Fiscal Update: COVID-19 and the Scottish Budget

The Scottish Fiscal Commission has today published an update on the Scottish Government’s Budget in the light of the significant changes in spending commitments and funding since our forecast on 6 February.

The combined effect of the Scottish Government’s Budget deal and the UK Budget on 11 March is an increase in spending of £247 million in 2020-21.

In addition the Scottish Government is currently expected to receive £3.5 billion from the UK Government, representing its share of the significant increase in public spending in the UK aimed at tackling the COVID-19 crisis.

The Commission’s Chair, Dame Susan Rice, said

“In the light of the changes since our last forecast, today we are providing an updated perspective on the current Scottish Budget position.

“The Scottish Government is required to broadly balance its budget and has limited scope for borrowing and using its reserves. Given the uncertainties about the level of funding and the spending required to respond to the crisis this may present some challenges.”

The other major component of the Scottish Government’s funding is income tax which in February the Commission forecast would account for over £12 billion of the 2020-21 Budget. Although it is clear that income tax revenues will be heavily affected by the crisis, the devolution agreement with the UK Government means there will be no effect on the Budget for 2020-21. Any changes will be applied in 2023-24 through an adjustment depending on the relative differences in Scottish and UK income tax performance in 2020-21.

Notes for Editors

1. The Commission’s Fiscal Update – April 2020 is available on our website. Background information is also available including spreadsheets with data for all the update’s tables and charts.

2. The analyses for this update were completed on Tuesday 21 April. The update discusses in detail the changes since the February Budget. The Scottish Government’s Budget deal and the UK Budget increased resource spending by £159 million and capital spending by £88 million before accounting for COVID-19 related spending. The report also covers the subsequent public spending response to COVID-19 which will currently increase spending in Scotland by £3.5 billion in 2020?21.

3. The recent OBR analysis of the UK economy and public finances, and similar analysis of the Scottish economy by the Fraser of Allander Institute and Scottish Government, is helpful in explaining the ways in which the economy will be affected and the potential scale of the effects. The Commission takes the view that given the way in which the Scottish Budget is determined, detailed analysis would be of limited value at the moment in understanding the position of the Scottish Budget.

4. The Commission’s next set of forecasts were due on 21 May when the Scottish Government was going to publish its Medium Term Financial Strategy (MTFS). The Cabinet Secretary for Finance has now postponed the MTFS. The Commission is considering its future plans and discussing the arrangements for future fiscal events with the Parliament and Government.

5. The Scottish Fiscal Commission is the independent fiscal institution for Scotland, established by the Scottish Fiscal Commission (2016) Act. Our statutory duty is to provide the independent and official forecasts of Scottish GDP, devolved tax revenue and devolved social security spending for the Scottish Government to use in its budget and financial planning. The Commission’s forecasts also assist the Parliament’s scrutiny of the Scottish Budget.

6. This update represent the collective view of the Scottish Fiscal Commission, comprising the Commissioners: Professor Francis Breedon, Professor Alasdair Smith, Professor David Ulph, and the Chair, Dame Susan Rice.

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