Letter from the Cabinet Secretary for Finance and the Economy to the Convener of 22 February 2022
Following my letter to the Finance and Public Administration Committee dated 4 February 2022, I am writing to advise you on the final Scottish budget position as included in the UK Supplementary Estimates 2021-22 which was published today.
In advance of the final confirmation of the Supplementary Estimates allocations, HM Treasury Officials shared provisional figures for resource, capital and financial transactions in late January. Those figures were used for the 2021-22 Spring Budget Revision as outlined in my letter to the Committee dated 4 February 2022.
On the day when the Spring Budget Revision was finalised, £852 million of Barnett and other funding for 2021-22 was estimated. This comprised of £984 million resource (including £143 million transfer in relation to Test and Trace), offset by reductions in capital (£123 million) and Financial Transactions (£9 million) respectively. These figures were based on provisional figures as above and were provided before the UK Government announcement setting out funding in relation to rising energy costs.
The final position which was confirmed today decreased this figure to £814 million. This comprises £967 million of resource (£17 million reduction), offset by £123 million reduction to capital grant (no change) and £30 million reduction to Financial Transactions (£21 million of further reductions).
Therefore the £290 million of consequentials in relation to cost of living was not provided in addition to provisional allocations. HM Treasury did indicate that the £290 million funding can be carried forward outside of the Scotland Reserve to support the 2022-23 budget. Despite not receiving additional funding on top of indicative allocations, I set out plans on 10 February, confirming the £290 million will be carried over to be spent in 2022-23 on financial support to help address the rising cost of living.
The overall funding confirmed at Supplementary Estimate is detailed in Annexe A.
The financial management of the Scottish Budget in the latter months of the financial year has become increasingly challenging. I have therefore written, along with my colleagues in Northern Ireland and Wales, to the Chief Secretary to the Treasury to request that any funding confirmed in Supplementary Estimates can be managed across financial years, and I await his response.
My officials will be providing the Committee with a broader financial update today as part of the usual Spring Budget Revision 2021-22 process. This will provide further details on the changing nature of our funding positon and how this has been managed more broadly.
I will continue to update the Committee of any further changes to this position, and the Minister for Public Finance will discuss these matters further during Spring Budget Revision scrutiny on the 8 March.
I hope that the Committee finds this update helpful.
The UK Supplementary Estimates provides the following additional Barnett consequentials for 2021-22 over and above funding announced in the UK Autumn Budget Statement:
The largest element of £824.1 million resource relates to Housing, Communities and Local Government (£395.2 million). Other material changes in resource are:
In addition, Scottish Government was allocated non-Barnett funding of £241.8 million:
All of the Non-Barnett funding was in line with previously expected Whitehall transfers and other funding elements. This includes the £142.8 million in relation to test and trace was also reflected in the Spring Budget Revision, but in this case as funding, given it was originally earmarked as part of Omicron funding in December.
The UK Supplementary Estimates confirmed the changes announced in the UK Autumn Budget Statement in October 2021:
The changes to Block Grant Adjustments were confirmed at the UK Autumn Budget Statement. The updated BGAs reduces the overall 2021-22 funding position by £96 million as the net BGA position has deteriorated relative to the provisional BGA position, largely driven by the income tax reconciliations (-£99 million) and social security welfare additions (+£2 million).
In addition to changes to fiscal position, Scottish Government received additional funding to cover Annually Managed Expenditure.
As a consequence of a change to the forecast for the Scottish Teachers’ and NHS Pension Schemes there is an increase of £173.0 million in the resource requirement from £5,853.8 million to £6,026.8 million. This increase is mainly due to the impact on the current service cost (long term pension scheme liabilities) resulting from the NHS backdated pay award from December 2020.
As a consequence of a change to the forecast for Student Loans there is a decrease in the capital requirement of £72.2 million from £585.0 million to £512.8 million and a decrease in the resource requirement of £3.7 million from (£168.7) million to (£172.4) million. The decrease in capital is mainly due to an increase in loan repayments. The decrease in resource is due to unwinding of the interest applied to student loan accounts.
Additional £300.1 million of non-cash AME funding to meet annual accounting processes.