Spring Budget Revision 2023-2024 guide: finance update for the FPAC

B. Funding Position

73. There have been several changes to the Scottish Government’s funding position since the conclusion of the Autumn Budget Revision (ABR). Tables 1.7c, 1.7d and 1.7e of the SBR supporting document provide a detailed breakdown of the discretionary funding movements between the ABR position and the estimated position which underpinned the Spring Budget Revision at the time of its publication on 1^st February 2024.

74. These tables also show any differences between this estimated funding availability and the revised budget allocations following the Budget Revision. In the case of the 2023-24 SBR the Fiscal Resource Position is fully allocated, the Capital position contains £111.5 million of unallocated funding (which can be caried forward through the Scotland Reserve) and there are £5m of unallocated Financial Transactions.

75. The allocations in the Spring Budget Revision represent the final Scottish Budget for 2023-24 and the variances against these allocations will be presented in the Scottish Government accounts. However, the Scottish Government funding position will continue to change and will not be finalised until the very end of the financial year. The expenditure against the Scottish Government’s final funding position will determine the outcome of the provisional and final outturn for 2023-24 and Scotland Reserve position.

76. The purpose of this section is to provide further analysis of how the funding position has moved between the Autumn and Spring Budget Revisions and also details subsequent movements which have been confirmed since. Table B1 below provides a full disclosure of all items of the Scottish Government funding envelope as it has changed through the year – this is essentially an expanded, and more up to date (as at 22 February 2024), version of the funding tables provided in the Spring Budget Revision document.

B.1 Fiscal Resource

77. Table B.1 details the full breakdown of the Fiscal Resource funding position and the movements since the Autumn Budget Revision. The total improvement in resource funding between the Scottish Budget and the Spring Budget Revision was estimated to be £840.6 million with all this being allocated to support the Spring Budget Revision.

78. The largest individual movement in resource funding relates to the increase in Barnett Consequentials. At the time of the SBR publication this was estimated to be £543.1 million. £223 million of this was included as part of the UK Autumn Fiscal Event and was almost entirely driven by increased allocations to Health and Social Care.

79. The balancing £320 million was based on the Scottish Government assessment of what the final Barnett Supplementary Estimate could be when it was confirmed after the SBR was published. This estimate was based on informal information from HM Treasury officials and discussion between the Chief Secretary to the Treasury and the Deputy First Minister at previous Finance Interministerial Standing Committees. As this was an estimated figure of the totality of Barnett consequentials there was no indication as to the breakdown by applicable UK Department.

80. The final Supplementary Estimate position was confirmed end February 2024 and this included additional Barnett consequentials funding of £123.3 million over and above what was reflected in the published document. This position is now locked for the Financial Year.

81. For Income Tax both the forecast receipts and the associated block grant adjustments are “locked” for the year when the Budget was initially set. Variances from these forecasts to outturn in will be reflected in reconciliations crystalising in 2026-27 in line with the usual three-year deferral process.

82. For block grant adjustments in relation to social security and devolved taxes, there is an in-year adjustment applied based on the UK Autumn Fiscal Event. This position (as reflected in the SBR) will now lock for the financial year for the purposes of both the 2023-24 Scottish Budget and determining the outturn for 2023-24. Final outturn variances on these BGAs will be applied to the 2025-26 Scottish Budget in line with the usual two-year deferral process.

83. Unlike the BGAs, final social security payments and devolved tax payments and receipts will be reflected in the outturn for 2023-24. Whilst the latest forecasts are included in the Spring Budget Revision the position remains volatile. The forecasts which are currently included are broadly in line with the Scottish Fiscal Commission forecasts in December, with exceptions where additional two months of outturn data has warranted making a material change. Social security differences are outlined in section A2.1 above, devolved taxes are now forecast to be c£15m less than forecast by the SFC in December, nonetheless the net position on devolved taxes has still improved by over £20 million since the 2023-24 Scottish Budget was originally set.

84. Other changes to the Resource Funding position include an additional £41 million of income from the Immigration Health Surcharge compared to the forecast the Scottish Government assumed at the setting of the Scottish Budget. This income is collected by the UK Home office and re-distributed to Devolved Governments on a Barnett basis in arrears via the Mains and Supplementary Estimate process.

85. The Scotland Reserve Resource position has improved by £71 million following the conclusion of the 2022-23 final outturn process. This primarily relates to a timing difference between years arising from a different audit interpretation of the budgeting and accounting for a contract from treatment of patients from other boards areas by NHS Glasgow. Refinements to the final outturn process following the publishing of the SBR has been reflected in the £1 million reduction in Scotland Reserve carry forward.

86. £131m of transfers are included from HMT or other UK departments. These are for the most part like for like transfers which are also included in the allocations in the budget revision ie £38 million of Ukraine thank you payments and home fund allocations and £86 million of UKHSA Budget cover transfers included in the revised allocation to Health and Social Care.

87. The remaining items include a reduction in forecast income from the King’s Lord Treasurer Remembrancer (-£5 million), £11 million of non Scotwind related Crown Estate Income, £1 million of resource City Deals funding and a negative adjustment of (-£17 million) relating to IFRS 16 resource funding requirements.

B.2 Capital

88. Table B.2 details the full breakdown of the Capital funding position and the movements since the Autumn Budget Revision. At the time of the Spring Budget Revision being published capital funding has reduced by £33 million as a result of the following changes.

89. Indicative information on the Capital Barnett position provided by HM Treasury just prior to the publication of the Spring Budget Revision suggested an additional Barnett assumption £115 million higher than the ABR position (higher than had been anticipated – on the basis of previous discussions, negative consequentials had been expected). Budget management strategy had actively managed down spending based on an expected Block Grant position that was lower than has proved to be the case. The improved position has allowed the Capital Borrowing requirement to be reduced, by £150 million from £450 million, to a level approaching the policy target for sustainable borrowing within the cap.

90. Other Capital Funding changes include the Whitehall transfer of £16 million as included in the revised SBR allocations (para 25 above) for the R100 Digital Connectivity programme. The City Deal drawdown has also been reduced by £18.5 million reflecting a reprofiling of this funding into future years. Scotland Reserve Capital funding availability had increased by £4.9 million as progress was made on the 2022-23 final outturn position.

91. Following the finalisation of the UK Supplementary Estimate the final Barnett figure was £5.1 million lower than the assumed position,. Further refinement to the 2022-23 final outturn position has increased the carry forward by £2.5 million. The overall decrease in capital funding since the SBR publication is therefore £2.6 million

92. The unallocated Capital Funding of £111.5 million at the time of the Spring Budget Revision has therefore decreased to £108.9 million following the conclusion of the Supplementary Estimates process. This level of unallocated funding is being carried forward to support the capital budget in 2024-25.

B.3 Financial Transactions

93. The Financial Transaction position deteriorated by £29 million between ABR and SBR.

94. The indicative Supplementary Estimate position was a £22 million reduction in Barnett funding, which was revised to a £76 million reduction following the conclusion of Supplementary Estimate process. Given the scale of the late increase in the FT reduction as a proportion of the total FT settlement it has been agreed that the Scottish Government can defer £53 million of the negative consequentials into 2024-25 to allow more effective management of the impact.

95. The Scotland Reserve FT funding availability increased by £5 million following the conclusion of the 2022-23 final outturn.

96. The final (£12m) change is a reversal of a balancing adjustment which was included as part of the Autumn Budget Revision.

97. As a result of the agreeing the deferral of the late negative consequentials, the final change to the FT position is a decrease of £1 million in the unallocated provision, with this funding carried forward to partially offset the reduction in funding in 2024-25.

B.4 Scotland Reserve

98. The current forecast Scotland Reserve position following the final outturn is detailed below. This reflects the revised drawdowns as part of the Spring Budget Revision described in the sections above.

99. In general terms the Scottish Government will always plan to drawdown any Scotland Reserve availability in full each financial year. As previous iterations of the Medium-Term Financial Strategy have set out this ensures that maximum fiscal flexibility is maintained without compromising the Scotland Reserve’s capacity to absorb any volatility in spending late in the financial year.

100. Following the conclusion of the Fiscal Framework Review the Scotland Reserve cap will now grow in line with the inflation (as measured by the GDP deflator) from its current £700 million threshold. In addition the drawdown limits of £250 million on Resource and £100 million on Capital will cease to apply.

101. With these limited additional flexibilities, it is possible that over time the Scotland Reserve could become more of a genuine reserve of funds. However, the pressures on the funding position mean it is likely that the existing approach of utilising all carry forward availability in the subsequent financial year will continue to be necessary. The Scottish Government will provide more details on the policy approach to the Scotland Reserve at the next Medium Term Financial Strategy.