Publication - Corporate report

Scottish Budget 2019-2020

Published: 12 Dec 2018
Directorate:
Financial Management Directorate
Part of:
Economy, Scottish Budget
ISBN:
9781787813960

The Scottish Government's proposed spending and tax plans for 2019 to 2020.

241 page PDF

5.1 MB

241 page PDF

5.1 MB

Contents
Scottish Budget 2019-2020
Annex A

241 page PDF

5.1 MB

Annex A 

Scottish Government Fiscal Control Framework and Reconciliation of Available Funding to Spending Plans

Introduction

The implementation of the Scotland Act 2016[1] and the associated Fiscal Framework[2] have made significant changes to the structure of Scottish Government budgets and the sources of funding that support government expenditure. In addition, the report of the Scottish Parliament Budget Process Review Group[3] included recommendations that the Scottish Government budget process establishes as a core objective that any revised process should – ‘improve transparency and raise public understanding and awareness of the Budget’.

To improve Budget transparency, this Annex sets out a short overview of the fiscal control framework (the rules governing government spending) within which the Scottish Government operates, and the key budgetary control limits within which Scottish Ministers must manage income and expenditure, and shows how the control limits link to the spending plans as set out in this document.

Scottish Government Funding

The Devolved Administrations’ budgets are set within a framework of public expenditure control and budgeting guidance determined by HM Treasury. The Scottish Government has freedom to make its own spending and tax decisions on devolved programmes, but those decisions must take place within the budgetary controls set by HM Treasury and in compliance with HM Treasury’s Consolidated Budgeting Guidance.

Scottish Government total budgets are determined through the combination of block grant funding from HM Treasury, adjusted to reflect forecasts of receipts generated through taxes devolved to Scotland (through the Scotland Act 2012 and the Scotland Act 2016), and any planned use of available devolved borrowing powers. 

Changes in the Scottish Government’s block grant continue to be determined via the operation of the Barnett Formula. Under the Barnett Formula, the Scottish Government’s block grant in any given financial year is equal to the block grant baseline plus a population share of changes in UK Government spending on areas that are devolved to the Scottish Parliament. Detail of how the Barnett Formula works is set out in the UK Government’s Statement of Funding Policy[4]. The block grant is then adjusted down to reflect the retention in Scotland of revenues from devolved and assigned taxes (using the Block Grant Adjustment which is calculated by HM Treasury based on forecasts from the Office of Budget Responsibility (OBR)), leaving a residual block grant. The Scottish Government then retains all devolved and assigned Scottish tax revenues (forecasts of which are calculated by the independent Scottish Fiscal Commission (SFC)). The operation of the Block Grant Adjustment is relatively complex and explained further in the Tax chapter of this document and in more detail in the Fiscal Framework itself. However, in simple terms:

Fiscal Framework

Figure source: SPICe Briefing SB 18-39

The total funding available to the Scottish Government is therefore affected by decisions that Scottish Ministers take on tax policy. Variation of Scottish tax policy relative to that of the UK will adjust the level of tax income received by the Scottish Government and the overall level of funding available to support spending plans. 

Similarly, decisions on borrowing will also augment the Scottish Government budget. A decision to borrow to support capital spending will impact on the funding available relative to the spending limits set by HM Treasury. The aggregate of the residual block grant plus devolved tax revenues plus agreed borrowing is a key control limit in defining the funding envelope within which Scottish Ministers must manage expenditure for a given year. Table 1.02 of this document (reproduced here) sets out the funding available.

Table 1.02: Scottish Government Budget Control Limits 2017-18 to 2019-20 

SG Spending Limits – Cash Terms  2017–18
£m
2018–19
£m
2019–20
£m
UK Government Spending Review settlement –
November 2015 
30,520 30,620 30,870
Subsequent Barnett consequentials and other additions     1,049  1,389 2,384
Total Budget Limit from HM Treasury (A) 31,569 32,009 33,254
of which:      
Fiscal Resource Budget Limit 27,027 26,983 27,633
Non-cash Budget Limit  907 1,105 1,145
Capital Budget Limit  3,189 3,520 3,956
Financial Transactions  446 401 519
Block Grant Adjustment for Social Security (B)     290
Net Block Grant Adjustment  (12,450) (12,472) (12,193)
Scottish Income Tax  11,829 12,115 11,684
Land and Buildings Transaction Tax  507 588 643
Scottish Landfill Tax  149 106 104
Non-Tax Income  36 25 25
Net Resource Budget Adjustment (C) 71 362 262
Capital Borrowing (D) 450 450 450
Total Scottish Government Funding (A+B+C+D) 32,090 32,821 34,256

Figures may not add due to rounding.

Block Grant Adjustment figures do not include Air Passenger Duty, devolution of which has been deferred.

Non-tax income is from Fines, Forfeitures and Fixed Penalties and Proceeds of Crime.

Net Block Grant Adjustment includes an element for Non-tax income. (£31 million for 2019-20), and a negative £3 million reconciliation adjustment for 2017-18 devolved revenues. 

Net Resource  Budget Adjustment is the impact of the SG decisions on taxes against the Block Grant Adjustment

Tax and Block Grant Adjustment figures are the forecasts that were used to determine the budgets for each of these years.

Within these overall budget limits there are important sub-categories of spending subject to their own control limits. These sub-limits are imposed by HM Treasury as part of UK fiscal rules. These limits apply to the following:

Resource budgets (expenditure on the day-to-day costs of delivering public services). The total resource expenditure limit is sub-divided into a fiscal (or cash) limit – this is the largest element of government expenditure, used for example to pay public sector staff wages and purchase goods and services, and a non-cash limit – this is not a budget that supports cash expenditure, but is largely for depreciation of assets (a technical measure of the wearing out, consumption or other reduction in useful life of public sector infrastructure used in delivering public services). It is not possible to use the notional non-fiscal/non-cash budgets to support any fiscal/cash spending. 

Capital budgets are used to support the delivery of public infrastructure in Scotland. This is split between fiscal capital and a separate control for budgets that can only be used to support loan or equity investment in bodies outside the public sector – labelled as Financial Transactions. It is not possible within UK fiscal rules to use capital budgets or Financial Transactions to fund additional day-to-day expenditure: they must be used to support long-term investment. The overall capital funding available to the Scottish Government can be augmented by capital borrowing, the limits for which are imposed by the UK Government through the Fiscal Framework. 

In summary, HM Treasury fiscal rules impose an annual limit on the Scottish Government’s spending on public services that is equal to the aggregate of the residual block grant (after adjusting for devolved taxes), plus the devolved tax receipts themselves, plus capital borrowing.

Spending Plans

Further to the defined budget limits set out above, there are two other funding elements that support the total expenditure managed by the Scottish Government:

Non-domestic rates income, responsibility for which is fully devolved and falls outside the scope of the block grant and Fiscal Framework arrangements controlled by HM Treasury. Details on the operation of non-domestic rates in Scotland are provided at http://www.gov.scot/Topics/Government/local-government/17999/11199

A small number of programmes which, while falling within the devolved responsibilities of the Scottish Government, continue to be funded annually by the UK Government on the basis of demand (shown here as UK funded Annually Managed Expenditure (AME)). These budgets are ring-fenced for specific purposes – principally NHS and teachers’ pension payments and student loans. HM Treasury fiscal rules prohibit the use of funding provided for these areas to support other expenditure. 

The full spending plans for the year are set out in Table 1.05 in Chapter 1 of this document (reproduced here). Portfolio chapters show the allocation of these totals across individual programmes. 

Table 1.05: Total Proposed Budget for 2019-20

2019-20 Budget Resource
£m
Capital
£m
Total
£m
AME
£m
Total
£m
Health and Sport 13,876.8 346.0 14,222.8 100.4 14,323.2
Communities and Local Government 7,012.8 1,999.0 9,011.8 2,853.0 11,864.8
Finance, Economy and Fair Work 438.1 353.7 791.8 4,545.0 5,336.8
Education and Skills 2,900.5 150.0 3,050.5 397.5 3,448.0
Justice 2,575.2 144.0 2,719.2 2,719.2
Transport, Infrastructure and Connectivity 1,155.6 1,754.6 2,910.2 2,910.2
Environment, Climate Change and Land Reform 181.6 245.0 426.6 426.6
Rural Economy  279.0 72.0 351.0 351.0
Culture, Tourism and External Affairs 304.5 26.5 331.0 331.0
Social Security and Older People 574.9 10.0 584.9 584.9
Government Business and Constitutional Relations 12.1 12.1 12.1
Crown Office and Procurator Fiscal Service 117.1 3.6 120.7 120.7
Scottish Government 29,428.2 5,104.4 34,532.6 7,895.9 42,428.5
Scottish Parliament and Audit Scotland 107.1 1.5 108.6 2.0 110.6
Total Scotland 29,535.3 5,105.9 34,641.2 7,897.9 42,539.1

Reconciliation of Funding to Spending Plans

There are a number of differences between the aggregate funding control limits as set out in Table 1.02 and the total cost of the portfolio spending plans. Published spending plans anticipate additional funding not yet reflected in those control limits (which reconcile to the latest published HM Treasury figures). Table A.01 below reconciles the aggregate funding limits to spending plans for 2017-18, 2018-19 and 2019-20 (the current budget year and the comparator figures shown across the document). 

Table A.01 Reconciliation of Funding to Spending Limits

SG Spending Limits – Cash Terms  2017–18
£m
2018–19
£m
2019–20
£m
Scottish Government Funding 32,090 32,821 34,256
Barnett Consequentials (633) (142)  
Budget Exchange/Reserve 203 234 313
Machinery of Government Changes 31 (1) 28
Anticipated budget transfers 156 159 269
Unallocated Non-cash budget (229) (196) (230)
Changes to Income Tax 29 62  
Queen’s and Lord Treasurer’s Remembrancer    50 5
Total Reconciling Items (443) 166 385
Scottish Government Spending Plans 31,647 32,987 34,641

Considering each of the reconciling items in turn.

Barnett consequentials: The comparator figures across this document reflect the spending plans as set out at the Budget Bill for those years, to show a like–for-like comparison against 2019-20 plans. The budget figures in Table 1.02 reflect the impact of any additional Barnett consequentials on the budget limits for 2017-18 and 2018-19 flowing from UK fiscal events since the relevant Budget Bill. To get to the funding position that underpinned the spending plans shown in this document, the consequential budget impact of these subsequent fiscal events needs to be removed. 

Budget exchange/Scotland Reserve: Spending plans are underpinned by anticipated underspend carried forward from the prior year. Until 2017-18, that budget carry forward was through HM Treasury Budget Exchange (rules for which are detailed in the Statement of Funding Policy). From the end of 2017-18, it is through the operation of the Scotland Reserve (rules for which are set out in the Fiscal Framework). 

Machinery of Government changes relate to anticipated funding transfers from the UK Government not reflected in the HM Treasury control total but showing in portfolio spending plans.

Anticipated budget transfers reflect UK funding for specific areas of work, including funding for administration costs of powers devolved in Scotland Act 2016, that are not yet reflected in HM Treasury budget limits. The amount for 2019-20 also includes anticipated funding for EU exit preparations.

The HM Treasury non-cash budget allocation is more than is required to meet the current needs of the Scottish Government. Accordingly, not all of this is allocated out to portfolios. As indicated above, this budget cannot be used to support fiscal/cash spending.

During the passage of the 2017-18 Budget Bill a change to tax policy was made to freeze the Higher Rate tax threshold. Under the operation of the Fiscal Framework this released an additional £29 million of funding to support spending plans. For 2018-19 there was a change to tax policy and to pay policy during the passage of the Budget Bill. These changes in combination released £62 million of further forecast tax revenues to support additional spending. 

The Queen’s and Lord Treasurer’s Remembrancer (QLTR) is the Crown’s representative in Scotland who deals with ownerless property. In the Scotland Act 1998, the Crown’s property rights in ownerless goods and the revenues raised from them were transferred to Scottish Ministers and the revenues paid into the Scottish Consolidated Fund. The £50 million shown for 2018-19 is the funding impact of the accumulated revenues, which sit outside of HM Treasury control aggregates. The £5 million shown against 2019-20 represents the estimated receipts for the forthcoming year.

Footnotes

1 http://www.legislation.gov.uk/ukpga/2016/11/contents/enacted

2 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/503481/fiscal_framework_agreement_25_feb_16_2.pdf

3 http://www.parliament.scot/S5_Finance/Reports/BPRG_-_Final_Report_30.06.17.pdf

4 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/479717/statement_of_funding_2015_print.pdf


Contact

Email: Finance.co-ordination@gov.scot