Implementation of the Scotland Act 2016: second report

Chapter 8 - Fiscal Framework Implementation

Scotland Act 2016

122. The Fiscal Framework determines, in relation to the Scotland Act 2016: an agreed transfer of funding for administration and implementation costs; principles to ensure no detriment as a result of UK government or Scottish Government policy decisions post-devolution; a commitment to update audit and accountability arrangements.

Administration and Implementation Costs

123. There are administration and implementation costs associated with the new powers and functions being devolved. The UK and Scottish Governments agreed in the Fiscal Framework that the UK Government will provide a non-baselined transfer of £200m to the Scottish Government to support the implementation of the new powers and a baselined transfer of £66m to cover the ongoing administration costs associated with the new powers.

Implementation Costs

124. Within these headline totals, £100m was transferred for administration costs for 2017-18 at the Autumn Statement 2016 to inform the Scottish Government's Draft Budget 2017-18. The drawdown of the remaining £100m was agreed through the Joint Exchequer Committee ( JEC) in correspondence in December 2017. This funding will also be transferred within the financial year 2017-18.

125. It is forecast that £31.4m will be used to fund Scotland Act implementation in 2017-18. Costs of implementation are monitored as part of programme management arrangements in place across the range of new powers. All unused balances related to the £200m in 2017-18 will be managed into the next financial year through the Scotland Reserve.

Running Costs

126. For running costs, it was agreed at JEC in November 2016 that £22 million would be transferred for 2017-18. A multi-year profile was agreed through the JEC in correspondence in December 2017. As part of this agreement, £37m will be transferred in 2018-19, £51m in 2019-20 and £66m in 2020-21. This transfer will be indexed through the normal application of the Barnett Formula.

No Detriment as a Result of Policy Decisions Post-Devolution

127. The Fiscal Framework includes provisions on 'policy spillovers' to implement the Smith Commission's conclusion that where either the UK or the Scottish Government makes policy decisions that affect the tax receipts or expenditure of the other, the decision-making government will either reimburse the other if there is an additional cost, or receive a transfer from the other if there is a saving.

128. A working group of officials from Scottish and UK Government (Spillovers Working Group) was convened to discuss the production of guidance setting out how the provisions on policy spillovers should be applied in practice.

129. This Group co-drafted guidance for how the process for direct effects would work, i.e. financial effects that will directly and mechanically exist as a result of the policy change (before any associated change in behaviours). This guidance was agreed by Scottish and UK Ministers through the JEC in correspondence in December 2017. This guidance has been included as an annex to this report. The process outlined in the guidance for direct effects will now be applied to the financial year 2018-19.

130. The Spillovers Working Group reconvened in March 2018 in order to produce guidance setting out how the provisions on behavioural spillovers effects should be applied in practice.

Audit and Accountability

Scotland Act 2016

131. Both the Scottish and UK Governments have agreed to update auditing and accountability arrangements in light of the Scotland Act 2016. The technical annex to the Framework sets out key principles that arrangements should be efficient and effective, avoid duplication, and should not result in auditors becoming overburdened once the Scotland Act 2016 are fully implemented.

132. Scottish Government and UK Government officials have been working together to produce a Framework document setting out how these principles should be applied in practice. Officials have produced a preliminary draft of the document that has been shared with both the Scottish Parliament Public Audit and Post-Legislative Scrutiny Committee ( PAPLSC) and the UK Parliament's Public Audit Committee. In arriving at the draft, close attention was paid to the previous Scottish Parliament's recommendations on these matters and to Audit Scotland's recommendations in discussions throughout the drafting process. UK Government officials have also shared the drafts with the National Audit Office and their feedback has also been taken into account.

133. Scottish Government Officials gave evidence at PAPLSC on Thursday 8 February alongside the Auditor General for Scotland and Audit Scotland. Officials are now working with HM Treasury officials to ensure that feedback from the Committee and Audit Scotland is taken into account alongside any feedback from the UK Parliament and the National Audit Office. The final version of the Framework will be agreed by Scottish and UK Ministers through the JEC.