Budget Bill Stage 1 – Deal!

The Budget Bill for next year was debated at Holyrood yesterday. Derek Mackay, the Cabinet Secretary for Finance and Constitution provided details of the deal that had been agreed between the SNP and Scottish Green Party in his opening statement.

So what has been agreed?

The headline spending changes from the Draft Budget proposal set out in December are as follows:

  • The Cabinet Secretary announced an additional funding of £10.5m to support inter-island ferry services in 2018-19.
  • He also announced an additional £159.5m for Local Government resource spending, split over 2017-18 and 2018-19.
  • A minimum 3 per cent increase for public sector workers who earn £36,500 or less (up from £30,000 as proposed in the Draft Budget). It is not clear from the statement whether this will be funded with additional resource. It is also worth noting that that pay settlements are negotiated separately by large parts of the public sector – for example, Local Government.
  • A year on year increase in the % of the capital Budget spent on low carbon projects beyond this year’s budget.

So how will these spending changes be funded?

The Cabinet Secretary provided some detail on this.

He plans to raise additional income tax receipts from changes to his previous higher rate threshold tax plans. In the Draft Budget proposals, a higher rate of tax was set at 41% on earnings between £44,273 and £150,000. This higher rate threshold will now start on earnings above £43,430, and will bring in a forecast additional revenue of £55m relative to the plans in the Draft Budget.

In terms of the remaining new spending commitments, the Cabinet Secretary said in his speech that this would be funded from a combination of “funding available in the Scotland Reserve and a level of additional underspend from 2017-18”.

It is not yet clear how much of the additional funding will derive from additional underspend from 2017-18 and how much from tax surpluses built up in the Scotland Reserve.

On underspend, the Draft Budget plans already build in £158m in underspends from 2017-18. This development means that there are additional underspends beyond the £158m already allocated. Depending on the extent of any additional underspends, this suggests that the current year’s budget may have been quite significantly underspent.

Although details are still not clear, by utilising his Reserve of tax surpluses, the Cabinet Secretary is potentially removing a future tool to smooth any shortfalls in tax receipts.

Next steps

The Budget Bill now moves to the Finance Committee on Wednesday 7 February for consideration, where additional details on the funding package detailed above will likely be provided.  The Bill then returns to the Chamber for Stage 3 after February recess.

The Budget Bill can only move to Stage 3 if the Parliament agrees the income tax rates and bands which underpin the Budget Bill in advance. This takes the form of a vote on a Scottish rate resolution, which will likely take place the day before the Stage 3 debate.

With a deal now secured, it looks like these votes will be a formality.

However questions remain about the detail of how this additional spending  package will be funded.

Ross Burnside, Senior Researcher, Financial Scrutiny Unit 

We will publish three blogs on the Budget on SPICe Spotlight today – this blog, a blog on income tax, and a blog looking at the local government settlement.