Budget Bill Stage 1 – a deal, but questions over how it will be funded

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Budget Bill stage 1 deliberations in the Chamber this afternoon were preceded by an announcement that a Budget deal had been struck between the Scottish Government and the Green Party.

Green MSP votes for the Budget should ensure that these amended Government spending plans for 2020-21 receive the necessary parliamentary support to pass into law.

What has been agreed?

The agreement will deliver an additional £123 million of resource and £50 million of capital investment. This will increase the initial budget plans for day-to-day public spending by 0.4% and will increase the budget for infrastructure provision by 0.9%. Specific commitments are as follows:

  • an increase of £95 million of resource to support local government
  • an additional £13 million resource and £5 million capital to support police services
  • £15 million to support preparations to introduce new concessionary free bus travel for young people aged 18 and under
  • a further £45 million capital to support the Government’s net-zero ambitions, including £15 million for local government to support further investment in cycling, walking and safer routes, £25m for investment in local energy efficiency projects and £5m to explore rail enhancements.

Much of the media coverage of the deal has centred on the provision of free bus travel for those 18 and under. However, it is important to note that this is an “in principle commitment…..subject to the completion of the necessary preparations, including research and due diligence”. The aim is to have this policy “if possible” in place by January 2021.

How will the additional spending be funded?

When delivering the Budget to Parliament on 6 February 2020, the Cabinet Secretary for Finance stated that

“In allocating those resources, we have used every fiscal lever that we have to the fullest extent. Every penny is accounted for […] Any party in the chamber that seeks spending increases, or tax cuts, or both, as some parties do, will need to be clear with the Scottish people about not just what it wants but how it will be paid for.”

So how will these additional funding commitments totalling £173 million (£123 million Resource, £50 million Capital) be funded?

The letter outlining the terms of the deal provides only partial answers to this question. £50 million of these changes will be funded from a “reprofiling of the distribution of Non-Domestic Rate income (NDRI) over the period to 2023-24” – for more detail on this see the local government section below. £25 million will be funded from “a revised forecast of underspend from 2019-20”.

The remaining £98 million is to be funded from “anticipated income next year from the Fossil Fuel Levy, and revised assumptions about UK Budget consequentials”. No split or further detail is provided.

It is not clear on what basis the revised assumptions about UK consequentials have been made. The Budget published in February already built in assumptions about UK Government consequentials – £1.2 billion from the September Spending Round and an additional £468 million based on a “prudent assessment” of the Conservative Party 2019 election manifesto.

It is not clear whether the Scottish Government has received private assurances from UK Treasury that this money (which will be laid out in law when the Budget Bill 2020-21 is passed) will be forthcoming, and if there is an alternative plan if this resource is not forthcoming in the UK Budget planned for just under two weeks’ time.

The fossil fuel levy funding is possibly even more uncertain given that there was no mention at all of this levy or policy in the Scottish Budget documentation.

What’s happening with local government?

As we noted in our initial budget blog, local government has dominated parliamentary debate in recent years, and so it has proved again.  The deal agreed includes an additional £95 million in local government revenue funding – this is made up of £45 million in General Revenue Grant and £50 million in Non-Domestic Rates Income (NDRI).

NDRI is increased by the Government changing its approach to management of the “Non-Domestic Rating Account.”  In the Budget, the Government stated that it had allocated “£100 million more in 2020‑21 than is forecast to be collected in the pool.”  This is from forecast growth in financial years 2021-22 and 2022-23.

Therefore, to fund this element of the budget deal, the Government is essentially bringing forward an additional £50 million (on top of the £100 million already proposed) from forecast increases in future NDRI to fund the 2020-21 budget.  The Government states that the account will be brought back into balance in 2022-23.

Alongside this revenue uplift, there is also an additional £15 million specific capital grant for local authority investment in active travel.  These changes mean that the headline numbers in the Budget now look like this:

  • The combined general revenue grant + non-domestic rates income figure (i.e. the amount of money to deliver services over which local authorities have control) now increases in real terms in 2020-21, by 0.8%, or by £78.3 million.
  • Once specific, ring fenced resource grants are included, then the combined figure for the resource budget now increases by 2.7% in real terms, or by £267.9 million.
  • The total capital budget still sees a decrease in real terms this year, now at 29.5%, or £320.1 million, mostly driven by a decrease in general support for capital.

COSLA calculates its headline figures a little differently, as discussed in our detailed briefing on the local government budget.  The £95 million extra provided was in direct response to COSLA’s calculation of a £95 million “cash cut to the core”, which was produced by taking the total revenue cash increase of £495 million from local government finance circulars, and then removing what it called “£590 million worth of Scottish Government commitments”.

What happens next?

The Budget Process Review Group stated that “any changes to the Scottish Government’s published spending proposals during the budget process must be dealt with through amendments to the Budget Bill at Stage 2 and Stage 3.”

As such, we can expect these changes to be made on the face of the Bill next week when Parliament considers the Bill at Stage 2 (on Wednesday in Finance and Constitution Committee) and Stage 3 on Thursday in the Chamber.

Ross Burnside and Allan Campbell, Financial Scrutiny Unit