Scottish Budget 2021 to 2022

The Scottish Budget sets out the Scottish Government’s proposed spending and tax plans for 2021 to 2022, as presented to the Scottish Parliament.

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


The Scottish Government is required to set a balanced budget each year.

The UK Government's decision to defer the UK Budget - to 3 March 2021 - means that the tax and spending plans for Scotland in this document must once again be set without certainty over key elements that determine the fiscal position next year. As a result, some pragmatic decisions have had to be taken when determining the funding available to support this budget for a year when Scotland is still living with the impact of COVID-19. There is therefore less than the usual certainty in the funding envelope set out in the reconciliation below.

Specific Funding Issues for 2021-22

For this budget, an assumption has been made about additional Barnett consequentials for funding the response to COVID-19 that will be added to the Scottish block grant as a result of the upcoming UK Budget. The UK Spending Review provided for £55 billion in funding for the COVID-19 response in 2021-22. Allocations of £34 billion of that funding were set out in the UK Spending Review in November 2020, including £1,328 million in consequentials for Scottish Government, leaving funding as yet unallocated of £21 billion. That remaining fund is expected to be allocated to a mix of UK-wide support measures and England only measures, on which additional Barnett consequentials would be generated. The total COVID-19 funding set out in Table A.01 therefore assumes a proportion of the remaining unallocated £21 billion will generate additional funding for the Scottish Government.

We have taken a prudent assessment in estimating a £500 million increase in COVID-19 consequential funding for 2021-22 will arise from the allocation of the remaining £21 billion of UK funding available. This amount is based on the proportion of overall COVID-19 funding that the devolved administrations have received so far during the pandemic, but with a balancing methodological reduction of around 40 per cent to account for scenarios where the UK Government chooses not to fully allocate the Reserve or to allocate a larger proportion of funding to UK-wide measures that do not generate Barnett consequentials.

Tax Assumptions and Provisional Block Grant Adjustments

As was the case for the 2020-21 Budget, decisions about devolved tax policy have been made without knowledge of future UK policy. The Scottish Fiscal Commission (SFC) has also had to produce forecasts before the UK Budget and accompanying Office for Budget Responsibility (OBR) forecasts. Provisional Block Grant Adjustments (BGAs) have been used, based on the OBR forecasts published alongside the UK Government's Spending Review on 25 November 2020.[1] This means that the SFC forecasts of tax and social security include more up-to-date information than the BGAs used in the preparation of the 2021-22 budget. The approach taken by the SFC is set out in their report available at:

Scottish Fiscal Commission

Updated BGAs will be calculated alongside the UK Budget on 3 March 2021. The Scottish Government has the option to continue to use the provisional BGAs or change to the updated BGAs; either way, adjustments to the financial position will flow through as part of the normal operation of the Fiscal Framework. For Income Tax, any change to the funding position will be reflected in the reconciliation that takes place in 2024-25. For LBTT, Scottish Landfill Tax and social security benefits, an in-year reconciliation will take place within 2021-22, with a final reconciliation impacting the 2023-24 Scottish Budget.

Further Devolution of Powers

New social security powers over Attendance Allowance, Disability Living Allowance, Industrial Injuries Disablement Allowance, Personal Independence Payment and Severe Disablement Allowance commenced in 2020-21. Social security powers transferred to Scotland need to be managed within HM Treasury budget control limits (a difference to how they are managed in the rest of the UK where any additional spend in-year over the budgeted amount is funded by HM Treasury as annually managed expenditure). This has introduced additional volatility into the Scottish Budget. Any increase in demand against what has been forecast by the SFC will need to be managed through a combination of drawing down funding from the Scotland Reserve, drawing on resource borrowing powers or in-year adjustment to other budgets.

The transfer of greater tax and social security powers requires the Scottish Government to manage much larger levels of fiscal volatility. The Fiscal Framework[2] provides for borrowing powers and the Scotland Reserve to give some assistance to stabilising spending across years.

Scotland Specific Economic Shock

The SFC forecasts produced alongside the Budget indicate that the technical requirements for a Scotland-specific economic shock are met. The SFC has been clear that this does not mean that they expect economic performance to be significantly weaker in Scotland, but rather it is caused primarily by the timing of the SFC's forecasts, which take place in very different circumstances from the OBR's November 2020 forecasts. Triggering of a shock provides the Scottish Government with access to increased reserve and borrowing flexibilities. This is set out in more detail in the Medium Term Financial Strategy document (MTFS).

Notwithstanding the increased flexibility provided by the triggering of a shock, experience to date has demonstrated that limits on borrowing and the Scotland Reserve imposed by the Fiscal Framework are too restrictive to ensure stability in the Scottish Government's budget management. That said, in an attempt to manage volatility risk to some degree, in 2021-22 Scottish Ministers plan to borrow £319 million to smooth the negative budget impact of forecast errors arising from tax and social security reconciliations. A decision has been taken to borrow £450 million to support infrastructure investment.

Final borrowing drawdown will be confirmed over the course of the year in the normal way.

Scottish Government Funding

The devolved administrations' budgets are set within a framework of public expenditure control and budgeting guidance determined by HM Treasury. Once overall public expenditure budgets have been determined, 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 the transfer of social security powers, devolution of taxes and other income devolved to Scotland (through the Scotland Act 2012 and 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.[3]

As indicated above, this budget includes an estimate of COVID-19 consequentials that are expected to flow from the UK Budget 2021-22; no non-COVID-19 additional consequentials are assumed on top of the UK Spending Review consequentials from November 2020. The purpose of including this estimate is to limit as far as possible the potential variance between the Budget Bill implementing this budget, and the subsequent outcomes from the UK Budget on 3 March 2021. The portfolio allocation of COVID-19 Consequentials is set out in the table below and is reflected within portfolio Level 2 budgets received from the UK Spending Review:

Table A.01: Allocations of COVID-19 funding
2021-22 Budget
Health and Sport 869
Communities and Local Government* 399
Finance 15
Education and Skills 68
Justice 72
Transport, Infrastructure and Connectivity 230
Environment, Climate Change and Land Reform 3
Rural Economy and Tourism 25
Economy, Fair Work and Culture 147
Total 1,828

* £90 million attributed to local government is assigned to the General Revenue Grant and so does not appear as COVID allocations in the CLG portfolio Level 3.

The block grant is adjusted upwards to reflect the devolution of social security powers, and downwards to reflect the retention in Scotland of revenues from devolved and assigned taxes and other devolved income, leaving a residual block grant. The Scottish Government then retains all devolved and assigned Scottish tax and other revenues (forecasts of tax revenues for inclusion in the budget are calculated by the SFC). The Block Grant Adjustments - BGAs - are calculated by HM Treasury with reference to forecasts prepared by the Office for Budget Responsibility.

In simple terms, the available funding for the Scottish Budget is the Block Grant, plus the BGAs for social security, less the BGAs for devolved and assigned taxes and other revenues, plus devolved revenue estimates plus borrowing. For the purpose of this budget, provisional BGAs have had to be used. These have been provided by HM Treasury for this purpose. It will be open to the Scottish Government to use the updated BGAs that will be generated by the UK Budget should it choose to do so.

The latest forecasts of tax revenues and social security expenditure and the comparison against the corresponding BGAs are set out in Annex C of the MTFS.

The total funding available to the Scottish Government is also dependent on decisions 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. For the purpose of this budget, these relativities are drawn between existing UK tax policy and the devolved tax policy proposals advanced by the Scottish Government in this budget. No assumptions are made about possible changes to UK tax policy (including Non-Domestic Rates) that could be announced in the UK Budget in March 2021.

The overall budget position for any given year is dependent on the interaction between the BGAs as provided by the OBR and the forecast of social security costs and tax revenues provided by the SFC. The forecasts underpinning both the BGAs, the costs of devolved social security powers and the revenues for devolved and assigned taxes will change over time until an agreed, reconciled, final outturn position is reached. The Fiscal Framework sets out the limited powers available to the Scottish Government to manage the impact of forecast errors between initial budget and the reconciled outturn position. This includes the power to undertake resource borrowing to smooth the budgetary impact of forecast errors.

The Scottish Government intends to use its resource borrowing powers under the Fiscal Framework to manage the forecast errors impacting on the 2021-22 budget limit. A decision to borrow to support capital spending will also 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 A.02 below sets out the Scottish Government Budget Control Limits:

Table A.02: Scottish Government Budget Control Limits 2019-20 to 2021-22
Cash Terms 2019-20 2020-21 2021-22
£m £m £m
UK Government Spending Review settlement - November 2015 30,870
UK Government Spending Round settlement - September 2019 35,728
UK Government Spending Review settlement - November 2020 37,249
Subsequent Barnett Consequentials and Other Additions 2,384
Anticipated Barnett Consequentials 468
Total Budget Limit from HM Treasury (A) 33,254 36,196 37,249
Of which:
Fiscal Resource Budget Limit 27,633 29,711 30,923
Non-cash Budget Limit 1,145 1,145 1,145
Capital Budget Limit 3,956 4,734 4,973
Financial Transactions (FTs) 519 606 208
Block Grant Adjustment for Social Security (B) 290 3,203 3,310
Ring-fenced and Non-Barnett Funding (C) 472 756
COVID-19 funding - Spending Review settlement - November 2020 1,328
Anticipated COVID-19 Consequentials 500
Total COVID-19 Funding (D) 1,828
Block Grant Adjustment for Taxes and Non-Tax Income (12,190) (12,991) (12,430)
Scottish revenues:
Scottish Income Tax 11,684 12,365 12,263
Land and Buildings Transaction Tax 643 641 586
Scottish Landfill Tax 104 116 88
Non-Tax Income 25 25 25
Net Resource Budget Adjustment for Taxes and Non-Tax Income (E) 265 156 532
Reconciliation to Outturn (F) (3) (207) (319)
Resource Borrowing (G) 207 319
Capital Borrowing (H) 450 450 450
Total Scottish Government Funding (A+B+C+D+E+F+G+H) 34,256 40,477 44,125

Figures may not add due to rounding

(A) The prior year comparators throughout this document reflect the position as set out in the original authorised parliamentary approved Budget for that year. The funding position shown is consistent with that original Budget allocation. The Budget position changes throughout the year and subsequent budget revisions are available from the Scottish Government website. The Block Grant figures shown here represent core funding allocation calculated in accordance with the Barnett formula.

(B) Under the Fiscal Framework, there are additions to the block grant to reflect social security expenditure devolved to Scotland under the Scotland Act 2016. Further details on the devolved social security benefits with a corresponding Block Grant Adjustment are set out in the Medium-Term Financial Strategy 2021.

(C) From 2020-21 Farm Subsidy direct payments are funded by HM Treasury (previously funding came from the EU). From 2021-22 HM Treasury are also funding pillar 2 schemes and Fisheries support that previously came from the EU. EU replacement funding is ring-fenced for that purpose. There are additional non-Barnett allocations in respect of a Network Rail funding agreement and for the administration costs for additional powers devolved under the Scotland Act 2016.

(D) No COVID-19 related funding was set out in the 2020-21 Budget document as this was published on (6 February 2020). Details of allocations of COVID-19 funding in 2020-21 are set out in the Budget Revision documents for 2020-21. Guaranteed funding for COVID-19 in 2020-21 is £8.6 billion. The spending plans set out in this document contain allocations of £1,828 million of COVID-19 funding from the UK Government - £1,328m allocated at the UK Spending Review - and £500 million of anticipated funding in estimated future consequentials. The anticipated consequentials are a prudent estimate of a further distribution of the remaining balance of COVID-19 funding identified but unallocated by the UK Government in the UK November 2020 Spending Review.

(E) Under the Fiscal Framework, the block grant is reduced to reflect revenues devolved to Scotland under the Scotland Acts 2012 and 2016. The Block Grant Adjustment figures do not include Air Passenger Duty, devolution of which has been deferred. Revenues for Scottish Income Tax, Land and Building Transaction Tax and Scottish Landfill Tax are as forecast by the Scottish Fiscal Commission.

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

(F) Reconciliation to Outturn is the net impact to the Scottish Budget of the reconciliation for Income Tax, LBTT and SLfT, Non-Tax income, and devolved Social Security payments. Further details on the reconciliation to the 2021-22 Budget are set out in the Medium Term Financial Strategy 2021.

(G) Resource borrowing undertaken to smooth the impact of forecast errors on the Budget- actual borrowing drawdown will be determined based on the in-year financial position. The Scotland-specific economic shock provisions extend the maximum borrowing available to £319 million.

(H) Initial planned capital borrowing - actual borrowing drawdown will be determined based on the in-year financial position.

Table A.03: Real Terms changes to HM Treasury Spending Limits
HMT Spending Limits - Real Terms 2019-20 2020-21 2021-22
(2020-21 prices) £m £m £m
Fiscal Resource Budget 29,567 29,711 31,815
Capital Budget 4,233 4,734 5,116
Total 33,800 34,445 36,931
Real-Terms Change against prior year - 1.9% 7.2%
Average Annual Real Terms growth 2019-20 to 2021-22 - - 4.5%

Excludes Financial Transactions

Table A.04: Real Terms changes to Scottish Government Funding
HMT Spending Limits - Real Terms 2019-20 2020-21 2021-22
(2020-21 prices) £m £m £m
Fiscal Resource Budget 29,851 29,867 32,362
Capital Budget + Capital Borrowing 4,714 5,184 5,579
Total 34,565 35,051 37,942
Real-Terms Change against prior year - 1.4% 8.2%
Average Annual Real Terms growth 2019-20 to 2021-22 - - 4.8%

Excludes Financial Transactions

Real Terms calculations use the GDP deflator as published by the UK Government at the Spending Review on 25 November 2020 as the measure of inflation within the economy. The GDP deflator as published reflects some volatility as a result of the impact of the COVID-19 pandemic - the figure for 2020-21 is significantly higher than the historic trend and the figure for 2021-22 is negative. As was the case in the UK Spending Review, to smooth the distortion of this anomalous impact an average annual uplift in core funding between 2019-20 and 2021-22 has been presented using the GDP deflators shown below.

2019-20 2020-21 2021-22
Index for Real Terms calculation (HMT 11/20) 0.935 1.00 0.972
Latest GDP deflators as per HMT (11/20) 1.0 1.07 1.04

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:

  • 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 - 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 - largely for depreciation of assets. It is not possible to use the notional non-cash budgets to support any fiscal spending.
  • Capital budgets are used mainly 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 HM Treasury fiscal rules to use capital budgets 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.

The Scotland Reserve allows the Scottish Government limited ability to manage spending across financial years. The Fiscal Framework sets out the limits of Scotland Reserve - up to £700 million in aggregate may be deposited in the Reserve. Maximum drawdown in any one year from the Reserve is £250 million of Resource budget and £100 million of capital budget (including Financial Transactions). Under the Fiscal Framework the drawdown limits are temporarily waived where a Scotland-specific economic shock occurs.

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 borrowing within prescribed limits.

Annually Managed Expenditure (AME)

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; firstly Non-Domestic Rates which have been devolved since devolution in 1999, and secondly, funding for a number of demand-led programmes in Scotland. Specifically:

  • 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 available on the Scottish Government website.[4]
  • A small number of programmes that, whilst they fall 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 or UK-funded 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.

Spending Plans

The full spending plans for the year are set out in Table A.05. Portfolio chapters show the allocation of these totals across individual programmes.

Table A.05: Total Proposed Budget for 2021-22
2021-22 Scottish Budget Resource Capital Financial Transactions Total UK Funded AME Total
£m £m £m £m £m £m
Health and Sport 16,406.9 529.0 - 16,935.9 100.4 17,036.3
Communities and Local Government 8447.1 1,363.0 100.0 9,910.1 2,631.0 12,541.1
Finance 259.5 24.0 3.3 286.8 5,853.8 6140.6
Education and Skills 3,371.3 398.0 22.1 3,791.4 416.3 4,207.7
Justice 2,861.2 166.5 3,027.7 - 3,027.7
Transport, Infrastructure and Connectivity 1,671.9 2,246.8 54.6 3,973.3 - 3,973.3
Environment, Climate Change and Land Reform 204.2 303.0 (0.6) 506.6 - 506.6
Rural Economy and Tourism 978.7 163.2 28.6 1,170.5 - 1,170.5
Economy, Fair Work and Culture 705.1 130.6 200.0 1,035.7 - 1,035.7
Social Security and Older People 3,907.0 93.0 - 4,000.0 - 4,000.0
Constitution, Europe and External Affairs 80.3 - - 80.3 - 80.3
Crown Office and Procurator Fiscal Service 151.9 4.8 - 156.7 - 156.7
Scottish Government 39,045.1 5,421.9 408.0 44,875.0 9,001.5 53,876.5
Scottish Parliament and Audit Scotland 132.3 1.3 - 133.6 2.0 135.6
Total Scotland 39,177.4 5423.2 408.0 45,008.6 9,003.5 54,012.1

Reconciliation of Funding to Spending Plans

There are a number of differences between the aggregate funding control limits as set out in Table A.01 and the total cost of the portfolio spending plans. Published spending plans anticipate additional funding of £884 million, (as per Table A.06) not yet reflected in those control limits (which reconcile to published HM Treasury figures). Table A.06 reconciles the aggregate funding limits to spending plans for 2019-20, 2020-21 and 2021-22 (the current budget year and the comparator years shown across the document).

Table A.06: Reconciliation of Funding to Spending Plans
SG Spending Limits - Cash Terms 2019-20 2020-21 2021-22
£m £m £m
Scottish Government Funding 34,256 40,477 44,125
- - -
Additional Funding 94 98 -
Reserve 313 168 431
Machinery of Government Changes 28 8 3
Anticipated budget transfers 269 246 28
Anticipated additional Non-cash - - 232
Unallocated Non-cash budget (230) (261) -
Voluntary Income from rate relief recipients - - 185
Queen's and Lord Treasurer's Remembrancer 5 5 5
- - -
Total Reconciling Items 479 264 884
- - -
Scottish Government Spending Plans 34,735 40,741 45,009

Considering each of the reconciling items in turn

Barnett consequentials - this is the additional UK consequential funding identified to support amendments to the Budget Bill. The spending plans presented for comparator years reflect those amendments made during the passage of the Bill for that year.

Reserve Drawdown - Spending plans are underpinned by anticipated underspend carried forward from the prior year through the Reserve.

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 the Scotland Act 2016, that are not yet reflected in HM Treasury budget limits.

HM Treasury non-cash budget for 2021-22 is a flat roll forward of the previous years. Changes to the basis of the calculations for the non-cash budget requirement for student loans have increased the requirement. This will impact on the non-cash budget requirement for all UK nations. Additional budget cover for this is anticipated to be provided.

The HM Treasury non-cash budget allocation in prior years was more than required to meet the current needs of the Scottish Government. Accordingly, not all of this is yet was allocated out to portfolios. As indicated above this budget cannot be used to support fiscal 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 £5 million shown against 2020-21 and 2021-22 represents the estimated receipts of each year.

1. The Fiscal Framework sets outs (in paragraph C.47 of Annex C) that, where the Scottish Budget takes place before the UK Budget, the Scottish Budget will be based on provisional BGAs for budgeting purposes. The Framework also sets out that, where the UK Budget takes place less than three months before the start of the financial year, these provisional BGAs will then be applied to the block grant for that year. However, the Scottish Government as agreed with the UK Government that it can use the updated BGAs calculated alongside the UK Budget, should it wish to do so.

2. The agreement between the Scottish Government and the United Kingdom Government on the Scottish Government’s fi scal framework

3. Statement of Funding Policy 2020.docx (

4. Local government: Non-domestic rates (business rates) - (



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