On 27 May 2020, the Scottish Government published Summer Budget Revision 2020-21. Budget revisions usually just come in Autumn and Spring, but this is an additional one specifically to address the substantial budgetary changes that are taking place due to coronavirus (COVID-19). So, this gives a snapshot of the spending plans and how these are being funded as at 15 May 2020.
It is important to note that this represents a snapshot at a point in time in a fast-changing environment. The publication of the budget revision document allows for Parliamentary scrutiny of the plans which are considered by the Finance and Constitution Committee and then voted by Parliament. However, the need to set out plans at a single point in time also means that – in such a fast-changing environment – they quickly become out-of-date. So, the Scottish Government’s spending plans will have evolved since the 15 May cut off date of the Summer budget revision, as will the amount of funds they are receiving from the UK Government through Barnett consequentials (see below). Further Budget Revisions for the current financial year will be presented to Parliament in the Autumn and Spring as usual.
How much money is the Scottish Government allocating?
The Scottish Government is allocating £4 billion to its COVID-19 response. Almost £1 billion of this (£972 million) is not direct spending, but is income foregone through not increasing non-domestic rates as intended and by offering reliefs to certain sectors. A further £255 million is being met by re-prioritising spend from budgets that had been set before the pandemic. Adjusting for these two factors mean that the net increase is £2.8 billion. This is being allocated as set out below.
Within these totals, some of the largest areas of planned spend are identified below. These are areas where planned additional spend exceeds £50 million in 2020-21. Note that the cost of non-domestic rates relief is shown below as “spend”, although it is essentially income foregone. However, because the Scottish Government guarantees the combined General Resource Grant and Non-Domestic Rates Income figure to local government, there has been a corresponding increase in General Revenue Grant support from the Scottish Government to offset the reduced Non-Domestic Rates Income.
Support to business is – by a long margin – the largest area of planned spending, accounting for £2.3 billion – well over half of gross planned spending. Health and social care is the next biggest area of planned spending at £620 million in total. Health interventions and additional social care spending account for just over half of this total, with many smaller budget lines accounting for the remainder (such as £77 million for PPE, £35 million for community hubs and £27 million for the Louisa Jordan hospital). The budget revision notes that the distribution of £84 million of the £620 million allocated to health and social care remains to be determined.
As noted above, this is a constantly evolving picture. For example, the pivotal enterprises resilience fund has increased to £120 million since the Summer budget revision cut off date of 15 May. The estimated cost of non-domestic rates relief has also been revised downwards and now stands at £875 million. In this case, the difference of £97 million has been applied to business support grants so that the overall level of support to businesses remains unchanged.
How is the spending being funded?
The main source of funding for this additional spend is Barnett consequentials, resulting from additional spending by the UK Government in devolved areas. Previous SPICe blogs have explored the evolving picture in relation to Barnett consequentials. Again, there are challenges in trying to capture the full picture at a single point in time. At the cut off point for the Summer budget revisions (15 May), confirmed Barnett consequentials stood at £3.6 billion. They now stand at just over £3.7 billion and are more than likely to change again. Importantly, the Barnett total could move both up or down. If the UK Government decides to meet some spending commitments from existing budgets, or if the UK Government revises downwards its estimates of the costs of its spending commitments, this would result in a downward adjustment to the Barnett consequentials. So there are risks for the Scottish Government in allocating Barnett consequentials to the full. If the Scottish Government ends up getting less than anticipated, it will need to meet any shortfall through re-prioritising existing spending plans or by making use of reserves.
In addition to using Barnetts, the Scottish Government is also planning to make use of £66 million of reserves. The Summer budget revision notes that after accounting for all changes since the Budget, a total of £165 million remains in the reserve.
To stress again, the Summer budget revision represents a snapshot at a point in time, but provides a useful insight into the Scottish Government’s COVID-19 response. As highlighted in previous SPICe blogs on the Barnett consequentials, the Scottish Government’s spending plans are broadly similar to those of the UK Government. A final point to note is that this only relates to spending by the Scottish Government, so does not include spending by the UK Government on UK-wide schemes in response to the pandemic – such as the furlough scheme and additional spending on Universal Credit.
Nicola Hudson, Senior Analyst, Financial Scrutiny Unit