Scotland Acts 2012 and 2016 implementation: annual reports

4. Block Grant Adjustments, Reconciliation & Indexation

The Fiscal Framework agreed that the Scottish Government's Block Grant would be adjusted to reflect the impact of the transfer of greater fiscal powers to the Scottish Government. Deductions are made to reflect the retention of devolved tax revenues and additions are made to provide funding for devolved social security benefits.

Key Developments

• The second Fiscal Framework Outturn Report was published on 26 September 2019 to report, amongst other things, on the operation of the Block Grant Adjustments (BGAs).^[9]
• Outturn data for 2017-18 income tax was published on 18 July 2019 which determined the first income tax reconciliation which impacted the 2020-21 Scottish Budget.
• The Scottish outturn for Carer's Allowance was published for the first time in the Social Security Scotland Annual Accounts on 26 September 2019.

Fiscal Framework Outturn Report

4.1.1 As set out in the Written Agreement between the Scottish Government and the Finance and Constitution Committee, the Scottish Government published a Fiscal Framework Outturn Report on 26 September 2019 to report on the operation of the Fiscal Framework^[10]. The Report made the following key point:

• A reconciliation of -£207 million would be made to the 2020-21 Budget, which is the net impact of the reconciliations for Income Tax from 2017-18, and for the fully devolved taxes, Fines, Forfeitures and Fixed Penalties, Proceeds of Crime Act revenues, and Carer's Allowance for 2018-19.

First Income Tax Reconciliation

4.1.2 Outturn data for income tax for 2017-18 was published by HMRC on 18 July 2019 and a reconciliation of -£204 million was applied to the 2020-21 Budget.^[11] This was the first income tax reconciliation since the implementation of the Fiscal Framework. Further information on the reconciliation can be found in the Fiscal Framework Outturn Report.

Carer's Allowance Outturn

4.1.3 The 2018-19 Scottish outturn for Carer's Allowance was published for the first time in the Social Security Scotland Annual Accounts on 26 September 2019.^[12] The DWP outturn for Carer's Allowance was published on 24 September 2019, which allowed the calculation for the final BGA reconciliation to be carried out.^[13]

4.1.4 As Carer's Allowance was transferred halfway through the financial year, the BGA was apportioned on a pro rata basis. As set out in Table 4.1, Carer's Allowance expenditure from September 2017 to March 2018 accounted for around 59% of DWP's expenditure in 2017-18; therefore the BGA for 2018-19 is 59% of the total year BGA. This proportion was also used to calculate the final BGA when outturn data became available and is shown in Table 4.2

Proceeds of Crime

4.1.5 As set out in last year's report, the Scottish Government believes that the application of a BGA of £4m per annum breaches the Smith Commission's 'no detriment' principle. This is because the Scottish Government previously retained these proceeds (subject to a cap of £30m, which was never breached). The Scottish and UK Governments continue to discuss this matter through the official-level Joint Exchequer Committee. The BGA remains at £4m pending this further consideration.