Autumn Budget Revision 2023-2024 guide: finance update

B. Funding Position

42. Following the conclusion of the 2022-23 Spring Budget Revision the Minister for Community Wealth and Public Finance wrote to the committee suggesting that officials liaise directly with members to discuss the process, areas of further clarification and ways of working going forward to support transparency and scrutiny.

43. Discussions were held between committee and officials over the summer. One area that was highlighted as requiring additional clarity for members was around funding movements between the draft budget being published in December and subsequently being approved following Stage 3.

44. Following these discussions additional tables were included in the supporting document (tables 1.7c, 1.7d and 1.7e) which provide a detailed breakdown of the funding movements between the budget being set and Autumn Budget Revision.

45. The purpose of this section is to provide further analysis of how the funding position has moved since the Scottish Budget was set in December. During the Stage 3 debate in February the then Deputy First Minister made some additional funding commitments. These commitments were made as it was anticipated that there would be additional resource funding available through a combination of Barnett consequentials, Scotland Reserve carry forward and reduced borrowing costs.

B.1 Resource

46. Table 1.7c of the supporting document provides a reconciliation between the current fiscal resource funding position and the position outlined as part of the 2023-24 Scottish Budget. These figures exclude the impact of any IFRS16 budget cover as these amounts are non-discretionary funding which can only be used to cover IFRS16 transition adjustments as outlined in section A.4 above.

47. The total improvement in resource funding since the Scottish Budget is £324.9 million with all but £0.7 million of this funding having been allocated out as part of the budget revision.

48. The largest individual movement in resource funding relates to the Scotland Reserve carry forward amount of £180.6 million. The Minister for Community Wealth and Public Finance provided details of the provisional carry forward amount in his provisional outturn statement to the Scottish Parliament on 15 June 2023.

49. At the time the budget was set in December the in-year financial position remained extremely challenging and work was ongoing to ensure the budget would balance. Given the position it was not deemed prudent to make any assumption of a carry forward in the Scotland Reserve, with the exception of a Financial Transactions carry forward of £50 million.

50. Following continuous review of the in-year budget monitoring position at the beginning of 2023 it became apparent that some level of underspend would be achieved.

51. When the then Deputy First Minister made his commitments of additional funding as part of the Stage 3 debate this was because of the increasing likelihood of additional funds being available from Reserve carry forward, further Barnett consequentials and savings in other funding lines such as reduced borrowing costs.

52. The Scotland Reserve amounts are provisional and confirmation of further adjustments will be made following the conclusion of the Final Outturn process, with changes reflected in the Spring Budget Revision.

53. The Resource position has been further improved by £94.8 million of Barnett consequentials confirmed at the UK Government’s Spring Budget Statement (£42.7 million) and the conclusion of the 2023-24 Main Estimates (£52.1 million).

54. These amounts are in addition to £20.2 million of funding received in 2023-24 relating to a Home Office comparability factor error identified in discussion with HM Treasury.

55. The funding position has been further improved by a reduction in borrowing costs, which are included as a deduction to the overall funding position. Final decisions on borrowing for 2022-23 were taken in late March 2023. Borrowing decisions are made at the end of the financial year when there is a far greater certainty on what the overall position will be, to ensure an informed decision.

56. At the time the budget was set in December 2022 assumptions were made on the level of capital and resource borrowing that would be undertaken for 2022-23. These impacted the assumed cost of borrowing in 2023-24. Final decisions on the quantum borrowed in 2022-23 as well as the interest rates applied have resulted in a reduction in borrowing costs of £6.4 for resource and £9.7 million for capital borrowing costs.

57. The final component of the improved resource funding position are the Machinery of Government budget cover transfers. In total £13.2 million of funding was transferred from HM Treasury and, as outlined in the Whitehall transfers paragraphs in section A of the Guide, these amounts have been transferred across portfolios to the specific budget lines.

B.2 Capital

58. Changes to the overall capital funding position total £50.2 million with £50 million having been allocated as part of the Autumn Budget Revision. This additional funding comes from two sources, additional Barnett consequentials and a carry forward in the Scotland Reserve.

59. As outlined in the resource section no Scotland Reserve carry forward assumption was included for either resource or capital as part of the Scottish Budget process. Following the conclusion of the provisional outturn exercise an underspend of £24.7 million was reported. This funding has been reflected in full as part of the Autumn Budget Revision. Any revisions to the Scotland Reserve position following final outturn will be reflected in the Spring Budget Revision

60. The second component relates to £25.5 million of Barnett consequentials received as part of the UK Governments Spring Statement.

B.3 Financial Transactions

61. The net movement in the Financial Transactions funding position since the Scottish Budget is just £1 million, however this is made up of two larger offsetting amounts.

62. The Scottish Budget assumed a £50 million Financial Transactions underspend in 2022-23 would be available to carry forward into 2023-24. As reported in the provisional outturn the underspend totalled £39 million, resulting in an £11 million shortfall.

63. This shortfall has been bridged by £12 million of Other FT funding. Which is expected to become available through a combination of anticipated changes through the final outturn process and some small emerging movements in the 2023-24 budget monitoring process.

B.4 Scotland Reserve

64. The current forecast Scotland Reserve position following provisional outturn is detailed below. There are a number of caveats to this position including:

• The closing balance for 2022-23 remains subject to any further adjustments through the final outturn process and the publication of the Scottish Government Accounts (noting of course that the Scottish Government Accounts underspend will differ to the Scotland Reserve underspend as they cover different reporting boundaries, with no loss of spending power).
• The assumed drawdown for 2023-24 will be equal to the 2022-23 closing balance following these changes.
• The forecast addition to the reserve (expected net underspends from 2023-24) is nil at this stage in the financial year given the challenging financial position.