{"id":6415,"date":"2018-02-06T15:39:37","date_gmt":"2018-02-06T15:39:37","guid":{"rendered":"https:\/\/sceptical.scot\/staging\/?p=6415"},"modified":"2025-12-26T23:13:59","modified_gmt":"2025-12-26T23:13:59","slug":"funding-scottish-budget-deal","status":"publish","type":"post","link":"https:\/\/sceptical.scot\/staging\/2018\/02\/funding-scottish-budget-deal\/","title":{"rendered":"Funding the Scottish budget deal"},"content":{"rendered":"\n

Last week, the Scottish Government reached a deal with the Greens (and two Lib Dems) at Stage 1 of the 2018-19 Budget Bill. Underpinning the deal was an additional \u00a310.5 million for inter-island ferry services and \u00a3159.5 million for local government.<\/strong><\/p>\n\n\n\n

So where did the money come from to \u2018boost\u2019 spending and what might be the implications? For those of us who have seen a few Scottish budgets, the story sounds very familiar\u2026\u2026<\/p>\n\n\n\n

Sources of funding <\/strong><\/h2>\n\n\n\n

We await exact details of the breakdown of the additional \u00a3170 million of spending.<\/p>\n\n\n\n

But in a virtually identical scenario to 2017<\/a>, only a minority of the additional spending announced after the Draft Budget was published appears to come from genuinely \u2018new\u2019 resources.<\/p>\n\n\n\n

Last year, of the \u00a3220 million of new spending announced at Stage 1, only \u00a330 million came from tax rises. The remainder came from money not spent the previous year (\u00a3125m), changes to the non-domestic rates pool (\u00a360m) and a reduction in forecast borrowing costs (\u00a36m).<\/p>\n\n\n\n

This year, of the \u00a3170 million additional spending announced, around \u00a355 million is from taxation, (and specifically the decision to set the Higher Rate threshold for income tax at a slightly lower level than was proposed in the Draft Budget). The remainder of around \u00a3115m is from utilising \u201can element of the funding that is available in the Scotland Reserve and a level of additional underspend from 2017-18\u201d. <\/em><\/p>\n\n\n\n

The use of underspends and the Scotland Reserve<\/strong><\/h2>\n\n\n\n

The use of underspends is not unusual. But is it genuinely new investment?<\/p>\n\n\n\n

Back in August 2016, the Scottish Government announced a boost to capital spending of \u201c\u00a3100 million of funding in this financial year\u201d<\/a>.<\/u> This was largely funded through use of underspends<\/a> from earlier years. So the government was able to announce this as more money in 2016\/17.<\/p>\n\n\n\n

This was followed in February 2017 by the Stage 1 budget deal with the Greens which itself was boosted by \u00a3125m of underspend in 2016\/17.<\/p>\n\n\n\n

Now we\u2019re told that some of the 2018 deal is actually from monies unspent in 2017\/18.<\/p>\n\n\n\n

You can see a pattern.<\/p>\n\n\n\n

\u2018Moving\u2019 money into one year but then underspending in that year, which in turn enables you to \u2018move\u2019 money again into another year, might make sense from a budgeting and political point of view, but the impact on the economy and the public services is not immediately obvious.<\/p>\n\n\n\n

Moreover, the Draft Budget had already built in \u00a3158m in underspends from 2017-18. So further monies identified as being \u2018un-spent\u2019 suggests that this year\u2019s budget is on track to be much lower than planned just 12 months ago.<\/p>\n\n\n\n

The decision to change the profile in the Scotland Reserve is also interesting. Unlike the UK Government, the Scottish Government must operate a largely balanced budget (there are some exceptions for forecast error and capital spending).<\/p>\n\n\n\n

To cope with this, and to protect spending when revenues come in below forecast, the government can deposit some revenue into a new Scotland Reserve.<\/p>\n\n\n\n

Taking money out of the Reserve (or adding less in) to make up the \u00a3170 million again is not strictly speaking \u2018new\u2019 money. It\u2019s simply money that is being shifted from savings to spend.<\/p>\n\n\n\n

But if the Scottish Government does have limited resources in the Scotland Reserve, it will have fewer options available to it if its revenues do come in below forecast.<\/p>\n\n\n\n

For example, if income tax revenues in 2017\/18 turn out to be \u00a3100m below forecast, this \u00a3100m shortfall will be \u2018reconciled\u2019 in the Scottish Budget 2020\/21 (there are long lags between income tax forecasts and outturn data). At that point, the Scottish Government effectively has three options available to it. It can cut spending in the 2020\/21 budget by \u00a3100m relative to what it would otherwise have available to spend; it can borrow \u00a3100m and repay this (with interest) in future years; or it can use resources built up in the Scotland Reserve. But if the Scotland Reserve is effectively empty, the Scottish Government will only have two of these three options available to it.<\/p>\n\n\n\n

It is presently unclear what proportion of the Stage 1 Budget deal is funded through underspends, and what proportion is funded through drawing down on the Scotland Reserve.<\/p>\n\n\n\n

Conclusions<\/strong><\/h2>\n\n\n\n

Parliamentary scrutiny of the Budget provides MSPs with an opportunity to influence the government\u2019s tax and spending plans. In this respect, some will welcome the Stage 1 Budget deal as a positive example of parliamentary scrutiny in action.<\/p>\n\n\n\n

On the other hand, the fact that the Stage 1 Budget is over \u00a3100m higher than the Draft Budget that parliament\u2019s committees only recently scrutinised might also seem odd to some.<\/p>\n\n\n\n

Whilst there is clearly a negotiating advantage in the government holding back some monies as part of their tactics to get the Budget Bill through, one can see MSPs from now on assuming that \u00a3100 million is a useful ballpark for the amount the government may have ready to hand to push through a deal.<\/p>\n\n\n\n

Finally, it will be interesting to see where the money not spent in 2017\/18 has come from. We know where the government has agreed to allocate this new funding \u2013 i.e. local government \u2013 but which portfolios have seen their spending in 2017\/18 lower than anticipated?<\/p>\n\n\n\n

First published by Fraser of Allander Institute on its website<\/a><\/em><\/p>\n\n\n\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

‘Whilst there is clearly a negotiating advantage in the government holding back some monies as part of their tactics to get the Budget Bill through, one can see MSPs from now on assuming that \u00a3100 million is a useful ballpark for the amount the government may have ready to hand to push through a deal’.<\/p>\n","protected":false},"author":146,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[319],"tags":[41,36],"class_list":["post-6415","post","type-post","status-publish","format-standard","hentry","category-economy","tag-fiscal-framework","tag-scottish-government"],"_links":{"self":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/6415","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/users\/146"}],"replies":[{"embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/comments?post=6415"}],"version-history":[{"count":1,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/6415\/revisions"}],"predecessor-version":[{"id":17717,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/6415\/revisions\/17717"}],"wp:attachment":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/media?parent=6415"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/categories?post=6415"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/tags?post=6415"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}