COVID-19 Barnett consequentials guarantee up again: more certainty, less clarity

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The Scottish Government has received substantial sums through Barnett consequentials as a result of UK Government spending on its coronavirus response package.  Previous SPICe blogs have tracked the additions to the Scottish Government’s budget and the Scottish Government’s plans for using these additional funds.  In recent days, with the extension of the UK Government’s support package, the guaranteed sum for Scotland has been increased by a further £1 billion and now stands at £8.2 billion.

The new “guaranteed funding” approach presents scrutiny challenges

As explained in the most recent SPICe blog on COVID-19 Barnett consequentials, the UK government is now taking the approach of guaranteeing a total sum for Barnett consequentials.  This contrasts with the normal approach (which was followed at the outset of the pandemic), where the Scottish Government would receive Barnett consequentials linked to individual UK government spending announcements.  The normal “drip feed” approach left the Scottish Government with little certainty over the total sums of money that would be at its disposal for its own response package.

While the new approach allows the Scottish Government to plan its own response package with greater certainty, the “guaranteed sum” approach does have some downsides in terms of scrutinising the Barnett consequentials.  It means that it is not possible to be certain about which UK government announcements are generating Barnett consequentials and what sums are being allocated to Scotland as a result.    

For example, there have been a number of recent announcements by the UK government in respect of local government funding and holiday food programmes.  However, it is impossible to identify what Barnett consequentials result from these specific announcements.  Barnett calculations are going on behind the scenes at HM Treasury and are unlikely to see the light of day until the next UK budget.

This makes it difficult to scrutinise in any detail the money flowing to the Scottish Government by way of Barnett consequentials, but also impossible now to establish whether the Scottish Government is fulfilling commitments it has made.  For example, the Scottish Government has committed to passing on all health-related Barnett consequentials to the Scottish Government’s health budget, but it is not possible to identify how much of the £8.2 billion guarantee relates to UK government health spending.

Scrutiny of Scottish Government spending plans is also challenging

Scrutinising the Scottish Government’s planned use of the additional sums is also a challenge in such a fast-changing fiscal environment.  The Scottish Government has published two revisions to the 2020-21 budget it set out in February – a Summer Budget Revision and an Autumn Budget Revision.  These provide some information on the planned use of the Barnett consequentials, showing the allocation of £6 billion of the £8.2 billion total.  The chart below sets out how individual portfolio budgets have changed as a result of these two budget revisions.

In addition to the £5.2 billion identified in the chart above, the Scottish Government has used £972 million of Barnett consequentials to compensate local authorities for the loss of non-domestic rates income.  This is not included in the local government portfolio increase shown above as it does not affect the overall total available for local government; it just compensates local authorities for the loss of income they would otherwise have received through non-domestic rates.  The budget revisions also allocate some other minor sources of funding (for example, non-Covid Barnett consequentials and Reserve drawdown), which is why the portfolio additions do not sum to the £6 billion of Barnett consequentials.  However, the vast majority of the funding allocated through the budget revisions (over 95%) is Barnett consequentials resulting from the coronavirus response package. 

In addition, the Autumn Budget revision included a number of transfers between portfolio areas (which is common practice in budget revisions).  For example, some health funding has been transferred to local government in respect of social care and some social security funding has been transferred to local government in respect of the Scottish Welfare Fund and Discretionary Housing Payments.  The chart shows the net position for portfolio areas and this is why the change in the social security portfolio budget is negative, as transfers to other portfolio areas have exceeded any additions to the social security budget.

Normal fiscal scrutiny procedures can’t keep pace

The inevitably fast-changing nature of the coronavirus response package means that the normal fiscal scrutiny processes aren’t frequent enough to keep pace with the changes in the budget.  The Scottish Government’s resource budget for the current financial year has now increased by almost a quarter since the budget was set, back in February 2020.  The two budget revisions have provided some information on the planned use of the extra funds, but the plans for more than £2 billion of the budget remain unclear, which presents a challenge for effective scrutiny. 

If scrutiny is only possible after the money has been allocated – or indeed spent – then it can only have limited effect.

Nicola Hudson, Senior Analyst, Financial Scrutiny Unit