about activity in offshore wind being a major element that is not necessarily within the Government’s control. However, how, and why, was the decision made to take that funding out of the climate and energy portfolio instead of redeploying it in another part of the portfolio?
I am thinking, for example, of the heat in buildings programme. The Government has scrapped the bill on that, but the programme is still there and, as far as I am aware, the commitment made by the Government at the start of the session to spend £1.8 billion on the programme over the parliamentary session is still there, too. At the end of 2025, £1.67 billion had been allocated, which is pretty close, but less than half of the £1.8 billion had actually been spent by the end of last year. Did the climate and energy portfolio at least make a bid within Government for the money that is not going to be spent as a result of changes in the offshore wind sector to be redeployed in other parts of the climate portfolio that are underperforming so badly?
There are a few things there. When it comes to moving money about—particularly capital money—you cannot just throw a switch to move £100 million from here to there. Projects have to be in place to support any such move.
Much of this is demand led—that applies to the example that you cited of the heat in buildings programme. A number of factors would have affected where any underspend that had been identified would have been redeployed; after all, there is a whole range of other investments that are made, which are based on priorities but also very much on whether there are projects ready to deploy those funds in the time period in question.
The specific issue that you highlighted would have been the subject of a conversation between the cabinet secretary and the relevant portfolio minister, and I was not specifically involved in it. However, if you want specifics, I can seek more detail on what was proposed.
I am slightly surprised that you are not able to tell us why the decision was made to take that funding out of the portfolio instead of redeploying it within the portfolio, given that it is one of the changes that you are making. If you can come back to us with an explanation and say what alternative uses within the portfolio were at least considered, that will be helpful.
I can do that. However, what I will say is that, although we certainly look at this in the abstract from a policy perspective, the nuts and bolts—the reality—of how this works is that there are year-end requirements to deploy the funds, and whether they are deployed is based to a large extent on where they can best be deployed or how they can be deployed, rather than where, in a perfect world, we might think that we want them to be deployed.
I acknowledge that we are very far from a perfect world. The underperformance of climate policy over the past few years, particularly on the heat in buildings programme, but also on other aspects, has been pretty stark.
I have a few more questions. One issue that comes up every year is pensions. There is an increase of £115.7 million in forecast future NHS and teachers’ pension costs. I appreciate that it has no impact on the Scottish Government’s discretionary spend, but I wonder why there is a substantial underestimate of those costs every year—whether for the police, fire services, teachers or the NHS—given that we know when folk will retire. I have made that point on numerous occasions. There seems to be a huge adjustment in both the autumn and spring budget revisions.
I will let officials comment on that. I am not sure what the adjustments are as a percentage of the total pension bill. If I am not mistaken, the biggest adjustment this year is the £300-plus million figure from DEL to AME on certain pensions. That figure is affected by a range of factors, including the number of people who retire. People may choose to retire early or to make other decisions.
I do not recall the figure ever going the other way. There is never an overestimate; it is always an underestimate. We always end up with quite substantial figures—nine-figure sums in this case.
It is classified as AME because it is recognised by the UK Government as being very volatile and hard to predict. The payments are comparable to those in the UK, so we are not an outlier. The expenditure is also fully covered by the UK Government via AME, and there is no loss in our discretionary spending as a result of that additional budget cover.
I am not particularly convinced by that, but we will move on, as I have other things to raise.
The committee has raised many times—and the Government has done a lot of work to take into account—the fact that sums get moved every year, sometimes twice a year. It seems to me that it is the same sums that get moved every year.
For example, the transfer of £186.5 million from education and skills to local government, which falls within the finance and local government portfolio, is to support teacher numbers. Surely that amount should have been in the local government portfolio to start off with. We have this argument that there is policy and there is delivery, but seeing those changes distorts the budget lines. In 2026-27, will that figure be put in education and skills again, or will it be in the local government portfolio, which is where it should be?
I would need to check that specific example, but I expect that it would follow the same process. Baselining activity also happens on an on-going basis but, as you said, it comes down to where the policy decisions are made on the portfolio’s priorities and then where the delivery happens, which is where the funds are transferred to. That number can also vary depending on a range of factors.
If it is a set number, surely it should sit in the area where the policy will be delivered. It seems to me—and I am sure to other colleagues—to be an odd way of looking at it. If you know that a sum of money will be moved, it should ultimately sit in the area where it will be deployed.
You may not know what the number is—
Whether the figure is £186.5 million or £200 million, it should sit in the area where it will be deployed. It seems odd to put it in education and skills if it will always be spent by local government. The Government will not suddenly remove that £186.5 million, will it? The figure will either stay the same in the next financial year or go up. What is the point of having it in a portfolio if it will not be spent there and you know that it will be spent in a different portfolio? It doesnae make sense.
Two other examples come from transfers from health and social care to education and skills—one is £22.7 million for new medical places and the other is to support teaching fees. Again, those transfer figures are recirculated every year. It would make everything more transparent if the money were allocated to the portfolio where it is to be deployed.
11:45
I will make a couple of other points before we wind up. We have not touched on ScotWind today, although the committee has raised such issues a number of times previously. The finance update to us says:
“it is now possible to release £188 million of the planned draw down of ScotWind funding in-year to support the 2026-27 Scottish Budget and future years of the Spending Review.”
In the ABR, £341 million was committed from ScotWind, but that sum has been reduced to the one that I just mentioned. That is quite a substantial difference.
The ScotWind figures seem to always go up and down, with the funding being deployed, to an extent, as though it is part of the Scotland reserve. How much money is currently in the ScotWind fund? Does the Government intend to use that funding to more or less cushion resource spending in the future, or will it be used for capital spending, as was the original plan?
As you said, the funding is to be used to support climate investments for the future. The numbers that you mentioned are big in the context of the ScotWind budget, but they are relatively small in the context of the overall capital programme.
The difference in the ScotWind resource is huge. How much ScotWind funding will be left after that money has been put back in, so to speak?
The total revenue from ScotWind and the innovation and targeted oil and gas leasing round amounted to £810 million, and £96 million of that has been used—I think that that was in 2022-23—so the balance of £714 million is still available, although £176 million of that is set out in the SBR. The vast majority—I am trying to do the maths in my head—of the £538 million, which is about £508 million, is profiled across next year’s budget and the rest of the spending review period, primarily on capital lines.
A lot of the money is going into next year’s budget, so it will not be available for future years, as was originally intended. The committee will probably revisit that matter.
Finally, £47.8 million in city deal funding is being returned to the Treasury to be reprofiled in future years, with no loss of funding for the overall city deal programme. How is that going to work? The funding is being returned to the Treasury, and then we will get it back in future years. Why is it being returned if we will end up having to ask the Treasury to send it back to us in future years? It seems a bit odd to go through that process.
That is to do with the ring fencing of the funding—the city deal funding that is specifically tied to city deals projects and is not part of the general Barnett block grant. We are not able to carry forward that funding in the reserve, so it will go back to the UK Government, and then it will come back in the next budget.
It is an accounting measure. Ultimately, does that mean that there has been a slowdown in the delivery of some city deals?
There have been underspends compared with the original budgets that were forecast in the current year, which is why the funding has gone back.
That is obviously a concern in itself.
The overall commitment, in terms of the sums being deployed, remains the same.
I will leave it at that. I thank the minister and his officials for their evidence.
Our next item is formal consideration of the motion on the regulations. I invite the minister to move motion S6M-20541.
Motion moved,
That the Finance and Public Administration Committee recommends that the Budget (Scotland) Act 2025 Amendment Regulations 2026 [draft] be approved.—[Ivan McKee]
Motion agreed to.
The committee will publish a short report that sets out our decision on the regulations.
As that was the last item in public on our agenda, I move the meeting into private session.
11:49
Meeting continued in private until 11:55.