Implementation of the Scotland Act 2016: ninth annual report

9. Fiscal Framework Implementation

The Fiscal Framework is an agreement made by the Scottish and UK Governments that determines how the Scottish Government is funded, as well as underpinning the powers set out in the Scotland Act 2016. This chapter covers further areas of Fiscal Framework implementation relevant to this report; implementing the changes agreed in the 2023 review of the Fiscal Framework and progress on policy spillovers.

2024-25 Developments

Implementing changes from the Fiscal Framework Review 2023

97. The 2016 Fiscal Framework agreement stated that a review of the Fiscal Framework should be undertaken by the Scottish and UK Governments after the Scottish Parliament elections in 2021, informed by an independent report.

98. Following a review of the arrangements in the 2016 Fiscal Framework, the Scottish and UK governments came to an agreement on a revised Fiscal Framework Agreement, which was published on 2 August 2023^[31]. A summary of the changes agreed are in Chapter 9 of last year’s report^[32].

Uprating of borrowing and reserve limits

99. The Scottish Government’s cumulative resource and capital borrowing limits, detailed in Chapter 6, are set out in sections 67(2) and 67A(1) of the Scotland Act 1998^[33] (SA 1998), respectively. As these cumulative limits are uprated annually, an annual Scotland Act Order (SAO) must be laid, which replaces the stated limit in the SA 1998 with an agreed uprated figure.

100. The SAO to uprate the 2024-25 cumulative borrowing limits came into force on 25 May 2024.

101. Ministerial agreement was reached between the Cabinet Secretary for Finance and Local Government and the Cabinet Secretary to the Treasury on 11 February 2025 to lay a SAO to amend the cumulative borrowing limits stated in SA 1998 for to reflect the uprated limits for 2025-26.

Progress on policy spillovers

102. The Fiscal Framework includes an agreement there should be no detriment as a result of UK government or Scottish Government policy decisions post-devolution. Specifically, where either government makes a policy decision that affects the tax receipts or expenditure of the other, the decision-making government will either reimburse the other if there is an additional cost, or receive a transfer from the other if there is a saving.

103. After carrying out analysis using the agreed social security spillovers methodology for direct spillovers (direct and mechanical effects of a policy change), Scottish Government and Department for Work and Pensions (DWP) analysts agreed the devolution of Scottish benefits produced no material spillover effects on expenditure for either Government in 2021-22 or 2022-23. This agreement only relates to potential spillovers from Scottish benefits passporting to UKG benefit premia.

104. Due to DWP resourcing constraints and previous agreements of no material effects, Scottish Government and DWP analysts have agreed to pause joint social security spillovers analysis of premia passporting as of 2023-24, without prejudice to future requirements for spillovers analysis.

Future plans

105. The Fiscal Framework states that reviews should take place on a five yearly basis but not more than once in any UK or Scottish electoral cycle. The Fiscal Framework will next be due for review in 2028 – although could in principle happen earlier if both sides agreed.