Budget process 2020-21: We have a date!

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The Cabinet Secretary for Finance has announced that the Scottish Government will publish its budget for 2020-21 on 6 February 2020, and introduce the Budget Bill on the same day.

As many readers will know, the Scottish Budget for the next financial year was initially set for 12 December 2019, but was postponed when the UK General Election was called for the same day.

An unusual budgetary year

Under the terms agreed by the Scottish Parliament and Government, in a normal year the Scottish budget process begins when the Scottish Budget is published around 3 weeks after the UK Government publishes its budget. The SPICe briefing on the Budget process in light of the new Scotland Act 2016 powers lays out the typical parliamentary budget process.

SPICe_Finance_The classics_Timeline

As the infographic above shows, publication of the Scottish Government’s Budget Bill would normally happen in December. The Scottish Government’s Budget publication commences a period of parliamentary scrutiny by committees and the Parliament, and negotiations between the political parties before Parliament votes on the final tax and spend proposals.

But this year has thrown up an unusual set of circumstances, with implications for the timings of the Scottish budget bill, and subsequent parliamentary scrutiny.

Originally set for 6 November last year, we now know that the UK Budget will not be announced until 11 March 2020.

This has presented the Scottish Government with a problem in setting out its own budget plans.

What’s the problem?

The Scottish budget is made up of three main parts:

  • the Block Grant from the UK Government, calculated by the Barnett formula
  • the UK Block Grant Adjustments (BGAs)
  • forecasts for income raised from Scottish taxes.

For 2020-21 we have the UK block grant numbers from the UK Spending Round from September last year.  What we don’t have are any Barnett consequential changes for 2020-21 that might result from the UK Budget planned for March. We also don’t have UK plans for devolved taxes and social security, so we don’t have the latest UK BGAs.  The forecasts for income raised from Scottish taxes as well as social security spend are produced by the Scottish Fiscal Commission (SFC), and will now be published alongside the Budget when it is published on 6 February.

So, the final size of the Scottish spending envelope is not known until after the UK budget sets the final allocation and makes the necessary block grant adjustments to Scotland’s finances.

There will be BGAs in the Scottish Budget presented in February, but it is still not clear which set of forecasts these will be based on, and whether these forecasts will subsequently be updated. Writing to the Cabinet Secretary for Finance on 14 January, Convener of the Finance and Constitution Committee, Bruce Crawford MSP stated:

“it is essential that there is transparency about how the Fiscal Framework will operate in relation to 2020-21. As such, it would be helpful if you could clarify which set of forecasts will inform the Block Grant Adjustments (for taxes and social security spending), and whether these forecasts will be updated once the UK budget is published or whether they will be ‘locked-in’ until the relevant outturn data is available”.

The risks to the Scottish budget from agreeing plans in advance of the UK Budget are discussed in more detail in the recent Fraser of Allander blog. These centre on the risks to changes to the block grant, changes to the block grant adjustment, and changes to UK Government tax policies which might lead the Scottish Government to adapt its own income tax policy.

Additionally, there is also a need to provide certainty about funding to Scottish public bodies for the next financial year. In the case of local government, under the Local Government Finance Act 1992, there is a requirement on local authorities to set their council tax for the next year before 11 March.  It is expected that the Local Government finance settlement will also be published on 6 February.

By being published so close to the start of the new financial year, the timing of the UK budget gives very little scope for the Scottish Parliament to wait until after the UK budget to scrutinise and pass a Budget Bill and Scottish income tax rate resolution in time for the new financial year.

In revealing the budget date, the Cabinet Secretary has opted to publish his budget before the UK budget, stating in a letter to the Finance and Constitution Committee that any changes arising from the UK budget can be handled via an in-year budget revision.

What does this mean for the Parliamentary budget scrutiny process?

The Finance and Constitution Committee has now proposed a parliamentary scrutiny process for Budget 2020-21 as follows.

SPICe_Blog_202001_ScottishBudget_Timeline

If the spending totals authorised in the Budget Bill depend on a particular proposal for rates and bands of Scottish income tax for the next financial year, a motion for a Scottish Rate Resolution (SRR) must be passed before Stage 3 of the Budget Bill begins. If the Cabinet Secretary feels he needs to respond to the UK policy position on income tax after the Budget Bill is passed, he can propose that the SRR is cancelled and propose a new one, provided he does so before the start of the tax year (ie before 6 April). If he feels that anything in the UK Budget has unexpected budgetary implications for Scotland, this can be handled via an in-year budget revision (subordinate legislation subject to scrutiny by the affirmative procedure in the Scottish Parliament).

Reduced parliamentary scrutiny of Budget 2020-21

All of this adds up to a much reduced period of parliamentary scrutiny of the Scottish Government’s tax and spending plans for 2020-21.

One of the purposes of the new budget process was to shift the focus to pre-budget scrutiny – i.e. before the Government publishes its budget.  Given this, the delay to the Scottish Budget publication may not have an overly significant impact on subject committee scrutiny. All subject committees have published pre-budget reports or letters.

However, the impact on the Finance and Constitution Committee, which generally holds a number of evidence sessions and produces a report on the Budget document, will be more significant.

Ross Burnside, Senior Researcher, Financial Scrutiny Unit