Budget 2021-22 – a tripartite deal

Reading Time: 3 minutes

As the Budget Bill passed the final parliamentary hurdle yesterday evening by 70 votes to 53, it did so via a deal not just with the Scottish Green Party (as has been the norm this Parliament), but also, for the first time this parliamentary session, with the Scottish Liberal Democrats.

There is no doubt the current circumstances focused minds in coming to an agreement, but there was also undoubtedly far more money available than is normally the case for the Cabinet Secretary to close a deal.

Since the Scottish Government’s budget plans for the next financial year were introduced on 28 January 2021, the Scottish Government has received confirmation of an additional £2.3 billion to be added to the spending envelope for the next year. The UK Budget last week confirmed £1.2 billion of new Barnett consequentials for the Scottish Budget in 2021-22. This was on top of the £1.1 billion recently added to the 2021-22 spending envelope, as carry over from 2020-21.

The Scottish Government had already factored in £500 million in its budget plans, on the assumption that Barnett consequentials would be forthcoming (a conservative assumption as things turned out). And the Cabinet Secretary indicated last month where she intends to allocate the £1.1 billion carried over from 2020-21. With £1.6 billion allocated, this left some £700 million available for allocation in next year’s Budget, and ample scope for deals with other political parties.

So, what has been agreed?

The deal with the Scottish Green Party includes the following measures:

  • Pandemic Support Payments of £130 to households receiving Council Tax Reduction and two payments of £100 to families of children qualifying for free school meals. This is expected to cost £100m.
  • The phased introduction of free school meals to all primary school children by August 2022. £49.75 million has been allocated to this policy in 2021-22.
  • An £800 pay rise for public sector workers earning up to £25,000 (the initial Budget proposals included a £750 pay rise), and a 2% increase for those earning over £25,000 up to £40,000 (the original Budget proposals included a 1% increase for public sector workers earning below £80,000). The SFC state that this will cost around £100 million.
  • Extending free bus travel to under 22s, with £17 million budgeted in 2021-22 for making as much progress in delivery of this policy “as possible”.
  • £40 million to support the “green recovery”, including a further £15 million for active travel, £10 million for energy efficiency, £10 million for biodiversity and £5 million for agri-environmental measures.

On pay, as mentioned above, the SFC state that this deal is expected to cost £100 million, but noted that

“the final cost will depend on the details of the pay arrangements reached with different workforces. The Scottish Government plan to revise the Budget during the year if required to allocate additional funding for respective pay deals. The cost and funding arrangements should be monitored during the financial year as part of the wider monitoring of the Budget.”

It is worth noting that large parts of the public sector, such as local government and the NHS, are not directly covered by the Scottish Government’s pay policy and pay is determined separately for these groups, although often in line with the Scottish Government’s pay policy.

The deal with the Scottish Liberal Democrats includes:

  • An extra £120 million for Mental Health services (announced in February).
  • £60 million for Education to facilitate lower class sizes (this again was announced in February and has been allocated to the Education and Skills portfolio, but will ultimately go through Local Authorities).
  • Support further education catch-up efforts for children and young people from disadvantaged backgrounds with a £20 million Pupil Equity Fund premium.
  • £15 million to pay for skills training, upskilling and business support in the North East in recognition of the twin impacts of the pandemic and the downturn in the oil and gas sector.
  • The agreement also allows for the £90 million allocated to Local Authorities for the Council Tax freeze to be included in the Local Government baseline funding.  

As you were with taxation

There will be no tax changes from the plans set out in the 28 January Budget proposals.

The UK Budget last week signalled that the English Stamp Duty holiday will continue until June 2021. This means that zero Stamp Duty will be paid on residential property purchases up to £500,000 in England. The Scottish Conservatives called for a similar extension of the Scottish equivalent LBTT holiday (which sees zero LBTT paid on residential properties up to £250,000).

The Scottish Government, however, has opted not to replicate the UK Government policy. During Stage 2 evidence at the Finance and Constitution Committee on 8 March, the Cabinet Secretary argued that the Scottish property market has adequately recovered, and that other tax areas (for example the extension of the NDR relief) were a higher priority (and more generous in Scotland than south of the border).

What happens next?

Now that the Budget Bill has been agreed, the Bill heads for Royal Assent in time for the new fiscal year in April.

Given the fast-changing events of the last year, it would be no surprise if this spending envelope changes substantially in-year. Watch this space.

Ross Burnside, Senior Researcher, Financial Scrutiny Unit