A previous SPICe blog set out how much money the Scottish Government has received from the UK Government in relation to coronavirus (COVID-19) and how it plans to allocate these funds. Further blogs have considered whether the Barnett formula is working well under the unique circumstances of the pandemic, and how funding is being used to support businesses.
This blog provides an update on the funding received from the UK Government via the Barnett formula. Previous blogs provide context on the Barnett formula and how it operates, so this is not repeated here.
(Rapidly) moving goalposts
The funding available to the Scottish Government to support its response to the coronavirus pandemic is changing all the time as new schemes are announced by the UK Government. Depending on the nature of these new schemes and how they are funded, some will result in Barnett consequentials. As at 19 May 2020, the Scottish Government is expecting to receive £3,682 million in Barnett consequentials for 2020-21. A breakdown of this total according to the UK spending area from which they derive is shown below.
A huge challenge for both the UK and Scottish Governments is the speed at which funding decisions need to be made to ensure that the money gets to public services, businesses and individuals as quickly as possible. The result of this rapidly evolving picture is that Barnett consequentials are, in some cases, based on estimated spend at UK level and so may be revised once more accurate spending figures are available.
For example, Barnett consequentials related to UK business support measures are based on the UK Government’s estimates of how much the business support schemes will cost. If the actual costs turn out to be lower, then Barnett consequentials for the Scottish Government (and other devolved administrations) will also be reduced.
Similarly, the UK Government may decide to reallocate existing budgets to meet the costs of some COVID-19 related expenditure. If existing budgets are used instead of allocating new money, then there are no Barnetts. As an example, on 2 May the UK Government announced planned spending of £617 million on a new discretionary business grant scheme. Initially, this had been expected to result in Barnett consequentials of £60 million. However, the UK Government has now indicated that this will now be funded from existing COVID-19 budget allocations – which means there will be no additional Barnetts associated with this announcement.
It is a constantly evolving picture and further revisions – both upward or downward – to Barnett consequentials could happen further into the financial year.
For the Scottish Government, this presents an additional challenge in determining what resources are available to it for its own COVID-19 response. The Scottish Government cannot borrow to fund any additional resource expenditure related to COVID-19, so if it wants to allocate resources over and above what has been received in Barnett consequentials, it will have to reallocate from existing budgets, or use its limited reserves.
Policy choices – in theory, if not in practice
As noted in previous blogs, the Scottish Government can allocate the Barnett consequentials as it chooses and is not obliged to spend them in the same areas as the UK Government. However, in practice, the Scottish Government spending plans have closely mirrored the UK Government spending plans. For example, in the largest area of spending – business support – the Scottish Government has received Barnett consequentials of £2,255 million and plans to spend £2,296 million on its own business support schemes (as at 19 May 2020). As well as committing to pass on all business-related consequentials to its own business schemes, the Scottish Government has also committed to passing on all health and local government consequentials to similar spending areas in Scotland, resulting in very limited scope for policy divergence.
At the time of writing, the Scottish Government’s known plans for its coronavirus response measures total £3,755 million as set out below:
On the basis of the current announcements, planned spending by the Scottish Government exceeds the Barnett consequentials. However, as outlined above, it is quite possible that the Barnett consequentials total will change further (and that Scottish Government spending plans will evolve). In any event, if planned spending by the Scottish Government exceeds Barnett consequentials, then the Scottish Government will need to find money from elsewhere in the budget or use its reserves.
Full plans will be set out in the Scottish Government’s Summer Budget Revision which is due to be published by the end of May. This will set out the full detail of any plans to move money from other budgets, or to make use of reserves. This will be explored in future SPICe blogs.
Nicola Hudson, Senior Analyst, Financial Scrutiny Unit