Draft Budget

"This budget builds on the bold and ambitious plans outlined by the First Minister in the Programme for Government, ‘A Nation with Ambition’. It invests in economic opportunity for all, in public services that are fit for the future and in a fairer, more inclusive Scotland."
Cabinet Secretary for Finance and the Constitution, Derek Mackay

The choice we make

Over the decade between 2010-11 and 2019-20, Scotland’s discretionary budget allocation will be eight per cent – £2.6 billion – lower in real terms. Over the next two years alone, the Block Grant from the UK Government for day-to-day spending in Scotland is projected to fall by over £500 million in real terms.

That level of austerity does not just fail the needs of the current generation, it weakens the ability to meet the challenges of tomorrow.

In order to invest in future prosperity, protect public services and build a fairer nation, the Scottish Government has chosen a different path.

Income tax

Under the current devolved settlement, income tax is the only major tax power that the Scottish Government has at its disposal.

To support public services and the economy, and to maintain the benefits of the social contract, this budget sets a distinct income tax policy for Scotland.

This policy will protect low and middle income earners by introducing a new 19p Starter Rate of tax and freezing the Basic Rate.

In order to make the tax system more progressive, the policy will introduce a new Intermediate Rate of 21p and increase both the Higher Rate and Top Rate by 1p respectively.

Under these proposals, more than 70 per cent of tax payers will pay less tax next year for a given income.

This means that those earning under £33,000 will pay less income tax in 2018-19 than in 2017-18, with higher earners paying proportionately more.

These proposals will also mean that 55 per cent of taxpayers – those earning up to £26,000 – will pay marginally less income tax than if they lived elsewhere in the UK. For the majority, Scotland will be the lowest taxed part of the UK.

The independent Scottish Fiscal Commission (SFC) has forecast that these proposals will provide an additional £164 million. Taken together with changes in 2017/18 it will raise £366 million in additional revenues to for investment in public services and the economy in Scotland. This estimate takes account of possible behavioural changes.

Economic and fiscal outlook

Scotland’s economy has continued to grow in 2017. Scotland’s economic fundamentals also remain strong with the number of people in employment rising and the unemployment rate close to the lowest ever level.

Despite these positive signs, Scotland’s economy still faces significant challenges. The Scottish Fiscal Commission’s report, published alongside this draft budget, highlights that Brexit presents a key risk to Scotland’s economy and will reduce migration, productivity and trade in the coming years.

A world-class health service

The NHS, which will be 70 years old in 2018, is our most treasured public service. The Scottish Government is committed both to its reform and investment, increasing spending on the NHS by £2 billion over the course of this Parliament. To deliver upon that commitment, the Scottish Government is providing additional resource investment of over £400 million in the health service in 2018-19. This is over £200 million more than inflation.

In 2018-19, the Scottish Government will:

  • provide additional investment for health and sport, taking our total investment in 2018-19 to almost £13.6 billion
  • deliver investment in primary care reform of £110 million. By the end of the Parliament, expenditure on primary care will increase by £500 million to 11 per cent of the frontline NHS budget
  • transfer £355 million from the NHS to Integration Authorities to ensure improved outcomes on health and social care
  • increase the level of investment in mental health services by £17 million while delivering 800 additional mental health workers over the next five years
  • invest an additional £3 million to promote and spread health innovation, supporting better collaboration between the NHS, academia, industry and medical research charities

Best start in life

2018 is Scotland’s Year of Young People and the Scottish Government is committed to ensuring that Scotland is the best place in the world to grow up. This is why a £50 million Tackling Child Poverty Fund is being established to trial innovative programmes that address the underlying social and economic causes of poverty. A new enhanced Best Start Grant will replace the current Sure Start Maternity Grant to be delivered by summer 2019.

A child’s early years are critical to determining outcomes in later life. This budget sees a step-change in the funding for the transformational expansion in childcare and early years’ education, with investment of £243 million towards providing 1,140 hours of childcare per year. It also provides £8 million to fund the Baby Box, giving every child born in Scotland the same everyday essentials that they need.

Excellence and equity in schools

Closing the attainment gap in education and raising the bar for all is the key priority of the Scottish Government.

As part of our wider reforms, over 2,300 schools have already benefited from receipt of Pupil Equity Funding – which provides support to those schools who need it most and empowers headteachers to spend it on additional staff and resources at their discretion. As at September 2017, 507 FTE teachers have been recruited through the Pupil Equity Fund.

In 2018-19, the Scottish Government will:

  • allocate £179 million to local authorities through the Attainment Scotland Fund, and continue to allocate £750 million over the term of the Parliament.

This will include:

  • £120 million directly to headteachers through the Pupil Equity Funding
  • £59 million in Attainment Scotland funding, which will continue to provide targeted support for those authorities and schools supporting children and young people in greatest need
  • protect local authority core revenue budgets in cash terms, to reduce pressure on education and other budgets
  • provide £10 million to organisations that provide support to children and young people with complex additional support needs
  • deliver key commitments in the STEM Education and Training Strategy, by supporting public science engagement initiatives, including science centres and festivals and a new national STEM engagement campaign
  • commit an overall funding package of £88 million in the local government finance settlement to support both achieving a pupil teacher ratio at a national level and ensuring that places are provided for all probationers who require one under the teacher induction scheme
  • provide an additional £24 million to fully cover the 2017 teachers’ pay offer

Safer communities

The Scottish Government continues to deliver reforms of the justice system – improving access to justice and ensuring that the system meets the needs of people. This will include major reforms implemented in Scotland’s courts; securing the benefits of reform from the police service; investing in the next phase of transformative reform of the fire and rescue service; and working with the new national body, Community Justice Scotland.

Affordable housing

Everyone in Scotland should have access to good quality, secure, affordable housing.

In partnership with councils, housing associations and developers, government investment in housing will, on average, leverage economic activity of around £1.7 billion per year, supporting up to 14,000 full-time equivalent jobs. House builders in Scotland will also have access to the Building Scotland Fund to boost their activities.

In 2018-19, the Scottish Government will:

  • invest £756 million, as part of the total investment of over £3 billion to deliver 50,000 affordable homes over the course of the Parliament
  • continue support for the Rural and Islands Housing Funds

In addition, home ownership will be extended to more families by:

  • continuing the Help to Buy and Open Market Shared Equity schemes
  • introducing LBTT (Land and Buildings Transaction Tax) relief for first-time buyers on the first £175,000 of the purchase price which, together with the existing zero rate of LBTT for homes up to £145,000, will mean that 80 per cent of first-time buyers will pay no LBTT

The problem of homelessness and rough sleeping will continue to be addressed by allocating the first £10 million of a £50 million fund devoted to tackling the issue.

Local government

This budget provides a total core funding package amounting to £10.5 billion for local government. This protects local government day-to-day spending for local services in cash terms and delivers an increase in capital spending of £89.9 million.

Local authorities will also have the flexibility to increase council tax levels by up to 3 per cent, providing up to an additional £77 million for investment in local services.

A combination of Scottish Government funding with the additional resources available from council tax can secure a real terms increase in the overall resources to support local government services.

In addition to the core local government finance settlement, the Scottish Government also provides local authorities with funding streams for shared national and local government priorities, such as City Region Deal investment. These funding streams total £361 million of funding in 2018-19.

Investing in our economy

The Programme for Government set out the Scottish Government’s vision for Scotland to be an inventor and producer of the goods, industries and skills of the future .

This budget delivers key investments to support that vision including:

  • providing a £270 million (almost 40 per cent) uplift in expenditure in the Economy, Jobs and Fair Work portfolio
  • establishing a new £150 million Building Scotland Fund to increase housebuilding, commercial property and research and development
  • guaranteeing an initial capitalisation of £340 million between 2019-21 for the Scottish National Investment Bank

A great place to do business

Reforms to the business rate system will ensure that Scotland provides the best possible environment for businesses to start-up, grow and scale-up.

These include:

  • using CPI (3.0 per cent) rather than RPI (3.9 per cent) to calculate the annual uplift in the poundage this year – something demanded by business and supported by the Barclay Review
  • providing the most competitive reliefs package in the UK, worth a record £720 million, up from £660 million in 2017-18
  • protecting the Small Business Bonus Scheme, lifting 100,000 properties out of rates altogether and continuing to provide better support for Small and Medium Enterprises than elsewhere in the UK
  • going beyond the recommendations in the Barclay Report to introduce a growth accelerator, so that new properties are only added to the roll after first occupation

Investing in innovation and businesses

The Programme for Government underlined our determination that Scotland lead the way on the industries and jobs of the future.

In 2018-19, the Scottish Government will:

  • support innovation with £15 million of additional investment in research and development as the first tranche of £45 million to be made available over the next three years
  • give Scottish companies a competitive edge in manufacturing processes through the establishment of the National Manufacturing Institute for Scotland (backed by £18 million of investment) and continued support for the Lightweight Manufacturing Centre

Connecting Scotland

Investment in digital infrastructure will position Scotland, and many of its most deprived or geographically remote communities, at the forefront of the digital revolution.

By the end of 2017, the Scottish Government will have achieved the existing commitment to deliver fibre access to at least 95 per cent of premises in Scotland.

The Scottish Government is now committed to extending superfast broadband access across all of Scotland by 2021 – the only part of the UK to have such a commitment.

This will build on the success of the Digital Scotland Superfast Broadband (DSSB) programme. This will be delivered through the Reaching 100% (R100) programme, which will see £600 million of public funding invested to help create a future-proofed, truly national fibre network – a vital first step towards achieving the commitment.

Infrastructure and investment

Along with digital infrastructure, this budget maintains and expands the government’s commitment to modernising Scotland’s infrastructure, with total investment of over £4 billion in 2018-19.

Investments include:

  • £1.2 billion in transport infrastructure including key road and rail projects such as improvements to the A9; the electrification of the Stirling, Dunblane and Alloa line; improvements to the route between Aberdeen and Inverness; and on the Highland Main Line
  • almost £40 million capital investment in the regeneration of disadvantaged communities
  • completing the £100 million Shieldhall Tunnel project, bringing environmental improvement to the River Clyde and reducing sewer flooding risk in South Glasgow
  • delivering the Ayrshire resilience scheme at over £120 million
  • doubling investment in City Region Deals and further developing the deals agreed with Glasgow, Inverness, Aberdeen and Edinburgh and seeking to secure deals for Stirling and Clackmannanshire, the Tay Cities, and deliver a regional deal for Ayrshire
  • Making £7.5 million in capital funding available for an ultra-deep water port in Scotland

A sustainable economy

Scotland is a world-leader in tackling climate change, which represents not only a moral imperative but an economic opportunity. The environment and economy are intrinsically linked, and Scotland’s transition to a more prosperous, low carbon economy is already well underway.

This year’s Programme for Government was the greenest in Scotland’s history and this budget acts on those commitments: supporting our low carbon work across renewable energy; energy efficiency; sustainable travel; waste reduction; and rural land use.

Commitments include:

  • doubling investment to £80 million in a range of measures to support ambitions to build an Active Nation
  • investing £50 million towards the target to phase out the need for new petrol and diesel cars and vans by 2032
  • a £60 million low carbon innovation fund
  • making available £137 million this year as part of a commitment to invest more than £500 million over four years in energy efficiency and heat decarbonisation
  • contributing to global efforts to tackle climate change and its impacts through our Climate Justice Fund

Culture, heritage and major events

Scotland’s unique heritage and culture sit at the heart of our quality of life and wellbeing. They also form an essential part of a thriving tourism industry that generated around £11 billion of economic activity in 2015, and employs over 200,000 people. Given the importance of culture and the creative industries, the Scottish Government will commit to resources for Creative Scotland over the next three years, so that it can maintain support for the Regular Funding programme in the face of a significant decline in Lottery receipts.

Provided in 2018-19 will be:

  • an additional £6.6 million to Creative Scotland to support the Regular Funding programme
  • investment of £10 million to create a dedicated screen unit in Creative Scotland to strengthen support to our film and TV sector - this will increase public funding to £20 million per annum

To make Scotland a perfect stage for world-class events, £36.8 million will be invested in a programme of major events including the inaugural Glasgow 2018 European Championships.

Delivering fairness

Tackling inequality is at the heart of this Government’s ambitions which is why the Fairer Scotland Action Plan was launched in October 2016.

Investing in people

The Programme for Government set out a clear commitment to lift the 1 per cent cap on public sector pay.

The 2018-19 Public Sector Pay Policy published alongside this Draft Budget recognises the rising cost of living; provides significant pay rises for the majority of public sector employees; supports the commitment to pay the real Living Wage; and re-affirms the unique policy of no compulsory redundancy to protect public sector jobs and frontline services.

The pay policy includes a three per cent pay rise for all earning less than £30,000 and caps the pay bill at two per cent for all those earning more than £30,000 and limits the maximum pay uplift for those earning over £80,000 to £1,600.

This means a Band 5 nurse will receive a pay rise of £870 next year and a trainee firefighter a rise of at least £680.

Fair work for everyone

At the heart of the Scottish Government's economic strategy is a commitment to inclusive growth.

The Scottish Government will:

  • exercise one of the first powers devolved under the Scotland Act 2016 to deliver a fully devolved employment support service, Fair Start Scotland.
  • continue to promote partnership working between colleges and employers to deliver high quality training opportunities to up-skill and re-skill the workforce
  • ensure that contracts for large infrastructure projects include community benefit clauses, to achieve continued employment and training opportunities
  • produce a Rural Skills Action plan to enhance employment opportunities for young people
  • grow and develop the Modern Apprenticeship programme towards a target of 30,000 new Modern Apprenticeship opportunities a year by 2020
  • provide support to minimise the time individuals affected by redundancy are out of work

Social Security

The Scottish Government will continue to tackle the effects of the UK Government’s austerity policies. This includes £50 million to fully mitigate the Spare Room Subsidy, otherwise known as the ‘bedroom tax’, through Discretionary Housing Payments, sustaining funding for the Scottish Welfare Fund and increasing funding for the Fair Food Fund to £1.5 million. 

To support all households on low incomes, the Scottish Government has invested over £1 billion in the Council Tax Reduction Scheme since 2013-14, helping almost half-a-million households to pay their Council Tax.

The Social Security (Scotland) Bill was published on 21 June 2017 and sets out a framework for a new social security system.

The Scottish Government will drive forward implementation of these new powers, and the establishment of a new agency, over the term of this Parliament.


In order to make Scotland an open, welcoming and inclusive country, the Scottish Government will continue to give priority to tackling inequality and to promoting equality, by increasing investment to over £22 million in 2018-19. This resource will support human rights, work to prevent violence against women and girls and strengthen community engagement.

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