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Publication - Factsheet

Fiscal framework: factsheet

Last updated
4 December 2024 - see all updates
Topic
Money and tax, Public sector

Detailed information about the fiscal framework agreed between the Scottish and UK Governments.

Fiscal Framework Review 2023

The first review of Scotland’s fiscal framework concluded in summer 2023, in light of a Parliament’s worth of experience, and was guided by a set of principles outlined in the Smith Commission.

The review was informed by a report by independent experts , with a remit to look at various block grant adjustment (BGA) arrangements and to assess how best they met the Smith Commission Principles. It was jointly commissioned by the Scottish and UK Governments and was authored by Professor David Bell (University of Stirling), David Eiser (formerly University of Strathclyde) and David Phillips (Institute for Fiscal Studies).

The fiscal framework review agreed several changes including:

  • the permanent adoption of the Indexed per Capita BGA mechanism
  • an increase in resource borrowing powers to deal with forecast error
  • an abolishment of the annual drawdown limits for the Scottish Reserve
  • the agreement that various nominal limits would be grown in real terms over time

Table 1 below summarises some of the key changes agreed in more detail.

Table 1: Summary of changes agreed as part of the fiscal framework review 2023

 

Original agreement

Updated agreement

BGA Mechanism

Run both Indexed Per Capita (IPC) and Comparable methods. Only use IPC in practice, but on an interim basis.

IPC mechanism agreed on a permanent basis, prioritising the ‘No Detriment’ Smith Commission principle.

Resource borrowing

Up to £300m p.a. to cover forecast error.

Up to £600m p.a. in 2023-24 prices to cover forecast error, indexed to inflation annually (GDP deflator).

Capital borrowing

Up to £450m, p.a.; £3bn cumulative cap.

Up to £450m p.a., £3bn cumulative cap, both in in 2023-24 prices and indexed to inflation annually (GDP deflator).

Reserve drawdown limits

£250m resource; £100m capital.

Abolished (no limits).

Overall reserve limit

£700m.

£700m in 2023-24 prices indexed to inflation (GDP deflator).

VAT Assignment

The two governments agreed that VAT Assignment will be implemented in 2019-20.

How and when to implement VAT Assignment will be discussed at a future Joint Exchequer Committee.

Crown Estate

Deduction to the block grant of £6.6m p.a.

Starting in 2024-25, deduction to the block grant profiled at £10m / £10m / £15m/ £20m / £40m. Fixed in nominal terms at £40m beyond 2028-29. See Crown Estate Scotland and Coastal Communities Fund tab for further information.

Fines and penalties

Block grant adjustment to fines and penalties revenue.

Flat deduction to the block grant of £25m

Coastal Communities Fund

Baseline addition made to block grant equivalent to UKG spending on CCF in year prior to transfer.

Absorbed into Barnett (no impact on funding).

Scotland Specific Economic Shock

Forecast Error Borrowing powers temporarily increased to £600m when triggered.

Provision removed – now covered by improved resource borrowing powers.

Contact

Email: ceu@gov.scot

First published
20 November 2017
Last updated
4 December 2024 - show all updates

  1. Information added to the updates page.

  2. Information added to the updates page.

  3. Multiple pages updated.

  4. Multiple pages updated.

  5. Publications page updated with text and link to statement.

  6. Publications page updated with text and link to statement.

  7. Minor update to amend link to annex 'B' in Scottish Government’s Medium Term Financial Strategy.

  8. Added link to the Scottish Government’s Medium Term Financial Strategy.

  9. Added link to letter to the Chief Secretary to the Treasury regarding agreement in principle to commission an independent report on the Block Grant Adjustment arrangements on publications page.

  10. Added link to 22 July letter about the income tax reconciliation process and the provisional 2019-20 income tax reconciliation.

  11. Added link to 15 March letter about the BGAs for the Scottish Budget 2021-2022 on publications page.

  12. Updated following the Scottish Budget 2021-2022.

  13. Link to 23 December letter regarding fiscal powers and flexibility added to publications page.

  14. Link to 7 December letter regarding fiscal powers and flexibility added to publications page.

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