Autumn Budget Revision 2023-2024 guide: finance update

A. Guide to the Autumn Budget Revision

1. The Autumn Budget Revision is part of the annual budget process. The budget process for 2023-24 commenced with the publication of the Scottish Budget and annual Budget Bill which provided details of the Scottish Government’s spending plans. These plans were approved by the Scottish Parliament on 21 February 2023.

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.

A.1 Summary of the Autumn Budget Revision

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

4. The changes proposed in the Autumn Budget Revision result in an increase in the approved budget of £562.4 million from £59,643.5 million to £60,205.9 million.

5. 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 £361.3 million);
• A.3 - Whitehall transfers and HM Treasury allocations to the Scottish Government (£13.1 million); and
• A.4 - Technical adjustments (net increase to the budget of £188.0 million);
• A.5 - The transfer of resources between Scottish Government portfolios.

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

A.2 Funding Changes

7. Funding changes represent additional budget that provides spending power within portfolios and programmes, and also some deductions 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 £361.3 million, however the gross impact is shown below.

A.2.1 Gross Funding Changes

8. £266.6 million of additional resource funding has been provided to the Deputy First Minister and Finance portfolio as part of the budget revision. The vast majority of this funding, £264.5 million, has been provided to Local Government through the general revenue grant.

9. Funding for Local Government has increased over time since the original budget was laid. The tables below sets out how support for teachers and non-teaching pay has evolved over this time period.

10. On teacher’s pay £109.5 million has been formally allocated to the General Revenue Grant as part of the Autumn Budget Revision. The table above shows how the remaining amounts will be funded as part of the Spring Budget Revision.

11. At stage 3 of the 2023-24 Budget the Deputy First Minister announced the provision of £100 million of additional support for local authorities to assist councils in making a meaningful pay offer for non-teaching staff, recognising the critical role that those staff play in delivering front line services. This amount has been formally allocated to the General Revenue Grant alongside an additional £55 million contribution from the Scottish Government.

12. In total, across teaching and non-teaching staff, the Autumn Budget Revision allocates £264.5 million to Local Government, with £52.5 million redeployed to Learning within the Education and Skills portfolio, which will ultimately be utilised to support teacher’s pay. Final transfers of funding will take place in the Spring Budget Revision with the details outlined in the table below.

13. Within the Justice portfolio £44 million has been provided to Police Pensions to help fund a gap between the budget provided at the start of the year and current forecast of costs. Police and Fire Pensions are a volatile demand led budget which is subject to significant changes to forecasts over the course of a financial year. Pressures have historically been managed in-year and it is likely a further revision to the budget will be required at the Spring Budget Revision as forecasts continue to be adjusted.

14. £50 million of capital funding is being provided to the NHS Recovery, Health and Social Care portfolio to support delivery of services in the current, challenging economic conditions.

15. The Social Justice portfolio is receiving an additional £30 million of resource budget for Ukrainian Resettlement costs as part of the Scottish Government’s ongoing commitment to the displaced people of Ukraine.

16. As a broadly demand-led cost, Ukraine Resettlement has proven more expensive in 2023-24 than was originally anticipated at Budget time, due to the popularity of the super sponsor scheme. Work is ongoing to hold costs as low as possible, but the budget transfer recognises these higher than expected costs. By investing a further £30m we will continue to provide an high standard of welcome and resettlement support in line with our recent Warm Scots Future policy publication

17. £2 million of capital funding has been provided to the Scottish Courts and Tribunal Service. This is primarily to fund the fully digital end-to-end Civil Justice Service, which is building on the existing Civil Online and Integrated Case management System, to address gaps in the provision of on-line capability in the Court of Session and Sheriff Courts.

A.2.2 Reductions to Portfolios

18. £52.5 million within the Education and Skills portfolio has been redeployed to Learning to support teachers’ pay pressures. This amount includes £46 million of necessary reprioritisation from the additional budget provided to the Scottish Funding Council for colleges and universities as part of the Scottish Budget 2023-24.

19. A further £6.5 million of reprioritisations decisions have been made to help provide this funding to learning. These are primarily within the Lifelong Learning – International Activity budget line.

20. The Rural Affairs, Land Reform and Islands portfolio has been reduced by £31 million as part of the budget revision.

21. £14 million of this funding has been surrendered by Agricultural Support and Related Services. These amounts will be re-profiled into future financial years with no loss of funding.

22. A further £6 million of savings have been achieved through reducing the subsidy provided to Forestry & Land Scotland. Forestry & Land Scotland are an executive agency who earn the majority of their funding from trading activities. Due to this trading role, they have the ability to build up cash reserves. The £6 million saving will be a direct switch for trading reserves and will therefore not have an impact on operational delivery or achieving targets. This funding will be provided back to Forestry & Land Scotland as required in future years.

23. £3 million of budget has been returned by Scottish Forestry. This reflects reduced forecasts associated with demand led schemes.

24. Similarly, £2.3 million has been returned by Natural Resources following a review and finalisation of annuals plans for the financial year which have identified expected costs to be lower than previously anticipated.

25. Marine Scotland have been able to surrender £2 million of budget following savings exercises involving enhanced recruitment controls, maximising income and continuing focus on delivering operational efficiencies.

26. Resource budget of £2.9 million from Rural Services and £0.8 million Land Reform has been returned on the basis that compensating capital budget will be provided at the Spring Budget Revision. This funding is expected to emerge from capital slippage from within the portfolio.

27. There has been a £0.9 million reduction to the Social Justice portfolio budget. This primarily relates to a £500k saving within Migration Strategy programme and £400k within Equality, Inclusion and Human Rights following the reprioritisation of Hate Crime and Violence Against Women and Girls marketing allocations. There is no impact on service from this saving as marketing allocations will be covered from forecast underspends within existing budgets.

A.3 Whitehall Transfers

28. There are five specific Whitehall transfers and allocations from HM Treasury recognised at the Autumn Budget Revision. The net positive impact on the Scottish Budget is £13.1 million.

29. The largest of the Whitehall transfers is the £5.795 million being provided to the Social Justice portfolio for the Debt Advice Levy. This will be used to fund essential debt advice services provided by a range of organisations across Scotland as per the requirements of HM Treasury.

30. The Education and Skills portfolio is receiving two Whitehall transfers totalling £5.8 million. £5.6 million of this funding is for the Ukraine Education Tariff. These amounts are passed on to Local Authorities for the costs of providing childcare and educational support to Ukrainian children and young people aged 2 to 18 who have entered the UK via the Resettlement Scheme. A further £0.2 million is provided for the National Cyber Security CyberFirst Programme.

31. The Justice portfolio will receive £1.3 million of UK Cyber Security Funding to fund various cyber-crime prevention projects, while the Deputy First Minister and Finance portfolio will receive £0.1 million for Hidden Economy Conditionality. This is HMRC's strategy for tackling the hidden economy - taxis, private hire vehicles and scrap metal dealers - by making licence renewals conditional on tax checks.

A.4 Technical Adjustments

32. In line with past years, the Autumn 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 Autumn Budget Revision are £188 million and are summarised below.

IFRS16 adjustments:

33. Following the implementation of International Financial Reporting Standard 16 (‘IFRS 16’) by the International Accounting Standards Board (IASB) the accounting treatment of leases has been significantly altered.

34. Previously a distinction was made between finance leases, where ownership transfers upon conclusion of the lease agreement, and operating leases, where ownership does not transfer. A finance lease was considered to be an asset of the lessee. The asset was recognised on the entity’s balance sheet with a corresponding liability also recognised. An operating lease did not consider the lessee to own the asset. Neither the asset or the corresponding liability was recognised on the entities balance sheet and the annual rental fee was included as a resource costs.

35. IFRS 16 removes this distinction. If an entity enters into a lease where it has a right-of-use (‘ROU’) over an asset it must be recognised on the entity’s balance sheet as an asset with the corresponding liability over the agreed length of lease.

36. As discussed with the committee as part of last year’s budget revision the Scottish Government transitioned to IFRS 16 in 2022-23 with budgets adjusted to align with the new accounting treatment. We are currently in the second of a three year transition period with budget applied in-year to reflect the changes. The net total changes as a result of IFRS 16 are £183 million.

37. These changes provide additional capital and non-cash budget cover to be applied for existing and new assets under lease to allow for their reclassification and subsequent depreciation. There are also changes to the resource budget position to adjust for the elements of the rental costs that are now capitalised.

38. Ring-fenced budget cover is being provided by HM Treasury to support this change in accounting treatment and the Scottish Government’s discretionary funding should not be impacted by these changes, subject to agreement with HM Treasury. Final IFRS16 budget cover requirements will be provided to Treasury ahead of the Supplementary Estimates exercise.

Other Technical Adjustments:

39. Other technical adjustments to the Expenditure Limit budget include £5 million in Rail services for the Sleeper Service related to a pre-payment in the year.

A.5 Internal Transfers

40. There are a number of internal transfers within the Scottish Block as part of the Autumn Budget Revision process. Transfers between and within portfolios are ‘zero-sum’. The majority of internal transfers are moving budgets from the policy lead area, based on policy accountability at official level, to the appropriate delivery body. A number of transfers take place between core Scottish Government and Local Government, with the Verity House Agreement stating that current funding lines and in-year transfers will be reviewed in advance of the 2024-25 Budget Bill.

41. The significant budget internal transfers between portfolios include:

• Transfer from NHS Recovery, Health & Social Care to Local Government within the Deputy First Minister and Finance portfolio including funding for the Real Living Wage for staff providing direct Adult Social Care in commissioned services in the third and independent sectors (£333.5 million);
• Transfer from NHS Recovery, Health & Social Care to Local Government within the Deputy First Minister and Finance portfolio to support the investment in integration of Health Social Care (£257.2 million);
• Transfer from NHS Recovery, Health & Social Care to Local Government within the Deputy First Minister and Finance portfolio to provide funding to increase the capacity of care at home (£124 million);
• Transfer from NHS Recovery, Health & Social Care to Local Government within the Deputy First Minister and Finance portfolio to ensure delivery of the commitments set out in the Mental Health Transition and Recovery Plan (£120 million);
• Transfer from Education & Skills to Local Government within the Deputy First Minister and Finance portfolio to fund additional Teachers and Support Staff (£100 million);
• Transfer from NHS Recovery, Health & Social Care to Local Government within the Deputy First Minister and Finance portfolio to provide funding for the implementation of the Carers Act (£60.4 million);
• Transfer from NHS Recovery, Health & Social Care to Education and Skills portfolio to pay teaching grant for Nursery and Midwifery students (£57.8 million);
• Transfer from Social Justice to Local Government within the Deputy First Minister and Finance portfolio to distribute Discretionary Housing Payments (£55.7 million);
• Transfer from NHS Recovery, Health & Social Care to Local Government within the Deputy First Minister and Finance portfolio to provide Free Personal and Nursing Care to care home residents (£42.3 million);
• Transfer from Education & Skills to Local Government within the Deputy First Minister and Finance portfolio to provide funding for the delivery of the Whole Family Wellbeing Fund (£32 million).