Published:

Scottish Budget

Weekly update. An exciting week….for fiscal framework fans?

In common with many others, here at the FAI we’re looking forward to a long weekend to recover from what has felt like a long, extremely eventful, week! We’ll swerve the political comings and goings, and give you some fiscal framework ponderings instead to see you through until next week. You can thank me later.

On Monday, FAI was down at the Resolution Foundation’s event on 25 years of devolution. It was refreshing, if a little disorientating, to be at an event south of the border where devolved differences weren’t the niggling postscript, but front and centre in what people wanted to hear about. Full credit to the Resolution Foundation for organising and for bringing together a great set of speakers.

One of the issues we spoke about was the confusion caused by the fiscal framework. The automatic mechanisms that determine the size of the Block Grant Adjustments (BGAs) for devolved tax and social security are complicated enough to work through, albeit fairly doable with some head-scratching. But add to that the concepts of spillovers and ‘no detriment’ (when one government does something that adversely affects the other) and a pained look passes over most people’s faces. Because in principle, it all makes sense, but in practice, it’s messy and uncertain.

The UK Government obligingly gave a contemporaneous example of this complexity when, a few hours before the event on Monday, it announced a consultation on Personal Independent Payment (PIP), a benefit that was devolved to Scotland in 2016 and which is now known here as Adult Disability Payment. The UK Government are only at a consulting stage, and who knows if and when any changes could or would be made, but if expenditure on PIP decreased significantly because of a policy change, that would automatically feed through into a reduced amount in the Block Grant.

That’s because devolved social security comes through as an addition to the Block Grant (the principle being that it allows the Scottish Government to pay the equivalent amount of the England & Wales benefit to people in Scotland) so a reduction in spending in E&W would lead to a reduction in the amount coming to Scotland.

However, the ‘no detriment’ clause in the fiscal framework states that: “…where either government makes a policy decision that affects the tax receipts or expenditure of the other, the decision-making government will either reimburse the other if there is an additional cost, or receive a transfer from the other if there is a saving.”

But this doesn’t happen automatically:  “…any decision or transfer relating to a spillover effect must be jointly agreed by both Governments. Without a joint agreement, no transfer or decision will be made.”

Anyone who watched the first part of the Resolution Foundation session on Monday and listened to John Swinney talk about the relatively constructive spirit of cooperation between the Scottish Government and UK Treasury at the time of the fiscal framework being agreed, will have heard him lament that those halcyon days are gone. Going through such a process of agreement could be painful, especially if there is any hint of the PIP budget being transferred elsewhere (e.g. if payments were routed through social care in local government) therefore leading to the possibility that some of the money could come through to the Block Grant via Barnett consequentials.

Economists are of course unfairly known for being overly cynical, and perhaps an agreement wouldn’t be too hard to come by. And indeed, there have been agreements come to in the past on spillovers, notably on the Personal Allowance (see here). But given that all mentions of this ‘resolution’ are described as relating to a ‘long-running dispute’ over something that was on the surface fairly simple, it seems that an expectation that it will take a while is a reasonable one.

Until a resolution can be agreed, there would be uncertainty over the budget available here in Scotland. At the moment, a shadow of uncertainty is cast by even knowing that PIP is up for review. The fiscal framework we have may be the best that we could hope for in the circumstances, but it is not an ideal environment in which to make policy on devolved benefits here in Scotland.

You can watch the Resolution Foundation’s “Economic Lessons from 25 Years of Devolution” event here: https://www.resolutionfoundation.org/events/policy-making-beyond-westminster/

 

 

 

Authors

Emma Congreve is a Senior Knowledge Exchange Fellow and Deputy Director at the Fraser of Allander Institute. Emma's work at the Institute is focussed on policy analysis, covering a wide range of areas of social and economic policy.  Emma is an experienced economist and has previously held roles as a senior economist at the Joseph Rowntree Foundation and as an economic adviser within the Scottish Government.