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A busy budgetary period ahead

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This blog was last update on Thursday 28 January 2021.

The Scottish Government publishes its Budget proposals for 2021-22 this week, a document that kick-starts an intense period of parliamentary scrutiny.

For the second year in a row, exceptional circumstances have resulted in the Budget being published later than normal (it’s usually published in December) meaning that the period available for Committee scrutiny is squeezed.

Last year, the timing of the UK election in December pushed the UK Budget from Autumn to March (and resulted in a later Scottish Budget). This year, the unprecedented challenges brought by the COVID-19 pandemic, as well as the end of the Brexit transition period on 31 December have been cited as reasons for the UK and Scottish budgets being moved from their normal Autumn and December timeslots

What can we expect to see this week?

When the Cabinet Secretary for Finance delivers the Budget proposals on Thursday, it is likely to be dominated by the ongoing COVID response. For the current year (2020-21) £8.6 billion has been added to the Budget Bill Parliament passed pre-pandemic in February 2020. We also know that the Scottish Budget has been allocated an additional £1.3 billion for next year (2021-22).

In light of the new variant, however, and the resulting lockdown measures that its spread has caused, this year’s and next year’s COVID allocations are likely to increase further. While the details of these increases might not be known until the UK Budget is delivered in early March, the Cabinet Secretary may signpost priorities for COVID interventions in her statement.

Expect to also see mention of replacement EU funds now being delivered by the UK rather than the Scottish budget, and the resultant constitutional (and budgetary) issues this raises. A SPICe blog considering what will replace EU structural funds in Scotland after Brexit looks at this issue in greater detail.

The Scottish Government will also outline its tax plans for 2021-22. In the midst of a pandemic and with no sight of the UK plans (which impact Scotland via the Block Grant Adjustment (BGA)) it might be that any changes to previous year’s rates and bands are fairly limited.

One taxation area which might have more focus of attention is Non-Domestic Rates, and the extent to which reliefs from this business tax will continue into next year. The Scottish Government will likely signal an intention to continue with reliefs, but in doing so may well state that without sight of UK intentions and subsequent Barnett consequentials, as well as limited borrowing powers, room for manoeuvre is constrained.

Indeed, what the Scottish Government considers to be limited borrowing powers combined with the requirement to balance the Budget, will likely be mentioned as a policy constraint in the Medium Term Financial Strategy (MTFS), which is due to be published alongside the Scottish Budget on Thursday. The MTFS, normally published in May was delayed in 2020 due to the pandemic, and presents outlook scenarios for public spending over the next five years.  

While the response to the COVID-19 pandemic is the more immediate emergency that the Budget will seek to respond to, it was less than two years ago that Nicola Sturgeon declared that we faced a climate emergency. The Scottish Government have set ambitious targets to reduce greenhouse gas emissions to net zero by 2045, targets which will require significant action over the next few years if they are to be achieved.

In terms of day to day spending, as in recent years there will likely be a focus on the resources for local authorities and how their allocations are divided up.  Ahead of the Budget, COSLA published Respect our communities: protect our funding, which argues that “Local Government must be protected”. It makes a number of asks of the Scottish Government which will likely be echoed in the parliamentary Chamber and Committees in the coming weeks. These centre on COVID allocations, ensuring policy commitments are fully funded and not capping Council tax increases, which COSLA believe local authorities should be free to set at a rate suitable for local circumstances.

What is the timetable for Parliamentary scrutiny?

As with everything in recent times, there is a level of uncertainty as to the precise timings of the upcoming Budget Bill and Scottish Rate Resolution (income tax) scrutiny process.

The UK Budget is due to be published on 3 March, but the three stages of the Scottish Budget Bill process have yet to be formally timetabled by the Parliamentary Bureau. On 27 January, the Finance and Constitution Committee wrote to the Cabinet Secretary for Finance and proposed the following timetable for the Budget Bill stages:

  • Stage 1 – 25 February
  • Stage 2 – 8 March
  • Stage 3 – 9 March

No date has yet been proposed by the Scottish Government for bringing forward the Scottish Rate Resolution with income tax proposals, but that must be passed before Parliament can consider the Budget Bill at Stage 3.

In terms of SPICe work on the Budget, as with everything in this area, things are subject to change.  But broadly we will aim to publish:

  • A blog on the key issues in the Budget on 28 or 29 January.
  • Top level infographics and detailed budget spreadsheets on 29 January.
  • A detailed briefing on the Budget in the week of 1 February.
  • A detailed briefing on the local government settlement in the weeks of 1 or 8 February.

In the meantime check out our recent related blogs on the GDP deflator which will have implications for how the Budget measures inflation next year, as well as some analysis of how the pandemic has impacted on the measurement of the National Outcomes delivered by the Budget.

Ross Burnside, Senior Researcher, Financial Scrutiny Unit