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Scottish Budget Spending Review 2007



Enable businesses and people to increase their wealth and more people to share fairly in that wealth.


By making Scotland wealthier and fairer, we will generate more opportunities to work; make Scotland a more attractive place to live, work and invest; and ensure that the benefits of increased national prosperity are shared fairly across Scotland. That is why creating a wealthier and fairer Scotland is central to the government's Purpose.

We believe that Scotland, with its tremendous assets - not least, its well-educated and innovative people and its substantial natural resources - is capable of matching the economic success of similar, independent European nations. We aim to create the conditions that will give Scotland a competitive edge.

To help achieve a wealthier and fairer Scotland, the Scottish Government will:

  • reduce or remove rates bills for around 150,000 small business properties across Scotland;
  • provide for a freeze in council tax before we consult on a fairer local taxation system under which people will contribute based on their ability to pay;
  • increase investment in Scotland's strategic transport networks, providing over £2.5 billion by 2010-11 to support the efficient movement of goods and people;
  • increase support for ferry services by £37 million over the three years to 2010-11;
  • invest £5.24 billion (£1.67bn/£1.75bn/£1.81bn) in the further and higher education sectors, on top of the extra £100 million capital funding package we are providing in 2007-08, to maintain the competitiveness and effectiveness of these sectors;
  • launch the first ever Saltire Prize, with a £2 million annual fund to recognise innovation and a £10 million horizon prize - with the first challenge in 2008 focusing on renewable energy;
  • support an enterprising third sector 1 with a £63 million (£19.2m/£22.2m/£22.2m) development programme and a £30 million (£4.0m/£10.0m/£16.0m) Scottish Investment Fund to encourage greater investment in assets, business development and the skills of those working in the sector;
  • support record levels of investment by Scottish Water's £2.5 billion infrastructure programme, which will deliver efficiency and levels of service to customers that match the best in the sector; and
  • implement a £1.6 billion Rural Development Programme over seven years, including almost £200 million to improve the sustainability of Scotland's farming and forestry sectors.


A flourishing and sustainable economy is the cornerstone of a wealthier and fairer nation. Through the generation and effective use of resources at national, local and personal levels, Scotland can achieve significant improvements in the quality of our public services and in the quality of people's lives.

Scotland's economy has underachieved over the last generation compared with similar neighbouring economies and failed to deliver the full benefits of economic success. This legacy of underperformance reflects long-term economic challenges around productivity, participation in the labour market and population change.

The Government Economic Strategy2 describes the role of government in responding to these challenges and sets new ambitious targets for increasing sustainable economic growth. As the Strategy makes clear, successful economies have a competitive business environment; and one that is friendly to enterprise and attractive to entrepreneurs, inward investors and skilled migrants. To be successful in the 21st century, all components of our approach must work in unison: effective government; a skilled workforce; a world-class research base; an efficient, well-connected domestic and international transport infrastructure; and a welcoming culture that attracts talent to live and work in Scotland.

Local government, through the key public services it delivers directly and through its leadership role within Community Planning Partnerships, will have a vital role in helping to secure a wealthier and fairer Scotland. That is why we place substantial emphasis on creating a closer and more effective partnership between central and local government.

Economic growth on its own does not give a complete picture of the success of a nation. The benefits of a wealthier Scotland need to be shared fairly among the entire population, and we also need to ensure that future generations can enjoy a better quality of life. Unlocking the social, educational and economic potential of every person in Scotland will lift society as a whole, making Scotland smarter, safer and stronger, healthier and, ultimately, wealthier and fairer. Increasing the living standards of people across the country, especially the most disadvantaged, is central to this government's ambitions for a wealthier and fairer Scotland.

The way the economy grows is all-important for becoming wealthier, fairer and greener. People and businesses need to prosper in ways which make better use of, and reduce the negative impact on, our natural resources, which are so vital for present and future generations. This should not be seen as a constraint. Rather, it is an unparalleled opportunity to become a global leader in our response to climate change through the move to a low-carbon economy. Scotland must seize the opportunities offered by its wealth of natural resources (particularly sources of renewable energy) and excellent research base to develop new industries, technologies and products, as well as adopting more efficient and effective, lower-impact ways of doing business.


Outcome: We live in a Scotland that is the most attractive place for doing business in Europe

Private business is the principal driver of increased productivity, employment growth, competition, innovation and national prosperity. Our ambition is to give Scottish business a competitive edge; to reward success, break through the barriers to economic growth, and enhance Scotland's reputation worldwide, unlocking the economy's potential to prosper in an increasingly global marketplace. The Government's approach includes significant initiatives around business taxation, planning, rural development, reform of the enterprise networks and social enterprise.

Small businesses sit at the heart of our local economies and we intend to help them gain a competitive advantage. The new Small Business Bonus Scheme which will be administered by local authorities will, from 1 April 2008, progressively reduce the rates burden for businesses with properties whose combined rateable value is £15,000 or less. By 2010-11, we will remove the rates burden for those businesses with rateable values of £8,000 or less; cut rates by half for businesses with rateable values of £8,001 to £10,000; and reduce rates by a quarter for businesses with rateable values of £10,001 to £15,000. This will cut the rates bills on around 150,000 properties across Scotland, giving small and medium-sized businesses a real opportunity to grow and to invest in their future. We will deliver the Scheme in full by April 2010 or earlier if resources permit.

Small Business Bonus Scheme

% relief available*

Combined rateable value of all premises in Scotland




up to £8,000




£8,001 to £10,000




£10,001 to £15,000




* subject to eligibility

Implementing the Planning Act3 and the National Planning Framework will provide stronger mechanisms for promoting development and provide businesses with greater certainty in the planning process. The introduction of e-planning, backed by additional investment of £6 million in 2008-09, will further improve the efficiency and accessibility of the planning system, providing considerable savings for government, businesses, community interests and the public.

A significant part of our population and our national wealth is rooted in Scotland's rural communities. The Rural Development Programme - a £1.6 billion package over seven years - will support improved competitiveness of agriculture and forestry, enhance Scotland's rural environment, and assist diversification of the rural economy. The Programme will also help increase the capacity of local community and business networks, stimulating skills development, local co-operation and new ideas.

We have already acted to reinvigorate the enterprise networks, including the creation of a Strategic Forum, refocusing them towards delivering increasing sustainable economic growth. More streamlined, responsive and accessible business support services will support and stimulate business competitiveness, innovation and growth across Scotland. Investment in the assets, business development and skills of social enterprises and other third sector organisations will unlock new opportunities for innovation and growth.

Outcome: We are better educated, more skilled and more successful, renowned for our research and innovation

Excellence in lifelong learning is the bedrock of a successful economy. Business needs people with a real grounding in skills for learning, skills for work and skills for life. This starts in school. The Curriculum for Excellence focuses on outcomes and experiences. It encourages the creativity and flexibility that will enable Scotland's young people to adapt to the demands of the 21st century workplace.

Scotland's future economic strength depends on the flow of high quality people at graduate and sub-degree level into the workforce and maintaining the leading edge in research which our colleges and universities provide. We will deliver record levels of investment in our higher and further education sectors, and we have already provided an extra £100 million capital funding package in 2007-08, so that industries in which Scotland operates at the leading edge - the life sciences, the creative industries, financial services and energy - can continue to compete favourably. We must increase the transfer of knowledge from our world-class research base into viable products and processes. We will help scientists and technologists to develop entrepreneurial and business skills so that there are more successful technology start-ups. Helping these start-ups grow into the large companies of the future will be a priority.

Scotland's highly educated and skilled workforce is one of its greatest assets. Our strong performance in international comparisons on the skills and qualifications of our workforce reflects this. This success has not yet translated into enhanced economic performance. High levels of skills and qualifications must be matched by better use of those skills to boost productivity and economic growth. Skills for Scotland, 4 the government's new strategy for lifelong skills, describes a vision for developing workforce skills that meets everyone's needs and aspirations and equips individuals with skills that meet the needs of today and the demands of tomorrow.

If Scotland is to derive full benefit from its highly educated and skilled workforce, we also need to build on and broaden areas of comparative advantage in the global economy. This means expanding established areas of success ( e.g. financial services and energy) and facilitating and accelerating emerging areas ( e.g. creative industries and life sciences). To support this dynamism, we will establish a programme of activity to boost and promote Scotland's creative industries and hubs for cultural activity, developing Scotland's towns and cities as key drivers of cultural and economic growth. We will also launch the first ever Saltire Prize, with a £2 million annual fund to recognise innovation and a £10 million horizon prize - with the first challenge in 2008 focusing on renewable energy.

We acknowledge the global imperative to tackle climate change, as demonstrated by our commitment to reduce emissions by 80 per cent by 2050 and to come forward with a Scottish Climate Change Bill (see chapter 7: A Greener Scotland). We believe that addressing climate change and moving to a low-carbon economy presents significant research and development and business opportunities.

Renewable energy presents one of the most exciting opportunities for Scotland to take the global lead and become the green energy capital of Europe. We will continue to support our excellent higher and further education sectors in maintaining their reputation for outstanding research and development in energy technologies. As the first stage in making Scotland the world's leading wave and tidal power nation, we will provide financial and legislative support aimed at realising ten megawatts of marine energy in Scottish waters by 2010.

Outcome: We realise our full economic potential with more and better employment opportunities for our people

The global economy is increasingly integrated and more specialised, intensifying international competition. Emerging economic powers, particularly China and India, are driving these trends and using their advantages in terms of low-cost labour to capture market share in traditional industries. In addition, emerging economies are also rapidly building capacity in the application of advanced technologies and educating many more of their people to higher levels. For Scotland to remain competitive, we must continue to move up the value chain through the development of higher quality products and services, building on our comparative advantages. This will require the wider attainment of higher skills and continuing commitment to innovation and the application of knowledge in our industries.

We want to see more of Scotland's people in higher-skilled and better-paid jobs. This is closely linked to our continuing commitment to innovation and the application of knowledge in our industries as well as to our investment in education and skills for all of Scotland. We need to ensure that everyone has the opportunity to work, improve their skills and make a positive contribution to the nation's increasing prosperity.

Historically, a perceived lack of high quality employment opportunities in Scotland has been linked with a drift into inactivity, particularly amongst older workers, and an exodus of the nation's young and skilled talent. What is more, barriers still exist to inhibit the full participation of disabled people, women and some minority and ethnic communities. Over 600,000 people in Scotland are currently classified as economically inactive, almost 30 per cent of whom report that they want to work. Scotland's participation levels are also being held down by the number of people on Incapacity Benefit: in February 2007, 279,000 people of working age in Scotland, 9 per cent of the working age population, were on Incapacity Benefit.

The government's Workforce Plus approach, linked closely to the work of Jobcentre Plus in Scotland, will address labour market participation, bringing more people into the workforce, addressing persistent pockets of unemployment and helping to tackle inequality and social exclusion. To enable greater participation, we will also refresh the Adult Literacy and Numeracy Strategy and invest in high quality provision to teach English language skills to individuals who are speakers of other languages. We are committed to working with local authorities and others to ensure the provision of childcare, public transport and other services to enable people to access labour market and training opportunities.

A more fulfilled and purposeful workforce will be more productive. Action to address health inequalities and mental health will help to reduce absenteeism and increase participation in the jobs market, particularly where a joined-up approach is needed to develop co-ordinated support to help people into work.

Outcome: We live in well-designed, sustainable places where we are able to access the amenities and services we need

Developing better infrastructure and places where we can access the amenities and services we need is critical to the delivery of all of our Strategic Objectives. Enhancing Scotland's transport services and infrastructure, for example, helps commuters and businesses throughout Scotland by cutting congestion and improving reliability. Changes in travel patterns and the promotion of more sustainable modes of transport will cut emissions and improve air quality. Improved transport and telecommunications connections also help build safer and stronger communities and enhance the attractiveness of Scotland as a place to live and work.

We will target further public investment in rail infrastructure, the road network, ferries, buses, water infrastructure, regeneration and housing. We will, for example, fund a new rail interchange for the Edinburgh City trams to connect to Edinburgh Airport and a Glasgow Airport rail link by 2011; improve rail services and service times between our major cities; design and develop a replacement Forth crossing; and invest in the maintenance of the existing trunk road network, targeting improvements to reduce congestion and investing in new technology to improve journey reliability.

We will provide better and more equitable services for our rural communities through improved ferry services on the Clyde and Hebrides and Northern Isles routes. In addition, we will be piloting the Road Equivalent Tariff on one or more of the routes between the Western Isles and the mainland beginning in 2008. This involves setting ferry fares on the basis of the cost of travelling an equivalent distance by road.

Scottish Water's record investment programme will provide connections to new developments and improve the quality of water and the water environment throughout Scotland; essential for a greener and healthier Scotland. We remain committed to investing in Scottish Water as a publicly owned company and will deliver record levels of investment over the investment period to 2010.

We have launched a wide-ranging consultation on the future of housing in Scotland to ensure that it supports economic growth by increasing housing supply; meets the current and future needs of Scotland's population; creates sustainable, mixed communities; and provides a fair deal for first-time buyers, tenants and taxpayers. The consultation includes a challenge to Scotland's local authorities, developers and builders to increase the rate of new housing supply in Scotland to at least 35,000 homes a year by the middle of the next decade.

Outcome: We have tackled the significant inequalities in Scottish society

Creating the conditions for improved economic growth and social cohesion is critical to Scotland's long-term prospects for sustainable and widespread prosperity. Scotland exhibits serious disparities between regions. For example, the proportion of people claiming unemployment benefit ranges from 0.8 per cent in Aberdeenshire to 5.3 per cent in Glasgow City. Rates of economic inactivity (the proportion of the working age population that is neither in employment nor looking for employment) vary even more dramatically. In Scotland's most deprived communities, 35 per cent of the working population were economically inactive in 2006.

Scotland's social deprivation is concentrated in particular areas and we will support targeted action to regenerate the most deprived communities in Scotland, focusing on key factors like employability and access to jobs and services. As highlighted above, almost 30 per cent of those who are currently classified as economically inactive in Scotland report that they want to work. We will work to reduce economic inactivity through the Workforce Plus agenda, thereby providing a route out of poverty, improving wellbeing and increasing participation in the labour market.

We intend to introduce a fairer local taxation system under which people contribute to domestic taxation according to their ability to pay and will shortly publish a consultation paper on our proposals for a local income tax to replace the council tax.

We will ensure equitable access to transport services and thus wider vital services and facilities by maintaining national travel concessions for older and disabled and young people. We will also continue to provide support for essential air and ferry services that enable residents of Scotland's islands and rural peninsulas to access services, contribute to Scotland's economic prosperity, and attract tourists.

Outcome: We take pride in a strong, fair and inclusive national identity

A good quality of life and a strong, fair and inclusive national identity are important if Scotland is to prosper. We will continue to raise awareness of social issues through public campaigns and to work to achieve equality of opportunity for Scotland's various communities and faith groups to share equitably in Scotland's success.

We need to tell people about our strengths, and we will work with partners across the public, private and third sectors to ensure that we position Scotland as a great place to live, learn, visit, work, do business and invest. We will take steps to attract the brightest and best international talent to Scotland and to support Scottish businesses overseas. To reinforce Scotland's distinctive global image of stunning natural landscapes, we will continue to work with key partners and stakeholders to promote and protect our natural assets, while investing in green tourism and renewable energy technologies. We will work with the Scottish diaspora to make the most of Scotland's reputation worldwide.

We want Scotland to be seen internationally as a truly innovative and productive nation. Through our trade and investment agency, Scottish Development International ( SDI), we are continuing to support Scottish businesses that want to trade in overseas markets, helping them to develop partnerships with foreign organisations; to license their products, processes and technologies; and to make their own foreign direct investments.

Our natural and built landscapes and the activities which they support have long helped to foster the sense of local and cultural identity that is core to our sense of wellbeing and belonging. We will work with local authorities, natural and built heritage bodies and arts and culture organisations to help all of our communities explore and celebrate their local and national culture. For example, we will promote Scottish work at the Edinburgh Festivals through the Edinburgh Festivals Expo Fund. We will promote creative excellence and access to cultural opportunities like the Winter Festivals which draw on, and explore, the relationship between our communities and our unique landscapes.

Outcome: Our public services are high quality, continually improving, efficient and responsive to local people's needs

The efficiency and effectiveness of the public sector, which accounts for over 20 per cent of Scotland's GDP, has a major impact on the overall performance of the Scottish economy. We will simplify and refocus Scotland's public sector to better serve Scotland's people and businesses. The public has a right to expect public bodies to do much more to streamline the way they deliver services and also to share their services, buildings and other assets wherever possible. By delivering cash-releasing efficiencies of 2 per cent per annum across our public services, we will free up resources to re-invest in better services. We will also make sure that we meet our public duties on equality and take account of the environmental impact of our actions.

The Government's approach to public services will be advanced greatly through a new relationship with local government. This is being supported by the implementation of Single Outcome Agreements and a performance framework for local authorities to be delivered in association with Community Planning Partners (see chapter 17: Local Government).

We are committed to a smaller, simpler and more effective government, with fewer public bodies. We have already taken the decision to abolish Communities Scotland and we have set an ambitious target to reduce the number of public bodies by 25 per cent.

The principles of streamlining and integration will extend to rural service delivery. Activity that is currently carried out by a range of statutory bodies is being integrated in a collaboration programme that aims to increase joint working and reduce inspection visits by multiple bodies. The Scottish Marine Management Partnership initiative will simplify the delivery landscape on marine matters and build Scotland's capability to take on additional responsibility on fisheries and marine management, including our ambition to secure the UK lead in EU fisheries negotiations.

As well as being a significant provider of services, the public sector is a major purchaser. The programme of procurement reform will provide a structured approach to collaboration across the wider public sector. The establishment of a National Procurement Centre of Expertise will lead to collaborative procurement of common goods and services on behalf of the wider Scottish public sector and develop a sustainable procurement plan. We will develop intelligent commissioning processes so that service specifications are designed to provide the best outcome for service users.

We are working to improve access to public contracts for businesses, particularly small and medium-sized firms and social enterprises, by extending e-procurement Scotland and implementing a national advertising portal for contract opportunities. In pursuit of our environmental aims, we will ensure that the public sector in Scotland pays full regard to the environmental consequences of the goods and services it buys and provides.

We will introduce a development programme over three years for an innovative third sector (£19.2m/£22.2m/£22.2m), helping communities to work together better and contributing to high quality public services. A new Scottish Investment Fund (£4.0m/£10.0m/£16.0m) over three years will support investment in assets, business development and the skills of people working in the sector, helping it to fulfil an increasing role in providing public services.

The modern economy is increasingly complex and requires a modern legal system. We will reform the law on interest on late payments to make the system fairer and more consistent. We will work with the Scottish legal profession on reforms to explore opportunities for Scotland to lead internationally in areas such as arbitration of commercial disputes. Following on from the work of the Gill Review, we will take forward proposals to ensure the civil courts continue to offer an effective service to business.