Seòmar agus comataidhean

Summer Budget Revision, 2021-22 Funding Changes, 2021-22 Additional Allocations and Fiscal Framework Review

Letter from the Cabinet Secretary for Finance and the Economy to the Committee, 16 June 2021

Dear Committee Members 

Firstly can I take the opportunity to welcome members to their new roles in the Finance and Public Administration Committee. I look forward to constructive engagement with the Committee over the course of this Parliament, building on the work last session’s Finance and Constitution Committee led by Bruce Crawford.

Summer Budget Revision

The legacy expert panel established by last session’s Finance and Constitution Committee included in their February 2021 report a recommendation relating to an early Summer Budget Revision. 

However, following the election the normal timelines around laying the associated SSI could not be accommodated ahead of summer recess.  

That said, I remain fully committed to updating Parliament and this Committee with developments in the funding position since the Scottish Budget was approved by Parliament, in the same spirit of engagement I have sought since the pandemic broke. The proposed changes set out below will be reflected in the Autumn Budget Revision along with the updated portfolio structure reflecting revised ministerial responsibilities (details of which are provided at Annex A).

2021-22 Funding Changes

During the Scottish Budget process in Spring 2021, I set out in full the allocation of consequentials provided to date. Since then an additional £1 billion of Covid-19 Barnett consequentials have been provided by the UK Government through the 2021/22 Main Estimate process taking total Covid-19 resource funding, including the £874 million carry forward from 2020-21, to circa £4.4 billion in 2021-22.

Given the Covid pandemic continues to principally impact on the Health service and the economy, I propose allocating this additional funding to Health (£0.7 billion), sustainable economic recovery actions (relating to level 2 support and support for the cultural sector and taxi drivers/operators, as outlined to Parliament on 2nd June, totalling £0.1 billion) and funding to support the continued provision of transport (£0.2bn).

It should be noted there is currently no Barnett guarantee in operation for 2021-22, which means that there is a risk that the Scottish Budget reduces if underspends emerge in UK Government departments.  This increases the challenge in managing the Scottish Budget.

In addition, the Scottish Government have been informed of two remaining elements of funding linked to UK Government announcements where the consequentials will not be confirmed until UK Government’s Supplementary Estimates early in 2022;

• Consequentials on £1.5 billion of UK funding for discretionary business support; and 
• Consequentials on the £300m of funding announced for the Cultural Recovery Fund extension.

Having such a long period of uncertainty before the remaining consequentials are confirmed is very unhelpful.  I am seeking confirmation from HM Treasury on how we manage the uncertainty associated with these and any further UK announcements in the absence of the guarantee arrangements put in place last year.  

2021-22 Additional Allocations

I anticipate further changes in the months to follow as the Scottish Government develops its response to the pandemic and implements the manifesto commitments. Whilst formal allocations will be reflected in the Autumn and Spring Budget Revisions I remain committed to providing the Committee and Parliament with timely details of all substantial funding changes proposed throughout the year. 

Fiscal Framework Review

As the Committee members may be aware, the Scottish Government’s Fiscal Framework is due to be reviewed in 2022, in light of a Parliament’s worth of experience, and will be preceded by an independent report that is presented to both Governments by the end of 2021.  As a consequence of Brexit and the COVID-19 pandemic, the Fiscal Framework has been subjected to unprecedented ‘stress-testing’ in recent years that could not have been anticipated when the framework was originally agreed in 2016.  It is clear that aspects of the current arrangements have been found wanting.  

In light of these developments, and building on the findings of our recent joint report, it is my view that the process for the review should be broad in scope.  The report and the review should consider the operation of the framework to date, and how it can be improved.  It should also consider the risks we face within our devolved responsibilities and the balance of fiscal levers, and whether further powers are required to grow Scotland’s tax base and to tackle the many challenges of recovery.  The process should also draw widely on the experiences of the Scottish Parliament, academia and civil society.

The arrangements for the review require joint agreement with the UK Government.  Although we have been unable to reach agreement to date, I look forward to discussing the next steps with the Chief Secretary to the Treasury in the coming weeks.  As I progress those discussions, I would welcome the support of the Committee in continuing to make the case to the UK Government for a broad-ranging review and independent report.  I look forward to working with you on this important issue and I hope that within the Scottish Parliament we can work together to achieve a meaningful review process.

Yours sincerely,

Kate Forbes
Cabinet Secretary for Finance and the Economy