Scotland's Fiscal Outlook: The Scottish Government's Medium-Term Financial Strategy

This is the third Medium Term Financial Strategy (MTFS) published by the Scottish Government. The MTFS provides the context for the Scottish Budget and the next Scottish Parliament. This context will frame the incoming Government’s strategic approach to fiscal policy.

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Austerity: a set of policies that aim to reduce government budget deficits, usually through spending cuts, tax increases, or a combination of both.

Barclay Review: the Barclay Review (chaired by Kenneth Barclay) was introduced to reform the business rates system in Scotland in order to better support business growth.

Barnett Formula: a formula used by the HM Treasury to calculate consequentials which form the Block Grant to devolved governments in Scotland, Wales and Northern Ireland. The Barnett formula seeks to give these governments a proportion (or consequential) of UK expenditure incurred in policy areas which are devolved.

Budget: a document prepared by the government to present its anticipated tax revenues and proposed spending/expenditure for the coming financial year.

Block Grant: the grant received by the Scottish Government made up consequentials of UK expenditure, calculated by the Barnett Formula.

Block grant adjustment (BGA): deductions from the Scottish Government’s total Block Grant to reflect devolved tax receipts or social security expenditure.

Capital borrowing: money borrowed specifically for the purpose of Capital Expenditure.

Capital Expenditure: money spent on providing or improving non-current assets, which include land, buildings and equipment, which will be of use or benefit in providing services for more than one financial year.

Consequentials or Barnett Consequentials: a Barnett Consequential is the change to a devolved administration’s assigned budget as a consequence of changes in spending by the UK Government.

Deficit: occurs when a government spends more money than it takes in.

Demand-led: refers to expenditure which can be predicted at the beginning of the year e.g. the payment of benefits which will depend on the number of eligible claimants. Usually managed through Annually Managed Expenditure (AME).

Fiscal Consolidation: is a policy aimed at reducing government deficits and debt accumulation in order to bring it to levels which are manageable or commensurate with expected revenues.

Fiscal Framework: the Fiscal Framework agreement was published alongside the Scotland Act 2016 setting out the new funding arrangements, fiscal rules and borrowing powers for the Scottish Government.

Fiscal Framework Review: the Fiscal Framework is due to be reviewed after the 2021 Scottish Parliament elections. The review will be informed by an independent report with recommendations presented to both Governments by the end of 2021.

Funding Outlook: projection of future funding built up by forecasting separate elements of funding and then aggregating these to produce a path for the total level of potential funding.

Furlough (or Coronavirus Job Retention Scheme): scheme through which the UK Government will pay up to 80% of people’s wages for employees unable to work because their place of work has been forced to close, up to a maximum of £2,500 per month.

Green New Deal: harnessing the power of the Scottish National Investment Bank, a £3 billion Green Investment Portfolio and a Green Growth Accelerator – what the Climate Change Emergency Response Group (CERG) has termed a 'Green City Deal' – to attract green finance to Scotland.

Income Distribution: covers how a country's total GDP is distributed amongst its population.

Macroeconomic Shock: any event that has a large-scale impact on the economy, either positive or negative.

National Outcomes: are the Scottish Government’s broad policy aims.

Net zero: achieving an overall balance between emissions produced and emissions taken out of the atmosphere.

Non-tariff barriers: any measure, other than a customs tariff, that acts as a barrier to trade.

Outturn Data: official published statistics about actual revenues and expenditure.

Reconciliations: adjustments to address historical budgets’ forecast errors.

Resource Borrowing: money borrowed specifically for the purpose of Resource Expenditure.

Resource Expenditure: money that is spent on day-to-day resources and administration costs.

Resource Spending Review: a review to balance the spending ambitions of the new Scottish Government within its fiscal constraints.

Scotland Reserve: enables the Scottish Government to manage volatility associated with the fiscal powers.

Smith Commission: a commission of cross party talks to take forward commitments made by the three UK political parties (Conservative, Labour and Liberal Democrats) during the Scottish Independence referendum campaign.

Tax Credits: a means-tested government payment to help with day-to-day expenses for working people on low incomes.

UK Spending Review: allocation of funding to government departments.

Volatility: the tendency to change rapidly and unpredictably.



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