COVID-19 Barnett funding: £7.2 billion for Scotland now guaranteed

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Over the course of the pandemic, SPICe blogs have tracked the sums of money received by the Scottish Government via Barnett consequentials.  It has been a constantly evolving position – and continues to be. 

As explained in previous blogs (30 April, 5 May, 21 May, 29 May and 9 July), Barnett consequentials result from decisions made by the UK government to spend money in devolved areas, such as health and local government.  Where the UK government spends money in these areas, the Scottish Government receives a population-based share which it can spend as it chooses.

The rapidly changing position made for uncertainty in budget planning in the initial stages of the pandemic

In the early stages of the pandemic, as the UK Government’s response package rapidly evolved, the Scottish Government was regularly being notified of additional Barnett consequentials that it was due as a result of the UK government’s spending decisions.  Although the additional sums of money have been welcomed by the Scottish Government, the Scottish Government also argued for greater certainty over additional allocations to allow it to plan its own response package more effectively. 

There were particular concerns initially over some Barnett consequentials that were allocated, but then subsequently withdrawn when the UK government decided to fund some decisions by moving money within existing budgets, rather than using additional funding.  This change in funding approach meant that Barnett consequentials in relation to some UK government announcements were no longer due, as Barnetts only result when additional spending is undertaken by the UK government, not if funds are re-directed from elsewhere.  The changed approach for certain funding decisions meant that the Scottish Government did not receive £70 million in Barnett consequentials that it had been expecting.

The UK government responded by providing a minimum guaranteed level of funding

To provide greater certainty over budget planning, the UK government agreed an “unprecedented upfront guarantee” for coronavirus-related Barnett funding.  At the end of July, the UK government guaranteed a total of £6.5 billion additional resource funding for Scotland for 2020-21.  Within this total, around £800 million was not linked to specific UK announcements at that time, so allowing flexibility for the UK government to make further funding announcements without impacting on the guaranteed total.  The aim was to “give the devolved administrations the certainty and financial flexibility to plan for the months ahead”, by giving them a guaranteed total, rather than them having to wait on individual announcements.

This guaranteed funding level has also been subject to change

However, in a reflection of how rapidly the situation is evolving, this guaranteed minimum funding has already been revised (although, importantly, it can only be revised upwards).  Introducing further support measures on 9 October 2020, the Chancellor of the Exchequer announced that this would also be accompanied by an uplift to the guaranteed amounts for devolved administrations.  For Scotland, this means that the guaranteed additional resource funding now stands at £7.2 billion for 2020-21.  This represents a significant uplift to the Scottish Government’s original 2020-21 resource budget of around £35 billion and is equivalent to an increase of over 20%.

Details on the allocation of some Barnett consequentials have been published, but gaps remain

The Scottish Government has published two budget revisions which have given some detail on how the additional funding is to be used.  The Summer Budget Revision allocated £3.6 billion of the Barnett consequentials and the Autumn Budget Revision allocated a further £2.4 billion, so a total of £6 billion has been allocated so far. 

At the time of the Autumn Budget Revision, when the guaranteed funding stood at £6.5 billion, this meant that £537 million was not accounted for, although the Cabinet Secretary for Finance said in a statement to Parliament on the Autumn Budget Revision that:

“Although they are not formally allocated here, the remaining consequentials are already being redeployed against existing, high-priority commitments and there is no available headroom.”

The Cabinet Secretary was pressed for further detail on the planned use of the remaining consequentials in an evidence session with the Finance and Constitution Committee on 7 October  but said that the remaining consequentials would be allocated at the Spring Budget Revision, which is due in February 2021.

However, with the guarantee now increased to £7.2 billion, the Scottish Government now has £1.2 billion remaining to be allocated and an additional £700 million over and above what was available at the time of the Autumn Budget Revision.  The Scottish Government has already announced a £40 million package to support businesses forced to close as a result of new restrictions, but is facing calls for more extensive support for this sector and is likely to face further calls for clarity over how the additional sums will be allocated.         

Nicola Hudson, Senior Analyst, Financial Scrutiny Unit