Finance and Public Administration Committee: finance update and Spring Budget Revision 2022 to 2023 guide

A. Guide to the Spring Budget Revision

1. The budget process for 2022-23 commenced with the publication of the Scottish Budget and annual Budget Bill which provided details of the Scottish Government’s spending plans. These plans (as amended at Stages 2 and 3 of the Budget Bill) were approved by the Scottish Parliament on 10 February 2022.

2. Once the Budget Act has been approved by the Scottish Parliament, there are usually two opportunities to amend the budget as the year progresses - the Autumn Budget Revision and a Spring Budget Revision. The Spring Budget Revision provides the final budget figures, against which outturn is reported in the Scottish Government’s annual accounts.

3. The Spring Budget Revision was finalised on 30 January 2023 ahead of the draft SSI being laid in parliament on 2 February 2023. This guide was provided to the Finance and Public Administration Committee on 27 February 2023 ahead of the scheduled scrutiny session on 7 March. By waiting until the end of February to provide this update we have been able to ensure the content is as up to date as possible. This includes consideration of the final UK Supplementary Estimates figures, which were agreed following the SBR being published as well as the current in-year forecast financial position.

A.1 Summary of the Spring Budget Revision

4. The Spring Budget Revision is routine parliamentary business that proposes amendments to better align the Government’s budget with its planned spending profile.

5. The changes proposed in the Spring Budget Revision result in an increase in the approved budget of £713.4 million from £56,985.0 million to £57,698.4 million.

6. The changes to the Budget are broken down in to four main areas:

• A.2 - Funding changes to reflect deployment of available resources to portfolios (total net increase to the budget of £502.3 million);
• A.4 - Technical adjustments (net increase to the budget of £130.6 million);
• A.3 - Whitehall transfers and HM Treasury allocations to the Scottish Government (£80.6 million); and
• A.5 - The transfer of resources between Scottish Government portfolios.

7. The main changes included under each heading are categorised in table 1.2 in the Budget Revision document and summarised below.

Scottish Government Portfolios	Resources other than Accruing Resources as shown in Budget Act	Changes Proposed				Revised Budget
		Funding Changes	Technical Changes	Net Whitehall transfers	Net Transfers within Scottish Block
	£m	£m	£m	£m	£m	£m
Health and Social Care	18,075.2	422.4	263.3	33.6	(898.7)	17,895.8
Social Justice, Housing and Local Government	16,716.8	244.0	(96.4)	27.3	1,110.4	18,002.2
Finance and the Economy	1,550.1	(65.4)	8.2	0.0	3.0	1,496.0
Education and Skills	4,814.2	(19.3)	(582.4)	0.0	(208.3)	4,004.1
Justice and Veterans	3,147.5	159.9	5.3	16.7	(1.1)	3,328.2
Net Zero, Energy and Transport	4,367.4	(230.1)	16.3	0.3	(12.8)	4,141.1
Rural Affairs and Islands	915.5	(17.4)	1.0	0.0	(1.2)	897.9
Constitution, External Affairs and Culture	282.2	(8.0)	(3.0)	1.7	(1.8)	271.0
Deputy First Minister and Covid Recovery	45.1	0.5	0.0	0.0	(0.7)	44.8
Crown Office and Procurator Fiscal	184.8	5.8	3.0	0.0	0.9	194.5
Scottish Government	50,098.8	492.5	(384.9)	79.5	(10.2)	50,275.7
Scottish Housing Regulator	5.3	(0.1)	0.0	0.0	0.0	5.2
National Records of Scotland	59.4	3.7	0.0	0.0	-0.2	62.9
Office of the Scottish Charity Regulator	3.4	0.0	0.0	0.0	0.0	3.4
Scottish Courts and Tribunals Service	163.5	9.5	4.5	0.6	8.4	186.5
Scottish Fiscal Commission	2.3	0.0	0.0	0.0	0.0	2.3
Revenue Scotland	7.9	(0.2)	0.0	0.0	0.0	7.7
Registers of Scotland	9.0	0.0	2.0	0.0	2.0	13.1
Environmental Standards Scotland	2.2	(0.1)	0.0	0.0	0.0	2.1
Food Standards Scotland	23.0	(0.6)	3.5	0.3	0.0	26.2
Scottish Teachers’ and NHS Pension Schemes	6,470.4	0.0	495.7	0.0	0.0	6,966.1
Scottish Administration	56,845.3	504.6	120.8	80.4	0.0	57,551.2
Direct-Funded Bodies
Scottish Parliamentary Corporate Body	128.0	(2.2)	4.2	0.1	0.0	130.2
Audit Scotland	11.6	(0.1)	5.5	0.0	0.0	17.0
Total Scottish Budget	56,985.0	502.3	130.6	80.6	0.0	57,698.4
* may not sum to zero due to roundings

A.2 Funding Changes

8. Funding changes provide additional budget spending power to portfolios and programmes, and also reflect some reductions where funding has been returned to the centre for redeployment elsewhere. Table 1.2 provides the funding changes on a net basis by portfolio of £502.3 million, however the gross impact is shown below.

Scottish Government Portfolios	Funding Additions	Funding Reductions	Net Funding Changes
Health and Social Care	427.4	(5.0)	422.4
Social Justice, Housing and Local Government	397.5	(153.5)	244.0
Finance and the Economy	86.8	(152.2)	(65.4)
Education and Skills	85.0	(104.3)	(19.3)
Justice and Veterans	195.8	(36.0)	159.9
Net Zero, Energy and Transport	4.1	(234.3)	(230.1)
Rural Affairs and Islands	12.2	(29.6)	(17.4)
Constitution, External Affairs and Culture	3.5	(11.5)	(8.0)
Deputy First Minister and Covid Recovery	1.2	(0.7)	0.5
Crown Office and Procurator Fiscal	5.8	0.0	5.8
Scottish Government	1,219.4	(727.0)	492.5
Scottish Housing Regulator	0.0	(0.1)	(0.1)
National Records of Scotland	4.1	(0.4)	3.7
Office of the Scottish Charity Regulator	0.0	0.0	0.0
Scottish Courts and Tribunals Service	9.5	0.0	9.5
Scottish Fiscal Commission	0.0	0.0	0.0
Revenue Scotland	0.0	(0.2)	(0.2)
Registers of Scotland	0.0	0.0	0.0
Environmental Standards Scotland	0.0	(0.1)	(0.1)
Food Standards Scotland	0.0	(0.6)	(0.6)
Scottish Teachers’ and NHS Pension Schemes	0.0	0.0	0.0
Total Scottish Administration	1,233.0	(728.4)	504.6
Direct Funded Bodies
Scottish Parliament Corporate Body	0.3	(2.5)	(2.2)
Audit Scotland	0.0	(0.1)	(0.1)
Total Scottish Budget	1,233.3	(731.0)	502.3

A.2.1 Gross Funding Changes

9. The largest allocation of funding deployed in the budget revision is £427 million provided to the Health and Social Care portfolio to support ongoing services. This funding is split between £135 million of resource and £292.2 million of capital. While the amount of £292.2 million is capital funding under HM Treasury budgeting rules, this is treated as indirect capital in Scottish Budgetary terms and is categorised there as an Operating budget. Further details of the distinction between Scottish Budget and HM Treasury Budget basis’ are set out in Section B.

10. The Social Justice, Housing and Local Government (‘SJHLG’) portfolio has funding additions totalling £397.5 million in the budget revision. The largest element of this is the £185.3 million of additional budget cover being provided to Social Security Scotland for increases in demand-led benefits following revised forecasts from the Scottish Fiscal Commission.

11. This funding is the gross amount required for those benefits where forecasts have increased. For benefits where forecast expenditure has decreased the movement has been included as a funding reduction. The net movement in social security benefit expenditure in this revision is a £123.2 million increase.

12. £178.9 million of funding has been provided to SJHLG for the ongoing Ukrainian resettlement work. This takes the total funding provided by the Scottish Government to the Ukrainian resettlement since the conflict began to £200 million. A further £12.2 million has been provided from within the portfolio as grants to local authorities.

13. The final element of SJHLG’s funding additions is the £32.8 million that has been added to the General Revenue Grant. This will provide budget cover for Teachers’ 2021-22 Pay Award.

14. The Finance and Economy portfolio has benefitted from £86.8 million of funding additions. The largest elements of this include £23.9 million to Scottish Enterprise and £15 million being provided to European Social Fund for write offs.

15. Ferguson Marine has received £25.6 million of additional funding at the Spring Budget Revision. This includes £21 million additional capital budget to complete work on vessels 801 and 802 with £4.6 million required for additional operating costs.

16. The Education and Skills portfolio has received additional funding totalling £85 million. The largest element of this relates to £21.7 million being provided to the Scottish Qualifications Authority to support its ongoing activities.

17. There have also been allocations of £12.6 million to Raising Attainment to support the full range of activity within the Scottish Attainment Challenge and the National Improvement Framework and £12.6 million to fund NPD Unitary Charges.

18. The Justice and Veterans portfolio has received £195.8 million of funding additions. The largest element (£130.6 million) relates to Police and Fire Pensions. This is a volatile demand led budget with additional budget pressure beyond the core allocation managed in year. Additional budget was provided at Autumn Budget Revision and we expect material movements in this position between now and the end of the financial year.

19. £37 million additional resource funding is being provided to the Scottish Police Authority to meet the SPA Pay Award. £14.7 million has been provided to the Scottish Prison Service to fund its cost pressures, while £8.3 million of capital funding has been provided for the ongoing Emergency Services Mobile Communications Programme (‘ESMCP’) works within Police Central Government.

20. £11.5 million has been provided to the Rural Affairs and Islands portfolio to allow Marine Scotland to fund a distribution to Local Government to deliver coastal community benefits in their area.

21. £5.8 million of additional funding has been provided to the Crown Office and Procurator Fiscal Service. These amounts are made up of £2.2 million of additional funding to support its day to day operations as well as £3.7 million to fund the Covid-19 Deaths Investigation Team.

22. £9.5 million of additional funding has been provided to the Scottish Courts and Tribunals Service across several budget lines including amounts for the Recover, Renew, Transform programme (£2.4 million) and capital funding to support Phase 1 of the Edinburgh Justice Campus programme (£3.4 million).

23. Additional gross funding changes include:

• £5.4 million to Higher Education Student Support in Education and Skills to support the student bursary schemes.
• £5.2 million to Higher Education Student Support in Education and Skills to cover the debt sale subsidy increase.
• £5.2 million to Innovation and Industries in Finance & Economy to fund operating costs.
• £5.1 million to the Scottish Child Abuse Inquiry in Education and Skills. The demand led nature of the SCAI requires budget transfers in-year at SBR to cover the full costs of the inquiry.
• £4.8 million to the Growth Accelerator in Finance & Economy.
• £4 million to the National Records of Scotland to fund work on the census.
• £4 million to Net Zero, Energy and Transport additional resource funding to replace the capital budget surrendered.

A.2.2 Reductions to Portfolios

24. The Deputy First Minister presented the Emergency Budget Review to Parliament on the 2nd of November 2022. The EBR outlined a route to balancing the 2022-23 budget and the SBR incorporates the decisions taken.

25. £731 million of savings and other deductions have been included in the SBR. These have been realised through a combination of active management of demand led spending and pro-active savings, including the final measures set out in the Emergency Budget Review.

26. The largest reduction in funding within the budget revision is the £68.5 million of funding which has been returned by Energy within the NZET portfolio. These amounts are spread across 3 areas (Energy Efficiency, Heat in Buildings and Energy Industries Divisions) and reflect lower than anticipated uptake from both private sector and local authority partners. The vast majority of this funding relates to indirect capital funding. This reduction follows a similar surrender of funding as part of the Autumn Budget Revision. The ongoing workforce and supply chain issues in the construction sector is a contributory factor to these demand issues.

27. As outlined in paragraphs 10 and 11 there has been significant movement in social security benefit expenditure forecasts. The net movement of £123 million includes £62.1 million of funding reductions for those benefits which have seen forecasts decrease.

28. There has been a £58.2 million reduction in Housing in respect of Capital Grants to Private Sector. These savings have been realised in demand led areas.

29. Scottish Water have returned £50 million of capital funding following a decision to reduce loans issued in 2022-23. This reduction follows an agreed additional allocation of £50 million of capital in 2021-22.

30. In addition, there has been a £25.7 million reduction to Aberdeen PFI funding within Scottish Water. This reflects an early repayment of external debt. As external borrowing, these amounts do not impact the Scottish Budget, and are therefore not included as part of the Scottish Water SBR adjustment, but do score against HM Treasury Budget totals. Further details on the differences between HM Treasury and Scottish Budget basis are included in section B.

31. £35 million of capital grants to Local Authorities has been returned by Cities Investments within the Finance and Economy portfolio as a result of re-profiling of projects.

32. £25.9 million of Financial Transactions budget have been returned by the Scottish National Investment Bank. This reflects revised forecasts for transactions which will conclude before the end of the financial year.

33. £24.8 million of resource budget has been returned from Employability Services within the Finance and Economy portfolio.

34. £17.5 million of savings within Social Justice projects within the SJHLG portfolio.

35. £16.9 million is released from Concessionary Fares and Bus Services within the Net Zero, Energy and Transport portfolio to reflect lower than previously anticipated demand for free Under 22 travel. This reflects the element of the saving that was outlined within the Emergency Budget Review but was not surrendered at the Autumn Budget Revision. It is important to note there is no change in the qualification criteria; this is a result of lower than forecast uptake.

36. Further funding reductions include:

• £13.2 million of saving across Scottish Enterprise lines including £10.5 million of capital savings.
• £11.9 million of resource savings in Justice from the ESCMP project.
• £8 million of FT savings within the Scottish Growth Scheme.
• £6.9 million of savings in demand led Legal Aid.
• £6.7 million of savings in Recovery Renewals and Transformation Fund within Justice.
• £6 million of direct capital within SJHLG for Scottish Building Standards.
• £6 million of resource savings in demand led Self Isolation Support grants.
• £5.9 million of capital savings in Regeneration capital grants to public sector.
• £5.8 million of savings in South of Scotland Enterprise across capital and FT lines.
• £5.7 million of savings within Social Security Scotland for Goods & Services.
• £5 million of capital savings in the Low Carbon Economy capital grants to local authorities.
• £5 million of FT savings within Health for funding required for loans to GP practices.

A.3 Whitehall Transfers

37. There are number of Whitehall transfers and allocations from HM Treasury recognised in the Spring Budget Revision. The net positive impact on the Scottish Budget is £80.6 million.

38. For the purpose of the budget revision these are being grouped into those that support arrangements following the death of Her Majesty The Queen (known as Project Unicorn) and all other Whitehall transfers.

39. Amounts received in respect of Project Unicorn total £18.8 million. The vast majority of this has been provided to the Justice and Veterans portfolio (£15.6 million) largely to the Scottish Police Authority to reimburse for additional policing costs.

40. Royal & Ceremonial within the CEAC portfolio has also been in receipt of £1.7 million to cover its costs relating to Project Unicorn.

41. The largest elements of the other Whitehall transfers relate to the £59.6 million from the Department for Health and Social Care to fund the Scottish Infected Blood Support Scheme, £10.2 million for Anti-Viral deployment and £4.5 million in regards of the Reducing Drug Deaths Open Innovation Challenge.

42. Whitehall transfers to Health are also being reduced by the £40.9 million contribution made to the UK Health Security Agency. This amount is Scotland’s contribution for areas including test site costs (in the early part of the year), ongoing access to lighthouse labs and purchases of LFD’s amongst other areas.

43. The SJHLG Whitehall transfers are made up of £18.6 million Education Tariff for Ukrainian displaced people; £5.5 million for hosting Ukrainian refugees; a £1.2 million transfer from Department for Transport for Dundee to Stanstead Public Obligation and £1.1 million for the Tampon tax.

44. The remaining transfers include £6.5 million from Money Advice Service for the allocation of Scotland’s share of the Debt Advice Levy and a transfer from the Cabinet Office of £1.3 million for Cyber Security. These amounts have been passed directly to Social Justice and Safe and Secure Scotland respectively.

A.4 Technical Adjustments

45. In line with past years, the Spring Budget Revision recognises a number of technical changes which are essentially budget neutral and do not provide additional spending power for, or detriment to, the Scottish Government. The net total changes in this year’s Spring Budget Revision are £130.6 million and are summarised in the table below.

Scottish Government Portfolios	Changes Proposed					Total technical changes
	AME Non-Cash	AME (Student loans and Pensions)	Ringfenced	ODEL	Total IFRS16 adjustments
	£m	£m	£m	£m	£m	£m
Health and Social Care	182.0	0.0	54.0	42.6	(15.4)	263.3
Social Justice, Housing and Local Government	(95.4)	0.0	0.1	0.0	(1.1)	(96.4)
Finance and the Economy	10.2	0.0	0.4	0.0	(2.4)	8.2
Education and Skills	0.1	45.0	(629.0)	0.0	1.5	(582.4)
Justice and Veterans	0.7	0.0	5.0	(0.3)	(0.1)	5.3
Net Zero, Energy and Transport	0.0	0.0	0.0	0.0	16.3	16.3
Rural Affairs and Islands	1.3	0.0	0.0	0.0	(0.4)	1.0
Constitution, External Affairs and Culture	(3.0)	0.0	0.0	0.0	0.0	(3.0)
Deputy First Minister and Covid Recovery	0.0	0.0	0.0	0.0	0.0	0.0
Crown Office and Procurator Fiscal	2.0	0.0	(0.1)	0.0	1.0	3.0
Scottish Government	97.9	45.0	(569.5)	42.4	14.9	(384.8)
Scottish Housing Regulator	0.0	0.0	0.0	0.0	0.0	0.0
National Records of Scotland	0.0	0.0	0.0	0.0	0.0	0.0
Office of the Scottish Charity Regulator	0.0	0.0	0.0	0.0	0.0	0.0
Scottish Courts and Tribunals Service	0.2	0.0	4.2	0.0	0.1	4.5
Scottish Fiscal Commission	0.0	0.0	0.0	0.0	0.0	0.0
Revenue Scotland	0.0	0.0	0.0	0.0	0.0	0.0
Registers of Scotland	2.0	0.0	0.0	0.0	0.0	2.0
Environmental Standards Scotland	0.0	0.0	0.0	0.0	0.0	0.0
Food Standards Scotland	0.1	0.0	0.6	0.0	2.8	3.5
Scottish Teachers’ and NHS Pension Schemes	0.0	495.7	0.0	0.0	0.0	495.7
Scottish Administration	100.2	540.7	(564.7)	42.4	14.8	120.9
Direct-Funded Bodies
Scottish Parliamentary Corporate Body	4.7	0.0	(0.5)	0.0	0.0	4.2
Audit Scotland	5.2	0.0	0.1	0.0	0.2	5.5
Total Scottish Budget	110.1	540.7	(565.1)	42.4	14.8	130.6
* may not sum to zero due to roundings

AME non-cash adjustments:

46. Adjustments relating to AME non-cash total £110.1 million within the budget revision. While these amounts do not impact the discretionary spending powers, they are revised at SBR to more accurately reflect the final position which will be reflected in the Scottish Government accounts.

47. The largest elements relates to the Health and Social Care portfolio which has a total revision of £182 million. This is made up of a £233 million increase to NHS & Special Health Board provisions, a £5 million increase for depreciation on donated assets less a reduction of £56 million for impairments.

48. This increase is offset by £95 million reduction in the Social Justice, Housing and Local Government portfolio. The vast majority of this relates to a fair value accounting adjustment of £97 million on Housing and Regeneration loans.

49. The remaining material adjustment relates to a £10.2 million increase within the Finance and Economy portfolio to reflect SNIB investment impairments.

AME Cash adjustments:

50. The Spring Budget Revision also includes £540.7 million of cash AME adjustments. AME budget is provided directly by HM Treasury to support specific demand led areas and, as with non-cash AME, there is no impact on the Scottish Government’s discretionary spend.

51. There are two specific cash adjustments which make up this movement. The first is £495.7 million adjustment relating to Scottish Teachers and NHS Pensions. This additional budget has been provided based on the most recent forecasts.

52. The second element is the £45m increase to the Student Loan AME charges to reflect the most recent forecasts.

Ringfenced Non-Cash Budget adjustments:

53. In addition to the AME non-cash budget the Scottish Government is also provided with its own non-cash budget. This budget provides cover for non-cash accounting adjustments such as deprecation and impairments. These amounts do not impact discretionary spending by the Scottish Government but are important for reporting purposes in the annual accounts.

54. There has been a £565.1 million reduction as part of the budget revision with portfolios reviewing their non-cash requirements. The largest element relates to the £627.1 million movement in the Student Loan RAB charge. This is to cover the latest estimates from economists on the impact of the current macro-economic climate on impairment of the student loan book.

55. This has been offset by a £54 million increase in the depreciation budget for NHS Boards within Health and Social Care. Additional depreciation budgets have been provided for prisons (£4.6 million) and courts (£4.2 million) following revised forecasts.

IFRS16 adjustments:

56. As was outlined in the Guide to the Autumn Budget Revision, 2022-23 is the first financial year where the Scottish Government has implemented International Financial Reporting Standard 16 (‘IFRS 16’) as introduced by the International Accounting Standards Board (IASB) . Under IFRS16 the accounting treatment of leases has been significantly altered.

57. While a large number of adjustments relating to IFRS16 were included within the Autumn Budget Revision, it was always our intention for further IFRS16 adjustments to be reflected in the Spring Budget Revision, as additional work was required to refine the precise impact in some areas.

58. The net total changes relating to IFRS 16 in the budget revision are £2.5 million. This includes a £1.3 million reduction in notional corporate running costs attribution, meaning the total IFRS16 impact is £3.8 million.

59. A large element of the IFRS16 adjustments relate to non-departmental public bodies. As budget provided to NDPBs takes the form of Cash GIA, and IFRS16 adjustments are non-cash, these are not reflected in the Spring Budget Revision but will be reflected as part of the Final Outturn process as well as within NDPBs annual accounts.

60. Ring-fenced budget cover is being provided by HM Treasury to support this change in accounting treatment and the Scottish Government’s discretionary funding will not be impacted. Final IFRS16 budget cover requirements were provided to Treasury ahead of the UK Supplementary Estimates.

Outside DEL Adjustments:

61. The final component of the technical adjustments which have been reflected within the Spring Budget Revision sit completely outside of HM Treasury budgets. These are technical changes which are necessary to align the Scottish Budget with the required accounting treatment.

62. ODEL changes in the budget revision total £42.4 million with the vast majority being the net £42.6 million in respect of Health PFI adjustments.

A.5 Internal Transfers

63. There are a number of internal transfers within the Scottish Block as part of the Spring Budget Revision process. Transfers between and within portfolios are ‘zero-sum’.

64. The significant budget internal transfers between portfolios include:

• Transfer from Health & Social Care to Local Government within the Social Justice, Housing & Local Government portfolio to support the investment in integration of Health Social Care (£257.2 million);
• Transfer from Health & Social Care to Local Government within the Social Justice, Housing & Local Government portfolio including funding for the Real Living Wage for staff providing direct Adult Social Care in commissioned services in the third and independent sectors (£233.5 million);
• Transfer from Education & Skills to Local Government within Social Justice, Housing & Local Government to fund additional Teachers and Support Staff (£144.5 million);
• Transfer from Health & Social Care to Local Government within the Social Justice, Housing & Local Government portfolio to ensure delivery of the commitments set out in the Mental Health Transition and Recovery Plan (£120 million);
• Transfer from Health & Social Care to Local Government within the Social Justice, Housing & Local Government portfolio to provide funding for the implementation of the Carers Act (£65 million);
• Transfer from Education & Skills to Local Government within the Social Justice, Housing & Local Government portfolio to provide funding for the delivery of the Whole Family Wellbeing Fund (£32 million);
• Transfer from Education & Skills to Social Justice, Housing & Local Government to provide funding for the expansion of Free School Meals (£30 million);
• Transfer from Health & Social Care to Local Government within the Social Justice, Housing & Local Government portfolio to provide Free Personal and Nursing Care to care home residents (£27.3 million);
• Transfer from Health & Social Care to Local Government within the Social Justice, Housing & Local Government portfolio to fund increased Social Work Capacity in Adult Services within Local Authorities (£22 million);
• Transfer from Health & Social Care to Local Government within the Social Justice, Housing & Local Government portfolio to fund Interim Care Funding within Local Authorities (£20 million);
• Transfer from Social Justice, Housing & Local Government to Education & Skills of the Education Tariff to 30 November for Ukrainian Displaced People (£18.6 million).

65. The Spring Budget Revision records a small number of internal portfolio transfers which have no effect on the portfolio totals, but play a role in ensuring effective internal budget management. These include:

• £44 million of capital budget being transferred from Major Public Transport Projects to Rail Infrastructure within NZET.
• £15.5 million of capital budget being transferred from Major Public Transport Projects to Rail Franchise within NZET.