Published:

Scottish Budget, UK Budget

The Scottish budget 2020/21: postponed for now… but til when?

The Scottish Government had been due to publish its draft budget for 2020/21 on 12th December.

The postponement of the UK Government’s budget – which had been scheduled for 6th November – had already thrown the status of the Scottish budget date into doubt. But the announcement of the General Election on the 12th December clearly necessitated a postponement of the Scottish budget. The Scottish Government announced last week that the Scottish budget will not be published until after Christmas.

But given that we don’t know when the next UK budget will be, when should we expect the Scottish budget? Is it even possible for the Scottish budget to be published before the UK budget, and what would be the implications if it was?

The outlook for the Scottish budget is significantly determined by the UK budget…

One of the ironies of fiscal devolution is that the outlook for the Scottish budget is, if anything, more dependent on the outcomes of the UK budget than it was previously. For example:

  • The spending decisions of the UK Government effect the Scottish block grant, via the Barnett Formula.
  • The OBR forecasts of UK income tax revenues also affect the Scottish block grant. This is because the size of the deduction made to the Scottish block grant (to reflect the transfer of revenues from Westminster to Holyrood, and known as a block grant adjustment or BGA) is calculated based on the forecast growth of income tax revenues in rUK.
  • In turn, OBR forecasts of rUK income tax revenues also depend on UK Government tax policy decisions. An increase in rUK income tax rates will affect the Scottish block grant directly (by increasing the size of the BGA, reflecting higher revenues foregone by the UK Government from Scotland). Changes to UK income tax policy will also affect the Scottish budget indirectly, by influencing the perceived political acceptability of a given tax policy in Scotland.
  • And because income tax is a shared tax, UK Government decisions on things like the level of the Personal Allowance can affect the forecasts of Scottish income tax revenues.
  • Complicating matters further, the Scottish block grant in 2020/21 will increase substantially to reflect the transfer of new financial responsibilities for social security spending… but the size of the block grant increase will depend on forecasts of UK Government spending on those same benefits in rUK, and those forecasts will be published alongside the UK budget.

This makes publishing a Scottish budget before a UK budget possible, but risky…

Its clear therefore that the outlook for the Scottish budget is heavily dependent on policy decisions and forecasts made at UK budgets.

This certainly does not mean that it is impossible for the Scottish Government to publish its budget before the UK budget. And its possible that most or all of these parameters won’t actually change that much at the next budget. For example, there’s a case for saying that if the Conservatives win the election, then UK spending plans are unlikely to change significantly from those set out in the September Spending Round, and that major tax changes are unlikely given the constraints implied by the Conservatives own fiscal rules.

Of course, should the general election lead to a different result then spending plans may look quite different.

On the other hand there is a risk that, if a Scottish budget were to be published before the UK budget, then subsequent tax or spending changes by the UK Government might necessitate changes to a Scottish budget that is halfway through a legislative process.

In theory at least, it is possible to envisage scenarios where a UK Government announces big income tax increases (which effectively reduce the Scottish block grant by increasing the BGA), or announces tax cuts which widen the differences between UK and Scottish tax policy beyond what the government thinks is appropriate.

A scenario like this could result in last minute changes being made to Scottish tax or spending decisions, potentially creating confusion.

Given all this, you might wonder why the Scottish Government doesn’t just commit to publishing its budget after the UK budget. There are two issues: first, the Scottish budget is subject to its own timetabling constraints which mean that it can’t be delayed indefinitely. Secondly, until a date for the UK budget is known, it is impossible to know to what extent the Scottish timetable will need to be truncated – if indeed it can be truncated sufficiently.

Scottish budget timetabling constraints

Normally, the broad timeline from publication of UK budget to the finalisation of the Scottish budget legislative process would be as follows:

  • A Scottish budget would be published around three weeks after a UK budget, during which time the Scottish Government would decide how to incorporate UK announcements into its plans, and the Scottish Fiscal Commission would prepare its forecasts of Scottish tax revenues and social security spending.
  • Following publication of the budget there would be a period of parliamentary scrutiny and then the legislative process. This would typically last from mid-January to mid to late February.
  • Once the Budget Bill was passed it would gain Royal Assent (a process taking up to five weeks, for legal checks and – possibly – challenge).

Given the exceptional circumstances this year, all three of these phases will be truncated to some extent.

There are other legislative constraints too. Councils are required by statute to set their council tax rates by 11 March, Non-Domestic Rates must be set in secondary legislation, and a Scottish Rate Resolution (establishing Scottish income tax rates and bands) must be passed before the start of the financial year.

The dilemma: not knowing when we’ll know

If the Scottish Government knew that the UK Government was constrained to publish its budget by a certain date – say mid January – then an alternative timetable could be developed on that basis.

But currently there is no indication of when the UK budget might be published. An incoming UK Government might decide to publish a budget by mid-January. But it might decide to wait – perhaps until after the latest EU-exit date. And theoretically there is no reason why the UK budget would need to be published much before the end of March.

So the dilemma for the Scottish Government is not so much that it doesn’t know when the UK budget will be; but that it doesn’t know when it will know when the UK budget will be. It is left scenario planning an infinite range of possible outcomes of budget dates and budget envelopes.

Concluding points

So it is clear that:

  • There is a reasonable case for saying that the Scottish budget should be delayed until a UK budget for 2020/21 has been published
  • But the Scottish budget cannot be delayed indefinitely
  • Therefore there may become a point at which the Scottish Government has to commit to publishing its budget on a certain date, knowing either that this will be before the UK budget, or without knowing whether or not this will be before the UK budget*.

There is unlikely to be any clarity on the way forward for some time. The earliest we are likely to have any information on when the UK budget might be is in the week following the UK election, and it seems unlikely that the Scottish Government will commit itself to a particular date for the Scottish budget before then.

The possibility of a Scottish budget before a UK budget – followed by a series of last minute amendments – remains an unlikely scenario but cannot be ruled out yet.

Authors

The Fraser of Allander Institute (FAI) is a leading economy research institute based in the Department of Economics at the University of Strathclyde, Glasgow.