Flexibility needed on budget

Finance Secretary Derek Mackay has written to the Chief Secretary to the Treasury Rishi Sunak seeking more flexibility from the UK Government to allow the Scottish Government to finalise its budget.

In the letter, he sets out the ‘significant challenges’ caused by the UK budget being published on 11 March – a month later than had previously been indicated.

The text of the letter reads:

Thank you for your letter of 8 January, and confirmation of the Chancellor’s announcement that the UK Budget will be published on 11 March. I must however record my disappointment that there was no communication with the Scottish Government ahead of briefing to the media, given the importance of the announcement to the Scottish budget timetable and parliamentary process.

The lateness of the UK Budget presents the Scottish Government, Scottish Parliament and local authorities with significant challenges in relation to uncertainty both on the funding available for public services in Scotland in 2020‑21 and on the implications of UK Government tax policy for Scotland.

The timing of your Budget leaves me with a choice between two highly undesirable outcomes: publishing the Scottish Budget before yours, with the associated uncertainty, or completing the process from publishing the Scottish Budget to receiving Royal Assent for our Budget Act in an extraordinarily short time.

I welcome your offer to do what you can to support our budget process and recent engagement by your officials. In particular, I welcome your offer of a flexible approach to revisiting block grant adjustments if our Budget is before yours. I would expect this to include:

• Allowing the Scottish Government to choose to use updated BGAs produced alongside the UK Budget rather than provisional BGAs, should we wish to do so. These would either be managed as part of the 2020-21 Scottish Budget Bill process or, if that process was already completed, managed as part of an in-year Budget revision in the same way as additional consequentials are managed.
• A commitment to additional flexibility in the management of reconciliations resulting from the increased forecast error which might result from the use of provisional BGAs. For example, where we might face bigger in-year or final reconciliations as a result of using provisional BGAs, we would seek additional flexibilities such as the option to cancel in-year reconciliations and revised borrowing limits and terms.
• As you are aware, I believe from experience to date that an increase to the limits on our resource borrowing and Scotland Reserve powers is necessary even in normal times, and I await your further response in relation to that matter as well.
• Early insight into UK Government policy changes to be introduced in the UK Budget. This would be in confidence, and would support our budget planning and policy development in these exceptional circumstances.

In addition to any insight you might be able to offer in confidence on future policy changes, as these are critical for our own decisions and forecasts, I am concerned about comments made during the election campaign suggesting that the UK Government ‘could’ in future bypass the Barnett formula and directly fund activity in devolved areas. While I will always make the case for additional investment in Scotland the devolution settlement must be respected, and accordingly I expect you to confirm our arrangements will be fully respected and that you will not depart from this.

I also welcome the positive reports of progress on restoring devolved government in Northern Ireland and would be grateful for further information in due course about any implications for future budgets.

Thank you for indication that we will receive confirmation of Supplementary Estimates for 2019-20 shortly, in line with normal practice. It would be helpful to have as early as possible an indication of any Barnett implications for Scotland as this was an issue of significant interest to Parliament during last year’s budget process.

I look forward to the opportunity to discuss these and other issues in detail and my office will work with yours to arrange that discussion.

Finally, I confirm that I will also reply to you shortly in relation to your letter regarding farm support.

I am copying this reply to the Chancellor and to the Secretary of State for Scotland.

DEREK MACKAY