COVID-19 Barnett consequentials: filling in the gaps

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Throughout the course of the coronavirus pandemic, SPICe blogs have attempted to keep track of the money available to the Scottish Government to support its response package and how these funds are being used.  It has – understandably – been a fast-changing picture.

The most recent SPICe blog on this topic (COVID-19 Barnett consequentials guarantee up again: more certainty, less clarity) highlighted that there was a significant gap between the amount that had been guaranteed by the UK Government by way of Barnett consequentials (£8.2 billion) and the allocations that had been confirmed by the Scottish Government (£6 billion). 

Filling the gaps

The Scottish Government has now gone some way to addressing that gap and has provided further detail on its spending plans.  While these will not receive Parliamentary approval until the Spring Budget Revision that is expected in February 2021, the Cabinet Secretary for Finance wrote to the Finance and Constitution Committee on 8 December 2020 and made a statement to Parliament on 9 December 2020 setting out further plans.

The additional spending plans announced last week cover a further £1.8 billion of spending as set out below.

In her letter and statement, the Cabinet Secretary for Finance has highlighted a number of specific areas that will benefit from this additional support, which adds to the amounts already committed at the Summer Budget Revision and Autumn Budget Revision.  These additional allocations include:

  • Business and economy – an additional £570 million will provide further direct support for businesses including grants via the Strategic Framework, funding for local support packages, the newly self-employed hardship fund, digital support, Local Authority Discretionary Business Funding and remaining allocations from the £97 million support for culture and heritage.  New, targeted business support is also being made available within this funding package which includes new grant schemes for: hospitality, the events sector, live music and cultural venues, the arts, indoor football centres and the food and drink sector.  Money is being targeted at very specific sectors that have been hit hard by the pandemic, but have often fallen through the gaps of existing schemes. Details of new schemes have yet to be announced, but will include:
    • the wedding sector;
    • small brewers;
    • mobile close-contact services such as hairdressers;
    • travelling showpeople;
    • taxi drivers;
    • travel agents;
    • visitor attractions;
    • coach companies; and
    • tour operators.
  • Transport and other public bodies – a further £500 million will provide additional support for public transport and address income shortfalls in a number of public bodies, including Police Scotland, the Scottish Funding Council, Registers of Scotland and the Scottish Courts and Tribunals Service.
  • Local Government – a further £139 million will be provided to support local authorities, with £49 million of this to reflect additional costs and £90 million to compensate local authorities for loss of income from services.

In total, these commitments amount to a further £1.8 million allocated within the £8.2 billion total available.  This brings the total committed to £7.8 billion as at 14 December 2020, leaving £0.4 billion yet to be confirmed.

£330m has been retained for contingencies – not necessarily all COVID-related…

The Cabinet Secretary for Finance announced that she was keeping £330 million aside to allow flexibility to respond to further demand for support between now and the end of the financial year (end March 2021).  Specifically, she mentioned potential further demand-led support for business (via the Strategic Framework) and further demands for health funding.  The Cabinet Secretary emphasised the need to retain some flexibility in being able to respond to emerging demands, given the limited borrowing powers available to the Scottish Government:

“The nature of the Covid-19 outbreak and potential asks for further demand-led spend mean that it is crucial that that funding is held as contingency….with our limited borrowing powers, we do not have the flexibility to increase spend and therefore must manage demand-led expenditure risks within the consequentials provided.”

However, while the Barnetts to which these funds relate derive from UK Government’s coronavirus response package, the Cabinet Secretary also said that she was keeping open the option of using some of the remaining £330 million to support any additional funding requirements that might arise as a result of the end of the EU transition period.  In her Parliamentary statement she said:

“We must also consider any further funding requirements relating to the end of the European Union exit transition period on 31 December, with costs being wholly dependent on the final deal to be negotiated by the United Kingdom Government.”

This would seem at odds with previous commitments made by the Cabinet Secretary to allocate all of the COVID-19 Barnett consequentials to COVID-19 spending in Scotland.  When asked in a session of the Parliament’s Finance and Constitution Committee on 18 November 2020 about unallocated Barnett consequentials (which at that point stood at £2.2 billion), the Cabinet Secretary said:

“Every penny will be allocated on Covid spend”

And what about beyond March 2021?

The £8.2 billion COVID-19 Barnett consequentials all relate to the current financial year, which ends on 31 March 2021.  While the Scottish Government has some capacity to carry forward unspent funds to the next financial year, it would seem unlikely to want to do so given the many demands for COVID-related support and the commitments made to allocating COVID-related Barnetts in full.   

The UK Government’s November 2020 Spending Review included a further £1.3 billion for Scotland in COVID-related Barnett consequentials for 2021-22, which represents a substantial drop in funding when compared with the £8.2 billion provided in the current financial year.  However, it is quite possible that this figure might increase as the UK government becomes clearer about ongoing COVID-related support required in 2021-22.  The Spending Review included £21 billion of contingency funding set aside by the UK government, in recognition that the “trajectory of the pandemic remains uncertain” and to “allow the necessary support to be put in place and adapted through the course of next year”.  If any of this UK government spending is in devolved areas, then further COVID-related Barnett consequentials would be added to the 2021-22 Scottish budget total.

Watch this space.

Nicola Hudson, Senior Analyst, Financial Scrutiny Unit