The Scotland Reserve is an instrument that allows the Scottish Government to transfer funds between financial years. It replaced the Budget Exchange Mechanism (BEM) within HM Treasury that is available to UK Government departments.
It is split into three separate accounts or components: resource, capital and financial transactions (FTs). There was an overall limit of £700 million in 2023-24, which will increase every year by inflation. The fiscal framework does not specify how this limit is split between accounts, so the Scottish Government can manage each account within the overall limit. Some one-way transfers are allowed between accounts: funds from the resource reserve can move to the capital reserve, and funds from the capital reserve can move to the FT reserve.
The Scottish Government can add any underspends or unallocated funding to the reserve each year and then drawdown in future financial years.