Written evidence submitted by the Scotland Office (COL0028)

Scottish Affairs Committee

Inquiry into cost of living: impact on rural communities in Scotland

Response on behalf of the Scotland Office

Introduction

1. The economic aftershocks of the global pandemic coupled with the conflict in Ukraine and Russia’s weaponisation of the energy markets have led to huge disruptions to the global economy and supply chains, with citizens in every major country facing significant pressures relating to the cost of living. In domestic terms, this has had a significant impact on household budgets in Scotland and throughout the UK, causing an increase in food, energy and fuel prices.

2. In response to the cost of living challenges, the UK Government has taken swift and decisive action through both UK-wide and targeted measures to protect households, businesses and communities against the worst of the impacts. In addition to focusing on the most vulnerable in our society, these packages of support recognise the immediate needs faced by rural and remote communities, where issues with the affordability and availability of goods and services can be more acute. Key measures have included:
1. Capping the cost of energy prices for households and businesses at a cost of £25 billion in its first sixth months, and a further £13 billion in 2023-24;
2. Issuing 180,900 cost of living payments to vulnerable households on means tested benefits in rural Scotland;
3. Uprating benefits by £11 billion for working age households and disabled people across the UK;
4. Supporting vulnerable households this winter via the winter fuel payments scheme - with over 358,000 payments made to pensioners and those on means tested benefits in rural Scotland[1] during the winter of 2022-23 and;
5. Issuing £200 Alternative Fuels Payment this winter to all households not on mains gas - helping to ensure that around 66% of households in rural Scotland have additional support with their energy bills[2].

3. The UK Government has also implemented longer term fiscal policies in line with the Prime Minister's priorities of reducing inflation to mitigate the worst of the cost of living impacts, as well as growing the economy to create better-paid jobs and opportunities across all parts of the UK[3]. These actions are being delivered in conjunction with local and regional initiatives as part of the UK Government's ambitious levelling up agenda.

4. Across both the landmark City & Growth Deals programmes and levelling up funding streams, Scotland has seen record investment worth nearly £2.3 billion from the UK Government - with a significant portion going directly into rural communities to create job opportunities, turbocharge local economies, and ensure that prosperity is shared across the UK. Key examples include the:
1. £50 million for the Islands Growth Deal to unleash the ambitious of communities across the Shetland, Orkney and the Outer Hebrides;  
2. £230,000 invested in the Community Jobs Scotland Pilot in the Highlands through the Community Renewal Fund (CRF);
3. Over £17 million of investment for Reactivating Galloway through Round 2 of the Levelling Up Fund (LUF); and,
4. Over £26 million invested in the Fair Isle Ferry project in Shetland to strengthen connectivity between island communities.

5. It should be noted that the challenges faced by our rural and remote communities are often complex and cross-cutting, with no one solution. It is therefore important that both reserved and devolved policy levers are exercised in tandem to support rural communities in Scotland against the worst of the impacts brought about by the current cost of living challenges.

6. The UK Government remains committed to working in partnership with the Scottish Government to achieve this - which is why the Scottish Government has been provided with a record block grant of £41 billion per year from 2022 onwards. This is in addition to further funding delivered through Barnett consequentials - such as through the Household Support Fund (HSF) designed to support vulnerable households in England meet the costs of daily essentials, such as food, clothing and utilities. This record settlement will help ensure that the Scottish Government is able to mitigate against inflationary pressures as well as ensure they are well funded to deliver on their devolved responsibilities in supporting and delivering for Scottish rural communities.

Evidence 

The particular challenges facing Scottish rural communities in relation to the cost of living compared with other areas of the UK

7. Given the diversity of Scotland, its geography, economy and culture, the term “Scottish rural communities” encompasses a wide range of communities and lived experiences. Life in a rural community on the Outer Hebrides differs from that of the Scottish Borders, which is again different from those on Shetland, or those living in Argyll. It is therefore important that our definition of Scottish rural communities for this paper recognises the variety of life across rural Scotland - and the different challenges these communities face. Annex C sets out the differences in employment rates and median earnings across Scottish rural areas, demonstrating some of the socio-economic differences between these places.

8. The definition of a rural area is also different throughout the UK; the Scottish Government defines a rural area in Scotland as a community of less than 3,000 people, while the UK Government’s definition of a rural area in England is one with less than 10,000 people.[4] Due to its closer reflection of Scottish rural communities, and in acknowledgment of rural policy being substantially devolved, this paper uses the Scottish Government’s definition of rural communities. The definition also makes the distinction of “accessible rural” (settlements of less than 3,000 people and within a 30 minutes drive of a settlement of 10,000 or more) and “remote rural” (settlements of less than 3,000 people and with a drive time of over 30 minutes to a settlement of 10,000 or more).[5]

9. Recognising the difference here is important. Both are considered in this submission, but it is arguably the prevalence and number of remote rural communities, including islands, that distinguishes rural life in Scotland from other parts of the UK and helps understand the particular challenges faced in relation to cost of living. Therefore, although the evidence provided below has taken all relevant areas into account, and considers challenges faced by rural communities throughout Scotland, some focus has also been given to the challenges faced by small populations that are particularly removed from urban centres.

10. It should also be noted that there are generally lower levels of poverty and deprivation in rural areas of Scotland when compared with non-rural areas[6]. As such, measures implemented with the intent of supporting those on lower incomes with the cost of living may not find high eligibility in rural areas of Scotland. However, poverty indicators do not always take into consideration the diverse experience of those in rural Scotland, and the compounding impacts of the cost of living. The particular challenges set out below - predominantly those relating to access to energy and accessibility - means that the impact of the cost of living will be more acute in rural areas. This is why most interventions have been designed to support everyone, with specific further support for the most vulnerable, and tailored interventions to address specific issues faced by those in rural Scotland.

11. Fuel Poverty: Almost 65% of homes in rural Scotland are estimated to be off the gas grid[7]. Connection to the gas grid allows households to use gas for heating and hot water; with gas currently being the cheapest of the major commercial fuels, gas grid access can be a significant determinant in the required cost of heating a home to a satisfactory temperature. Fuel poverty and extreme fuel poverty are higher in rural and island communities. Contributing factors include a longer heating season, exposed conditions, and historically poor housing stock that is poorly insulated. Also, there is no access to mains gas in Orkney, Shetland or the Western Isles, further limiting consumer choice in these island communities. This submission therefore sets out the steps that the UK Government is taking to address this particular challenge as part of its cost of living support measures.

12. Demographics: People living in rural communities tend to be older, with a higher proportion of people aged 45 and over, with those aged 65 and over disproportionately represented in remote rural areas[8]. This indicates that when people reach retirement age in Scotland, they are more likely to live in, or relocate to a rural area. This in itself presents unique cost of living challenges, with people of retirement age often relying on pensions as a significant source of income. At the other end of the age distribution, evidence suggests that factors influencing the migration decisions of young people into urban and more populated areas are driven predominantly by a lack of job opportunities and a lack of choice in the job options available, high quality higher education is also a cause for migration but tends to be more temporary. Other influencing factors include a lack of affordable housing, limited public transport availability and poor availability of leisure activities, shops, and services[9].

13. Connections to goods, services and amenities: The population density of rural areas often makes it financially unviable for businesses to offer a wide selection of goods, services and amenities, but means residents of rural areas may have to travel significantly further or pay higher delivery charges to access these. This travel time and cost increases considerably for those in the island communities of Scotland, making access to some services and amenities unviable.

14. With several brands dominating the groceries market in rural Scotland, consumers are required to travel considerable distances to access a more competitive range of products. A lack of variety means the weekly shop for those living in rural communities is likely to be more expensive than for those in urban areas. However, the costs of travelling long distances to access a wider range of services in urban areas may offset any potential savings made by rural customers at the checkout.

15. Rural general hospitals are well equipped to deal with a range of scenarios, but patients must travel to either Inverness, Aberdeen or Glasgow for some specialist or emergency care. This means that, although patients can still access the care they require, there is a requirement to travel which can have a significant impact on household budgets. Family members visiting those in secondary or residential care can also potentially incur significant costs associated with travelling and being away from home for extended periods of time.

16. Transport & Connectivity: In his speech on 27 January 2023, the Chancellor highlighted the importance of connectivity through better infrastructure. Although transport policy is a matter that is substantially devolved to the Scottish Parliament, the UK Government has worked with remote and rural communities in Scotland to support transport infrastructure projects via levelling up streams. For example, the recent Levelling Up Fund (LUF) Round Two announcement saw Shetland Islands Council awarded nearly £27 million for a new roll-on, roll-off ferry to provide continued connectivity and access between the Fair Isle community and mainland. With the Leader of Shetland Islands Council stating ‘It is no exaggeration to say that this funding from the UK Government has saved Fair Isle as an inhabited island. There would have been no other way for us to sustainably fund such a project’[10]. Similarly, in Round One of the LUF, North Ayrshire Council was successful in securing £24m to make road improvements to the B714; the investment will maximise the potential for economic growth, development and boost tourism by providing greater and faster access to Glasgow from the area, as well as enhance links to Arran ferry at Ardrossan.

17. Small and Medium Enterprises (SMEs): The rural economy in Scotland is based on a bedrock of small businesses. A greater proportion of people are employed by SMEs (0-249 employees) in rural areas than in urban areas. Overall, SMEs (which include microbusinesses) account for two thirds of employment in remote rural areas compared to 58% in accessible rural areas. The proportion falls to 36% in the rest of Scotland[11]. For these businesses, increasing energy costs and inflationary pressures are particularly impactful, as SMEs often have tight profit margins and can less easily absorb rising costs.

18. Numerous business operations in the agriculture and fisheries sectors are energy intensive, and have been put under severe strain by the energy crisis. However, the recent UK Government announcement of the “Energy Bills Discount Scheme”, which goes live in April 2023, has provided many businesses across these sectors with some stability and certainty over the cost of their energy bills until 31 March 2024.

To what extent recent UK Government cost of living support measures meet the needs of rural populations in Scotland

19. To mitigate the current cost of living challenges, the UK Government has deployed a number of UK-wide measures, in addition to targeted support, to help vulnerable households, businesses and communities and rural communities in Scotland. These are outlined below.

Energy support to households

20. The increased cost of energy and disruption to supply chains worldwide has had a knock-on impact on households and businesses across the UK - with low income households and rural communities faced with the higher risk of fuel poverty as a result. For this reason, the UK Government has utilised multiple reserved policy levers both to lower the cost of energy in the long term, as well as provide immediate support to households and businesses with their increased energy costs. In the winter 2022-23, the UK Government provided funding support worth £55 billion to directly help households and businesses with their energy bills; this package amounted to one of the largest energy support plans in Europe.

21. Energy Price Guarantee (EPG): The UK Government’s Energy Price    Guarantee places a cap on domestic energy and gas prices, and reduces the amount consumers can be charged per unit to an annual equivalent of around £2,500 for a typical household in Great Britain. This winter, from 1st October 2022 to the 31st March 2023, the EPG will save a typical household in Scotland around £900, compared to undiscounted energy prices under the price cap.

22. As announced in the 2022 Autumn Statement, the EPG will be extended from April 2023 until April 2024. Over this period a typical household bill in Great Britain will be reduced to around £3,000. Based on projections of the undiscounted price of energy, it is anticipated to save the typical household in Great Britain around £500.

23. The Energy Bill Support Scheme (EBSS): The Energy Bills Support Scheme provides a £400 non-repayable discount to eligible households to help with their energy bills over winter 2022 - 2023. All households with a domestic electricity connection in Scotland, England and Wales are eligible for the discount. The discount has been applied to monthly household electricity bills for 6 months, with the discount starting in October 2022.

24. Energy Bills Support Scheme Alternative Funding (EBSS Alternative Funding): The UK Government recognises that the way that individuals and households receive energy support will be different for those who do not have a domestic electricity meter or a contract with an electricity supplier. This includes some people living in rural communities, such as those living in park homes, mobile homes, farms, houseboats, or living off the electricity grid. These individuals and households will be entitled to support which is equivalent to £400 for their energy bills from the EBSS, with applications opening at the end of February 2023.

25. The Alternative Fuel Payment (AFP): In recognition of the many households across rural Scotland which rely on alternative heat sources, the UK Government is ensuring that these households get the help that they need to pay their energy bills. It is acknowledged that such support requires a bespoke intervention compared to households in receipt of mains gas. In recognition of this, the UK Government has doubled the Alternative Fuel Payment to £200. This will provide a payment to all households that use alternative fuels (ie: heating oil, liquified petroleum gas, coal, and biomass) for heating instead of mains gas. In 2019 it was estimated that there are 274,000 (65%) of households in rural Scotland that are are off the gas grid and rely on alternative fuel payments, and would thus be eligible for this payment[12].

26. This support will have a particular benefit for rural communities in Scotland who disproportionately use alternative fuels. Most homes that are eligible for this payment will get it automatically as a credit on their electricity bills from February 2023. In cases where households do not have a contract with an energy supplier, they will need to apply for the support directly via the AFP Alternative Fund.

Energy support to businesses

27. The UK Government recognises that small and medium businesses (SMEs) are at the heart of Scotland’s rural economy. To support these businesses with rising energy costs, the UK Government has announced a number of policies including the new Energy Bills Discount Scheme (EBDS). This scheme will run from April 2023 to April 2024 to support non-domestic consumers across the UK who are eligible for the support.

28. The current Energy Bill Relief Scheme (EBRS), announced in September 2022, comes to an end in March 2023. It has so far supported businesses and public sector organisations (such as schools and hospitals) by providing a discount on wholesale gas and electricity prices.

29. From April 2023, EBDS will replace the EBRS as the main mechanism and package for supporting non-domestic consumers with their energy costs. The new scheme will limit taxpayer’s exposure to volatile energy markets by setting a cap at £5.5 billion based on estimated volumes. This marks a significant, continued investment for ongoing support of businesses.

30. Under the UK Government’s new EBDS, a typical pub (which uses 16 MWh of gas and 4 MWh of electricity each month) could receive up to £2,280 of taxpayer funded support in the 2023-24 financial year. Equally, a medium sized manufacturer (which uses 1,600 MWh of gas and 200 MWh of electricity each month) could receive up to £687,120 of taxpayer funded support in the 2023-24 financial year. Recognising that some non-domestic energy users across the UK are particularly vulnerable to high energy prices due to their energy intensive and trade exposure, (referred to as Energy and Trade Intensive Industries), these sectors will receive a higher level of support, subject to a maximum discount.

31. As announced in the Autumn Statement, the UK Government will also provide £150 of support across the UK for non-domestic consumers who are off the gas grid and use alternative fuels, with larger users of heating oil receiving additional ‘top-up’ payments based on actual usage.

Longer term energy support

32. The Energy Company Obligation (ECO): The Energy Company Obligation is a UK Government energy efficiency scheme in Great Britain to tackle fuel poverty and help reduce carbon emissions. The ECO scheme works by placing a Home Heating Cost Reduction Obligation (HHCRO) on medium and large energy suppliers. Under HHCRO, obligated suppliers must promote measures that improve the ability of low-income, fuel-poor and vulnerable households to heat their homes. This includes actions that result in reduced energy usage, such as installing insulation or upgrading a heating system. The overall target for these measures is divided between suppliers based on their relative share of the domestic gas and electricity market.

33. The scheme has seen 4 iterations, ECO, ECO1, ECO2 and ECO3. The ECO3 scheme closed on 31 March 2022 and the ECO4 Order came into force in July 2022. ECO4 applies to measures installed from 1 April 2022 and will cover a four-year period until 31 March 2026

Cost of living support

34. As the Chancellor of the Exchequer made clear in the 2022 Autumn Statement, the UK Government is committed to supporting the most vulnerable individuals and households with the cost of living challenges; that is why the UK Government has announced £12 billion of direct, targeted support in 2023-24 for the most vulnerable, in addition to the other measures in place to support households this winter. The current list of targeted measures for 2023-24 include:
1. £900 Cost of Living payments for over 8 million UK households on eligible means tested benefits, on top of the £650 Cost of Living payments for eligible households provided in 2022-23;
2. £150 Disability Cost of Living payments for eligible individuals;
3. A 12 month cut to the main rates of fuel duty for petrol and diesel of 5 pence per litre;
4. £300 Pensioner Cost of Living payments (per household), which was provided as a top up to winter fuel payments for state pension age individuals. In 2021-22, just under 1 million pensioners in Scotland received this Cost of Living payment, with similar numbers expected to benefit across 2022-23.

35. The UK Government has also announced a number of long-term policy changes to support vulnerable individuals and households, including:
1. Increasing benefits in line with inflation - increasing by the September 2022 Consumer Price Index (CPI) inflation rate of 10.1%;
2. A 10.1% increase to the state pension in April 2023 under the triple lock;
3. Increasing Pension Credits by 10.1% in April 2023, protecting the poorest pensioner households;
4. Increasing the National Living Wage (NLW) by 9.7% to £10.42 an hour for workers aged 23 and over, which is the largest increase to date for the NLW.

36. Tackling Inflation: Like many other countries across Europe and the world, the UK faces the twin challenges of a recession risk, and high inflation; this has been exacerbated by a rise in global energy price caused by the conflict in Ukraine and Russia’s weaponisation of the energy market. In response, the Prime Minister has announced that halving inflation by the end of this year to ease the increased cost of living is one of his 5 key priorities. 

37. It is important to note that controlling inflation is ultimately the responsibility of the Bank of England’s independent Monetary Policy Committee (MPC). The MPC has already raised interest rates to 3% as well as reaffirmed that they will act again, should they have to, in order to return inflation sustainably back to target in the medium term.

38. As noted above, the UK Government has also acted to protect households and businesses from significant rises in their energy bills this winter, with the Energy Price Guarantee holding down peak inflation. The Office of Budget Responsibility (OBR) have noted that the Energy Price Guarantee will take 2.5ppts off peak CPI inflation[13] and independent analysis, such as from the National Institute of Economic and Social Research (NIESR), has forecast that there will be a ‘rapid’ drop in inflation from February this year, partially driven by the implementation of the Energy Price Guarantee (EPG)[14].

Whether UK Government cost of living support could be better tailored to meet the needs of rural communities in Scotland

39. The UK Government remains committed to supporting the needs of rural communities across Scotland, both in terms of immediate support with the cost of living and by building a more balanced and prosperous economy; this is why targeted measures, such as the Alternative Fuel Payment (AFP), have been deployed to support households and businesses located in rural communities.

40. The UK Government also recognises that the cost of living impacts different people in different ways, and so remains vigilant to any changes in circumstance which might require amendments to the current levels of support to meet any new challenges head on. The upcoming Spring Budget will provide Parliament with an update on the cost of living support which is already being provided to households and businesses across the country.

41. To understand the expectations of Scottish rural communities, the UK Government has engaged with public sector bodies, civil society groups and community organisations (representing rural businesses and communities) to hear first hand the key challenges, as well as to ensure that cost of living support measures are designed to adequately address these needs. These engagement routes are outlined below:

42. Ministerial Engagement: Scotland Office Ministers regularly engage with rural communities as part of the visits and engagement they undertake every month across Scotland. Recent visits, which have stretched between Shetland to Harris, through to the Scottish Borders and Peterhead, have allowed Ministers to hear directly from rural communities and businesses over the level of support and interventions needed to protect rural and remote areas from the worst of the cost of living challenges.

43. In November 2022, the Parliamentary Under Secretary of State for Scotland, John Lamont MP, visited local businesses in the renewable energy, aquaculture and transport sectors in Shetland. The Minister also met with representatives from the Shetland Islands Council to discuss local economic growth as well as what further help and support the UK Government can offer in order to best support island communities with the cost of living challenges.

44. Working with representative groups: On a weekly basis, Scotland Office Ministers engage with key industry and business representative organisations from across Scotland, such as the National Farmers Union Scotland (NFUS), the Food & Drink Federation (FDF), the Scotch Whisky Association (SWA), Quality Meat Scotland, and a wide number of fisheries organisations. With many of these industry bodies representing rural members, the meetings allow Ministers to again hear first hand about the issues affecting businesses throughout rural Scotland.

45. In Spring of this year, the Scotland Office will run a roundtable session with Scottish Land & Estates (SLE) on rural proofing. This will offer an opportunity for SLE members and Ministers to collectively discuss the challenges that are unique to rural communities and businesses, including how UK Government policies could be further developed for rural areas though rural-specific guidance, advice and checklists.

46. The Islands Forum: The Islands Forum has been established by the UK Government to identify solutions to shared challenges facing island communities across the UK, with the inaugural meeting held in Orkney. The Forum provides regular, sustained engagement between UK Government, devolved governments and island communities across the UK, fostering collaboration between members to identify longer-term solutions. The Forum also helps to ensure that island perspectives are reflected in central policy development and decision making in government.

Any further steps the UK Government could take to support Scottish rural communities in relation to the cost of living

47. As noted above, the UK Government keeps all of its cost of living support policies and measures under review to ensure that they are having the desired impact in supporting communities through the various cost of living challenges. The UK Government has also set out a long term plan for growth and prosperity, which includes a continued focus on ensuring that all communities - particularly those in rural and remote areas - are able to play a role.

48. As part of the levelling up agenda, the UK Government recognises that flagship interventions, such as the City & Growth Deals programme and levelling up funding streams, play a critical role in creating opportunities and strengthening the economic resilience of rural communities. On the City & Growth Deals front, the UK Government is working closely with both the Scottish Government and local partners to deliver full deal status for Argyll and Bute so that rural communities and businesses across the authority can benefit from the job creation opportunities and investment.

49. Round Three of the Levelling Up Fund will also be an opportunity for Scotland’s rural local authorities to secure additional funding to support key projects of importance to local communities. The Community Ownership Fund (COF) supports community groups across the UK to protect assets which are at risk of being lost to the community. One such initiative is the establishment of the Rannoch Hub, with £250,000 in funding to open a community hub that will provide free business and leisure facilities, encouraging economic development in a socially isolated, remote community.

50. Through the UK Shared Prosperity Fund (UKSPF), each local authority in Scotland will receive a share of the total £212m over the next three years to invest in skills, improve high streets, support local business, and create more green spaces in Scotland. The UKSPF will help to level up and create opportunities across the UK in places most in need, such as ex-industrial areas, deprived towns, rural and coastal communities, and for people who face labour market barriers. In the case of rural Scotland, the Highlands will receive almost £9.5 million in UKSPF funding, with the Orkney Islands and Dumfries and Galloway set to receive over £1.7 million and over £6.7 million respectively.

51. Other support and targeted interventions taken forward by the UK Government include strengthening digital connectivity and coverage in rural areas; this includes through the Shared Rural Network (SRN), which is a world-leading £1 billion deal that will see both public and private investment in a network of new and existing phone masts.

52. Scotland, due to its unique geography, currently has some of the lowest mobile network coverage in the UK. However, through the SRN programme, around 75% of the UK Government’s total SRN spend (of over £500m) will be directed at improving coverage there in Scotland, with rural communities being the main beneficiaries. All of the SRN’s ‘not-spots’ funding allocation (of around c.£310m) will also be spent in Scotland to provide coverage in communities where there are currently no operators. Ensuring more equitable and reliable access to mobile networks across Scottish rural communities will mean that more rural businesses will be able to provide services digitally, which in turn will create a more level playing field as well as help to support local economies and job creation.

How effectively the UK and Scottish Governments have worked together to coordinate and provide support in relation to the cost of living for the people of Scotland.

53. As noted above, the UK Government recognises that the challenges faced by our rural and remote communities are complex and cross-cutting; it is also recognised that the support and interventions required to mitigate against the various cost of living challenges requires reserved and devolved policy levers working in tandem by Scotland’s two governments. The below illustrates some key examples of where the UK and Scottish Governments have worked in collaboration in response to the current challenges:

54. Transfer of welfare powers: The Scotland Act 2016 devolved significant new welfare responsibilities to the Scottish Parliament. These include responsibility over carers' and disability benefits; the power to introduce benefits in devolved areas; and the ability to top-up reserved benefits. This approach has ensured that welfare provision in Scotland is tailored to local circumstances, while maintaining the benefits of the single jobs market and the UK’s ability to pool risks.

55. The UK and Scottish Governments continue to work together on the safe and smooth transfer of welfare powers. The Scotland Office does this through a programme of secondary legislation, with the most common type of order (section 104 under the Scotland Act 1998) used to make technical and consequential amendments to the law to facilitate the aims and objectives of social security legislation passed by the Scottish Parliament.

56. The Department for Work & Pensions (DWP) works closely with Social Security Scotland to facilitate the implementation of devolved social security powers - such as the implementation of Adult Disability Payment (the replacement benefit for Personal Independence Payment in Scotland). DWP also provides existing benefits on behalf of the Scottish Government, while it builds its own capacity and capability to administer replacement benefits.

57. UK Government Ministers from the Scotland Office and the DWP meet on a bi-annual basis with Scottish Government Ministers at the Joint Ministerial Working Group on Welfare to monitor the implementation of employment and welfare aspects of the Scotland Act 2016. This is a collaborative forum for discussion and decision-making, where both UK and Scottish Government Ministers discuss current and future priorities in relation to the delivery of devolved benefits, as well as welfare policy issues. Given the present cost of living challenges, recent meetings of the group have focused on what steps both governments can and are taking to provide support to the most vulnerable households in Scotland.

58. Support for the Scottish Seafood Industry: The Scottish Seafood Industry Action Group (SSIAG) has been running since 2021, and represents a major piece of collaboration between the UK and Scottish Governments. The group meets quarterly, and allows Ministers and officials from both governments to hear about key issues across the Scottish seafood industry from a range of stakeholders; this in turn allows issues to be identified and quickly flagged for resolution.

59. In December 2021, as a direct consequence of the SSIAG and the collaboration it facilitates, Scotland Office Ministers were able to submit evidence to HMT outlining how the ongoing energy crisis is impacting the sector. Representations made by the Scotland Office successfully led to HMT and BEIS including the “processing and preserving of fish, crustaceans and molluscs” being included on the Energy and Trade-Intensive Industries Scheme, which in turn has provided vital support for rural businesses and the wider sector at a critical time.

60. Freeports: The UK Government's Freeports programme represents a key cornerstone in the UK Government’s levelling up strategy. Not only do Freeports have the potential to act as national hubs for foreign direct investment and trade, but they also have the capacity to bring innovation, turbocharge local regeneration, as well as create high quality, well paid jobs.

61. Following a competitive assessment process, the UK and Scottish Governments jointly selected two bids from the Inverness and Cromarty Firth region, and from the Firth of Forth region. In the case of the Inverness & Cromarty Firth bid, the Freeport has the potential to create 25,000 new jobs as well as generate £4.8bn in investment for rural communities across the Highlands region.

62. Islands Growth Deal: The Islands Growth Deal is a ten-year package of investment that will seek to drive economic growth and the creation of sustainable jobs across Shetland, Orkney and the Outer Hebrides. The deal has been developed by the three island councils and is jointly funded by up to £100 million (£50 million each from both the UK and Scottish Governments) - representing the highest per capita deal in the UK. The Growth Deal will attract further investment of up to £293 million in match funding, and is anticipated to create up to 1,300 new jobs as a result, directly benefiting local and rural communities across the three islands.

63. Block Grant funding: In recognition of both the cost of living challenges and inflationary pressures, the UK Government has provided the Scottish Government with a record block grant of £41 billion per year from 2022 onwards (over the 2021 Spending Review period). The 2022 Autumn Statement also confirmed additional funding for the Scottish Government on top of the block grant of £1.5 billion in Barnett consequentials across the 2023-25 period. As a result of these decisions, the Scottish block grant will increase in real terms by around 7% this year. This will ensure that the Scottish Government has the necessary funding available to help mitigate against the cost of living challenges through devolved policy levers alongside the measures and targeted intervention already in place from the UK Government.

February 2023

Annex A: Estimate of Winter Fuel Payments (including £300 pensioner cost of living payment) recipients 2023-24

The UK Government is committed to supporting the most vulnerable households across the UK and has announced £12 billion of direct support in 2023-24, in addition to the support already in place to support households this winter. One of the temporary measures for 2023-24 is a £300 Pensioner Cost of Living payment, which is provided as a ‘top up’ to Winter Fuel Payments (WFP) for individuals of state pension age.

The below table provides an estimate of the number of recipients of the WFP in rural local authorities for winter 2021 to 2022 (including the £300 Pensioner Cost of Living payment) based on the number of previous recipients. The expectation is that similar numbers will receive the WFP and the Cost of Living top-up in 2023 to 2024.

Annex B: Estimated Cost of Living payment & Disability Cost of Living payment recipients by rural and remote local authorities in Scotland

The Department for Work & Pensions has confirmed the payment schedule for five Cost of Living payments in the 2023/24 financial year and has set out estimates of how many people across the UK will receive the first £301 Cost of Living Payment during Spring 2023 and the £150 Disability Payment during Summer 2023 (this follows on from the up to £1,200 support for low-income households in 2022).

Annex C: Labour market statistics for rural and remote local authorities in Scotland (as of January 2023)

The fourfold RESAS Classification distinguishes local authorities according to their level of rurality. Under this classification, rurality is calculated as follows:

(Share of population in pensionable age) + (Share of population that not assigned to either a settlement or locality) + (Share of premises unable to receive 10Mbit/s) + (Population in settlements under 10,000) + Access to Services 40% most deprived areas in LA) - (Population) - (Population per km 2) - (Share of 16-64 year olds) - (Local government employment)

Local Authorities are scored and labelled in one of four ways: ‘Islands & Remote’; ‘Mainly Rural’; ‘Urban with Substantial Rural Areas’; and ‘Larger Cities’[17]. For the purposes of this paper, local authorities labelled as ‘Island & Remote’ and ‘Mainly Rural’ have been analysed.