Spring budget 2018-2019: supporting document

Introduction

1. This booklet provides information for the Parliament and others in support of the ‘Budget (Scotland) Act 2018 (Amendment) Regulations 2019’ – the Spring Budget Revision. The Order is a Scottish Statutory Instrument laid before the Scottish Parliament by the Scottish Government in February 2019. The booklet itself has no statutory force – it is produced as an aid to understanding the Order.

2. The purpose of the Spring Budget Revision is to amend the Budget (Scotland) Act 2018, which authorises the Scottish Government’s spending plans for the financial year 2018-19.

3. The main changes to the Scottish Government’s spending plans are:

i) Funding changes to reflect deployment of available resources to portfolios offset by increased income from the repayment of Farmers’ Loans (a net decrease of -£3.3 million to portfolio budgets);
ii) A net increase of £275.7 million in respect of Whitehall Transfers and HM Treasury allocations to/from the Scottish Government;
iii) Net technical adjustments of £3,303.8 million the vast majority of which are additional non-cash and Annually Managed Expenditure (UK Funded AME) budget cover from HM Treasury for pension and other provisions, impairments and adjustments to align the budget with accounting requirements;
iv) The transfer of resources between Scottish Government portfolios (net zero).

In total these changes will increase the Scottish Government budget by £3,576.2 million from £40,505.9 million to £44,082.1 million.

4. The purpose of the Spring Budget Revision is to seek Parliamentary approval for these changes.

Funding Changes (-£3.3 million)

5. The funding changes are allocated over a number of lines. As in past years, as part of the internal robust monitoring process and in line with good practice, we have taken the opportunity at the Spring Budget Revision to ensure that we maximise the budget available in 2018-19 through the redeployment of emerging/planned underspend alongside the remaining unallocated resources held centrally. This strategy is reflected in the portfolio schedules. Key areas where additional funding has been applied include; £95m for Police and Fire Pension pressures, £40m for acceleration of the Waiting Times Improvement Plan, £34m to fund Carers Allowance Supplement, £6.9m additional Educational Attainment funding, The main reason for the net reduction is due to the net repayment of £175m of farmers’ loans financial transactions in the Rural Economy portfolio.

Whitehall Transfers / Allocations from HM Treasury (£275.7 million)

6. There are 13 Whitehall transfers recognised at the Spring Budget Revision together with seven allocations from HM Treasury. The net positive impact on the Scottish Budget is £275.7 million.

7. In respect of Whitehall transfers totalling , there are transfers of responsibility from the Department for Work and Pensions for Carers Allowance £157.3m and Sure Start Maternity Grant £0.6m, along with a £0.5m transfer for Single Gateway Project funding, £0.2m for the Fit for Work programme and £0.1m for a GP IT project. There are three transfers of £1.4m, £1.1m and £0.5m from the Cabinet Office for Cyber Security, two transfers from the Department for Business, Energy and Industrial Strategy for public sector energy efficiency £3.6m and research & development £1.6m, and transfers of £1.5m from the UK Money Advice Service, £0.5m from the Home Office for Migrant Surcharge and £0.8m from the Department for Health and Social Care in respect of HIV funding.

8. From HM Treasury there is £78.0m in respect of Agenda for Change staff Health Pay Award, £22.0m for funding the impact of changes to the Discount Rate applied in calculating Personal Injury claims, £3.2m to fund the costs of the US Presidential visit, a £1.0 million allocation to provide grants to women’s organisations (from the Tampon Tax), an allocation of £1.0 million in respect of the Air Ambulance, £0.7 million in respect of LIBOR funding for Scottish Mountain Rescue and £0.1 million in respect of funding for free pregnancy terminations for women from N. Ireland.

Technical Changes (£3,303.8 million)

9. The Spring Budget Revision records net technical changes of £3,303.8 million. The largest technical change is the increase to the AME provision for future NHS and Teachers pension costs. This arises from the outcome of the appeal court rulings on the Judicial Pension Scheme and Firefighters Pension Scheme discrimination claims on the age related protections afforded to certain members on transition from final salary to the career average revalued earnings (CARE) scheme arrangements. This ruling has significant implications for the future costs of unfunded schemes and we have had to adjust the budget to reflect the level of resource that may be required by the NHS Pension Scheme (Scotland) and the Scottish Teachers' Pension Scheme to meet the potential future costs of remedy. This is a £2,329.5 million adjustment to non-cash AME budgets. The change is consistent with adjustments that will be made to all UK departments following discussion with HMT on the implications of the decision. The UK Government is expected to seek to appeal this case further and the final position is not likely to be resolved for some time. The adjustment is made on the basis of legal opinion on the probability of a successful appeal.

10. There are significant adjustments to the non-cash budget of the Education and Skills portfolio of £668.8 million, principally as a result of the impact on the carrying value of loan book following the change to the loan repayment threshold. In addition, the Health and Sport portfolio has increased its non-cash budget by £63 million to cover non-cash costs to NHS Boards of write downs and accelerated depreciation. There has also been: an increase of £53.9 million to the NHS and teachers pensions budget due to indexation and equalisation; an increase in Grant-in-Aid for the Scottish Police Association (£15 million) which has been allocated to support working capital requirements; an adjustment to budgets in respect of repayment of a pre-paid funding for the sleeper service -£27.9 million; an adjustment to Scottish Water net loans -£3.7 million; and a number of other small miscellaneous technical adjustments.

11. There are also additional allocations of AME budget, as agreed and funded by HM Treasury, to cover provisions, impairments, fair value adjustments and pension liabilities (£178.6 million) as well as a small number of changes (£24.8 million) to align budgets with accounting requirements under the Government Financial Reporting Manual (the FReM).

Internal Transfers

12. Internal transfers do not affect the Scottish Government’s budget as a whole. Instead, they move budget within or between portfolios, often to reflect changes in responsibility between portfolios, changes in payment mechanisms and virement intended to maximise the use of available resources in a given financial year. Typically, given the timing within the financial year, the Spring Budget Revision reflects a number of internal budget transfers.

13. The significant budget transfers between portfolios are as follows:

• Transfer of £71.0 million from Finance, Economy and Fair Work portfolio to Social Security and Older People portfolio for Social Security Implementation and Administration.
• Transfer of £25.0 million from Finance, Economy and Fair Work portfolio to Communities and Local Government portfolio for the Building Scotland Fund.
• Transfer of £7.0 million from Transport, Infrastructure & Connectivity portfolio to Rural, Economy portfolio for Wave Energy.
• Transfer of £6.7 million from Health and Sport portfolio to Education and Skills portfolio in relation to clinical academics and senior academic GPs.
• Transfer of £5.3 million from Rural Economy portfolio to Education & Skills portfolio in relation to the South of Scotland Enterprise Project.

Capital

14. Table 1.8 on page 12 of the supporting document provides a complete picture of capital spending. As the Finance and Constitution Committee is aware, in respect of the Scottish Budget, the definition of capital applies to only spending that scores as capital in the Scottish Government’s consolidated accounts or the accounts of Directly Funded Bodies.

Table A: Revisions by type Scottish Budget

Change Type	Total
	£m
Funding Changes	-3.3
Technical Adjustments	3,303.8
Whitehall Transfers	275.7
Scottish Block Transfers	0.0
Total Changes	3,576.2

Format of Supporting Document

15. The Scottish Government continues to discuss with the Finance Committee and others how it can improve the presentation and usefulness of supporting information. This document builds on changes introduced in previous Budget (Scotland) Bill supporting documents, and the rest of the document is set out as follows.

16. Following this introduction, the summary tables on pages 5 to 12 set out the changes sought in the Order at portfolio level, and the effect of the proposed changes on the overall cash authorisations. There is a clear read across from the numbers shown on the face of the Budget Act to those in these tables, and to the revised numbers shown in the Spring Budget Revision Order itself. A third set of summary tables provides a reconciliation between the resource budgets and the cash authorisations. A final table shows the voted Capital Spending and Net Investment for each portfolio following the Spring Budget Revision adjustments. It should be noted that for the remainder of the document, only spending that scores as capital in the Scottish Government’s or Direct Funded Bodies’ annual accounts is shown as capital.

17. The main body of the document then provides a more detailed analysis of the proposed changes on a portfolio by portfolio basis. For each portfolio and direct-funded body, it shows:

• a summary of the changes proposed for the portfolio;
• how the proposed revised portfolio budget is comprised in terms of operating and capital resources, divided into the main spending aggregates: Expenditure Limit, UK Funded AME (Annually Managed Expenditure) and Other to show TME (Total Managed Expenditure) in respect of the Scottish Budget;
• details of the proposed major changes; and
• details of the proposed revised budgets disaggregated to Level 3.

18. The Scottish Government’s spending proposals are in the main presented to Parliament in resource terms. But to meet the requirements of the “Public Finance and Accountability (Scotland) Act 2000”, Budget Bills and Revisions seek authority for the budgets of NDPBs in cash, and NDPB numbers in this supporting document are also given in cash terms. In order to allow comparison with NDPB budgets presented in other Scottish Government publications, the following table compares cash and resource budgets.

Table B – Revised NDPB Cash and Resource Budgets by Portfolio, 2018-19

Portfolios (with at least one Executive NDPB)	NDPB Budget (Cash )	Non Cash items	NDPB Budget (Resource )
	£m	£m	£m
Health and Sport	106.7	1.3	108.0
Communities and Local Government	1.7	0.0	1.7
Finance Economy and Fair Work	251.1	46.1	297.2
Education and Skills	2,168.7	74.7	2,243.4
Justice	1,586.8	119.8	1,706.6
Transport, Infrastructure & Connectivity	27.0	19.5	46.5
Environment, Climate Change and Land Reform	112.4	16.9	129.3
Rural Economy	66.8	22.5	89.3
Culture, Tourism & External Affairs	207.5	23.0	230.5
Total	4,528.7	323.8	4,852.5

Process for the Budget Revision

19. Following detailed consideration by the Subordinate Legislation and Finance & Constitution Committees, the Scottish Parliament has an opportunity to vote on the Spring Budget Revision order subject to a recommendation by the Finance & Constitution Committee.