Spring Budget Revision 2023-2024 guide: finance update for the FPAC

A. Guide to the Spring Budget Revision

1. The Spring 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 Spring Budget Revision

3. The Spring Budget Revision is routine parliamentary business that proposes amendments to better align the Government’s budget with its planned spending profile. To note, the Spring Budget Revision is based on the portfolios as per Cabinet arrangements when published and therefore does not reflect the portfolio changes made on 8^th February. In addition funding allocated reflects the best estimate of expected additional Barnett consequentials arising at UK Supplementary Estimate.

4. The changes proposed in the Spring Budget Revision result in a decrease in the approved budget of £1,746.5 million from £60,205.9 million to £58,459.4 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 £564.8 million);
• A.3 - Whitehall transfers and HM Treasury allocations to the Scottish Government (total net increase of £144.4 million); and
• A.4 - Technical adjustments (net decrease to the budget of £2,455.7 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 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 £564.8 million, however the gross impact is shown below.

A.2.1 Gross Funding Changes

8. The largest allocation of funding deployed in the budget revision is £752.2 million provided to the NHS Recovery, Health and Social Care portfolio as it continues to recover from the impacts of Covid and to support ongoing services. This additional funding includes £514 million of resource and £235 million of capital.

9. Following the SBR, the total portfolio budget provides record Health funding of over £19 billion, supporting recovery and reform to secure sustainable public services.

10. The Social Justice portfolio is receiving an additional £41.2 million of resource budget for Ukrainian Resettlement costs as part of the Scottish Government’s ongoing commitment to the displaced people of Ukraine.

11. As a broadly demand-led cost, Ukraine Resettlement has proven to be more expensive in 2023-24 than originally forecast due to the popularity of the super sponsor scheme. Work remains ongoing to hold costs as low as possible, but the budget transfer recognises these higher-than-expected costs. By investing a further £41.2m we will continue to provide a high standard of welcome and resettlement support in line with our recent Warm Scots Future policy publication.

12. Within the portfolio Social Security is receiving £284.2 million of funding to meet increases in demand led benefit expenditure following revised forecasts. 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 (£232.4 million). The net movement in social security benefit expenditure in this revision is a £51.8 million increase.

13. The Social Security Assistance budgets were revised to align with the independent forecasts from the Scottish Fiscal Commission published in December 2023, with two exceptions. We seek to inform budget revisions using the most up to date information available. The Scottish Fiscal Commission’s forecasts for Adult Disability Payment and Child Disability Payment informed the budget revision but were supplemented with new information that became available after publication of the Scottish Fiscal Commission forecasts but before Spring Budget Revision was finalised.

14. Social Security have received an additional £17.9m of capital funding to support ongoing capital projects.

15. The Education and Skills portfolio is receiving additional funding of £54.1 million. The largest element of this relates to £29.8 million being provided to the Scottish Qualifications Authority to support its ongoing activities.

16. Additional resource funding of £4.7 has been provided to Disclosure Scotland to support delivery of the Disclosure Act, which focuses on safeguarding children and vulnerable adults, while balancing the need for people with convictions to move on and contribute to society, with an additional £3.2 million of capital funding provided to support ongoing IT capital projects.

17. Education Scotland have received additional funding of £4.1 million to cover pay awards and operating pressures.

18. To support delivery of services across Scotland, the Scottish Children's Reporter Administration (£2.9m), Scottish Social Services Council (£2.4m) and Children's Hearings Scotland (£1.3m) have all received additional funding.

19. The Justice and Home Affairs portfolio has received £202.3 million of funding additions with the budget revision. The largest element is the £134.2 million being provided 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 there may be material movements in this position between now and the end of the financial year given the demand led nature.

20. There will always be volatility in this demand led budgets which will continue to require in-year management. However, to minimise the scale of in-year funding adjustments required the budget for police pensions is increasing by £190 million in the 2024/25 Scottish Budget. This follows a £37 million increase to the Fire Pensions baseline budget in 2023/24.

21. Scottish Prison Service is receiving an additional £22.9 million of funding to help fund cost pressures. This additional funding requirement comes from a combination of the pay award and operational pressures primarily relating to an increased prison population. Scottish Police Authority have been provided with an additional £21 million to meet the SPA pay award.

22. Additional funding of £3.5 million has been provided to support the growing pressure on the Criminal Injuries Compensation Authority as caseloads increase, and £4 million of capital has been provided to support the Airwave and Firelink telecommunications service within Police Central Government.

23. £4.4m has been provided to Scottish Fire and Rescue Service to cover the additional costs of the Fire Fighters pay award

24. The Transport, Net Zero and Just Transition portfolio is receiving additional funding of £81.6 million. The vast majority of this is being provided as additional borrowing capacity for Scottish Water.

25. Within the Deputy First Minister and Finance portfolio, Local Government is receiving additional funding of £15 million to cover the estimated costs of the Bellwin Scheme in 2023-24. The Bellwin Scheme allows Scottish Ministers to make additional revenue support to local authorities in the aftermath of emergency incidents to assist with immediate and unforeseen costs. It was implemented in 2023-24 following significant storm damage, including amongst, others the impact of Storm Babet.

26. £4.75 million has been provided to Organisation Readiness in respect of the COVID-19 Inquiry. Having established a statutory public inquiry, ministers have a legal obligation to meet its costs and this transfer provides the remaining budget required by the Scottish COVID-19 Inquiry for the 2023-24 financial year.

27. Scottish Public Pensions Agency have been provided with an additional £3 million to support pay awards and costs of the Remedy capital project.

28. Note that an additional £24.3 million has been provided to support the Corporate Running Costs of the Scottish Government. The change in Corporate Running Costs budget represents a planned transfer in relation to investment in the Scottish Government's corporate transformation programme, as well as funding of demand-driven budgets across the Scottish Government's corporate services. This funding has been split proportionally across all portfolios based on existing operating cost budgets and is included within the funding additions.

29. Scottish Courts and Tribunals Service are receiving additional funding of £8.9 million. £4.4m has been provided to support pay and £2.6m provided to support the replacement of the current case management system.

30. Additional gross funding changes include;

• £3 million to the Scottish Funding Council to support operational costs.
• £5.8 million of Crown Estate income has been recognised. This amount has been passed directly to Marine for onward distribution to Local Government to reflect the Coastal Communities commitments.

A.2.2 Reductions to Portfolios

31. In response to the UK Autumn Statement in November, savings of £680.3 million were set out by the Deputy First Minister to support inflationary pressures and fair public sector pay deals. The statement outlined a route to balancing the 2023-24 budget and the SBR incorporates the decisions taken.

32. £959.1 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 measures set out by DFM in November. Included in Annex A is a reconciliation between the savings detailed in the Deputy First Minister’s letter to the committee of 21 November 2023 and those included within the Spring Budget Revision

33. The Social Justice portfolio includes £274.2 million of funding reductions of which £232.4 million relates to reductions in Social Security benefit expenditure forecasts as noted in paragraph 12 above.

34. Further material capital savings have been generated in Cladding (£18.4 million) and Housing (£10.3 million) as part of the extensive savings exercises.

35. The Wellbeing Economy, Fair Work and Energy portfolio includes £113.9 million of savings which are driven by the amounts detailed in the Deputy First Ministers letter. The vast majority of these relate to capital grant savings in Energy Industries (£34.6 million) and in City Investments (£48.4 million). As outlined in the letter the release of this budget is due to delayed delivery of programmes which are being reprofiled into future years, subject to budget availability.

36. £10 million of savings relate to Employability Services which, as previously outlined, have been taken from areas that will have the least impact on service users protecting front line services.

37. Further savings have been generated from the Highland and Islands with regards settlement income of £9 million following the out of court settlement received in respect of the original design and build of Cairngorm Funicular Railway.

38. The Transport, Net Zero and Just Transition portfolio have provided £299.5 million of funding as part of the process of active management and reprioritisation of funding, to support the overall financial position. Of this, £191.1 million relates to indirect capital funding which was outlined in the letter to the committee.

39. £87.6 million of these savings have materialised in the Energy Efficiency & Decarbonisation budget lines. This is a combination of loan income received in the year (£45 million) capital expenditure slippage on various heat in buildings projects (£38 million) and related resource savings (£4.5 million) The remaining £16 million of savings relates to Financial Transactions budget lines where demand has not met initial expectations.

40. £75 million of savings are realised from Vessels and Piers in Ferry Services. £41 million relates to the Small Vessels Replacement Programme phase 1 with estimated spend being reprofiled allowing time to fully consider the business case work, vessels design criteria, and help ensure alignment of the related shore power and port improvement works.

41. The remaining £34 million relates to a reprofiling of estimated spend on major port works at Uig, Ardrossan and Gourock. The forecast spend on major port works at Uig has been updated to match committed project profile, with no impact on delivery timeframe. The profiled spend on port works at Ardrossan and Gourock have been reprofiled as a result of ongoing business case, programme, and cost reviews to help deliver value for money.

42. £51.4 million has been realised through reductions in funding provided for the Future Transport Fund. This budget has been released following a review of demand and deliverability in the financial year.

43. The Education and Skills portfolio have allocated funding of £153 million to other areas. £54.2 million is in relation to the Teachers' Pay Awards funding advanced to Local Government at ABR on behalf of the Learning Directorate. £25.6 million has been provided by Higher Education and Student Loans as a result of lower than anticipated applications in year.

44. Scottish Funding Council have released funding of £26 million to support the overall position. These accumulated savings are from a wide range of demand-led and other budgets. £10.9 million has been provided by Children & Families in relation to unallocated Whole Family Wellbeing Funding.

45. Lifelong Learning and Skills have provided funding of £12.8 million relating to agreed savings from demand-led Education Maintenance Allowance, Community Learning and Development, and Skills to contribute towards other SG priorities.

46. Technologies for Learning have provided £13 million of capital and £1 million of resource savings with no spend taking place in 2023-24. This pause will allow for an ongoing review of delivery models to ensure maximum return on investment.

47. The Justice and Home Affairs portfolio have funding reductions of £65.5 million. Of this, £41 million relates to capital funding for the HMP Highland & HMP Glasgow project, which will be reprofiled into future years due to continuing challenges in the construction market.

48. Police Central Government have provided savings of £9.9 million, £4 million of which relates to the reduced requirement for Blue Light Reform funding as work is now expected to take place in future years following the completion of a detailed business case.

49. As outlined in paragraphs 12 and 13 there has been significant movement in social security benefit expenditure forecasts. The net movement of £73.3 million includes £232.4 million of funding reductions for those benefits which have seen forecasts decrease.

50. Rural Affairs, Land Reform and Islands have provided funding of £44.7 million to support the overall position. Scottish Forestry have provided £9 million of indirect capital funding as a result of lower than anticipated planting with the initial planting target not being achieved.

51. Agricultural Support and Related Services have provided funding of £22.1 million as previously announced in November by DFM which will be returned to the portfolio in future years in conjunction with timing of capital budget investment.

52. An additional £5 million of financial transactions funding has been provided as a result of prior year farmers loans being received.

53. Marine have provided funding of £4 million, £3 million of which was previously announced in November, with an additional £1 million of savings from enhanced recruitment controls, maximising income and continuing to deliver operational efficiencies.

A.3 Whitehall Transfers

54. There are nine specific Whitehall transfers and allocations from HM Treasury recognised at the Spring Budget Revision. The net positive impact on the Scottish Budget is £144.4 million.

55. The largest of the Whitehall transfers is the £85.6 million being provided to the NHS Recovery, Health and Social care portfolio from the UK Health Security Agency for Scotland’s share of Test and Protect funding. The portfolio is also receiving a transfer of £2.5 million which is providing interim payments to all new members of the Scottish infected blood support scheme.

56. The Social Justice portfolio has received £9.232 million in Whitehall transfers. The Ukrainian Resettlement is receiving two transfers. The first is a transfer of £8.074 million for Thank You Payments, and the second a transfer of £0.082 million for the Children and Young People fund.

57. A transfer of £1.076 million is also 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.

58. Within the Deputy First Minister and Finance portfolio, Local Government is receiving a transfer of £30 million in relation to the Ukrainian Resettlement programme.

59. The Wellbeing Economy, Fair Work and Energy portfolio is receiving a transfer of £15.985 million to provide funding to support the R100 Programme under Digital Connectivity.

60. Scottish Courts and Tribunals Service are receiving a transfer of £1.6 million relating to the devolution of Personal Independence Payment appeals from HMCTS.

A.4 Technical Adjustments

61. 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 a decrease of £2,455.7 million and are summarised below.

62. The largest technical change is the £3.16 billion decrease in the AME non-cash provision for NHS and Teachers pension costs. The decrease in required budget has resulted from a reduced opening pensions liability and a reduced service cost for both the Scottish Teachers Pension Scheme and the NHS Scotland Pension Scheme.

63. The reduced service cost is a direct result of the increase in discount rate from 1.55% to 4.15% as specified by HM Treasury in the Public Expenditure System paper in 2022

64. Within the Education and Skills portfolio there have been two technical adjustments in relation to student loans, totalling £734.1 million. The first is an adjustment of £419.9 million relating to a fair value adjustment and a revised estimate of the capitalised interest requirement.

65. The second adjustment of £314.2 million relates to an increase in the student loans non cash Resource Accounting & Budgeting (RAB) charge requirement. The RAB charge is a non-cash adjustment to reflect a change in valuation which considers the extent to which student loans issued to Scottish students will be repaid.

66. Additional budget cover has been provided for Private Finance Initiatives (PFI) projects in NHS Recovery, Health and Social Care of £48.1 million. This technical change falls outside of UK Budget limits and is provided to align the Scottish Budget with accounting requirements.

IFRS16 adjustments:

67. 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.

68. 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.

69. IFRS 16 removes this distinction. If an entity enters 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.

70. 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 (£107 million).

A.5 Internal Transfers

71. There are several internal transfers within the Scottish Block as part of the Spring 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.

72. The significant internal budget transfers between portfolios include:

• Transfer from Education & Skills to Local Government within the Deputy First Minister & Finance portfolio to support the expansion of Free School Meals (£139.7 million).
• Transfer from Education & Skills to Local Government within Deputy First Minister & Finance to support teacher training and the employment of teachers on permanent contracts (£60.5 million).
• Transfer from Social Justice to Local Government within the Deputy First Minister & Finance portfolio to support local authorities with funding for the Scottish Welfare Fund (£40.8 million).
• Transfer from Health & Social Care to Education & Skills to fund additional places for Medical, Nursing and Midwifery Students in Scotland 2023/24 (£25.1 million).
• Transfer from Education & Skills to Local Government within the Deputy First Minister & Finance portfolio to provide funding for the delivery of Kinship Foster Care Allowances (£16 million).
• Transfer from Transport Net Zero & Just Transition to Wellbeing Economy, Fair Work & Energy portfolio to support CARES Programme (£10.2 million).