As we emerge from the coronavirus lockdown the UK government’s strategy to restart the economy has been revealed, leading to controversy in Scotland.
Chancellor Rishi Sunak announced a ‘Plan for Jobs’ in his summer economic statement on 8 June.
In Scotland, finance secretary Kate Forbes was unimpressed by the content of the plan, which she claimed would lead to limited support for the Scottish Government.
Of the c. £30 billion announced by the Chancellor today to support the economy, the Scottish Government will receive only £21m – less than 0.1%. Kate Forbes, Finance secretary
Ferret Fact Service looked at this claim and found it Half True.
Firstly, we should look at the £30bn of funding that Kate Forbes claims was announced by the UK government.
The £30bn figure likely refers to the amount of UK Government spending through the policy decisions in the ‘Plan for Jobs’.
Sunak announced a job retention bonus (up to £9.4bn); a new work placement scheme (£2.1bn); bonuses for business who take on apprentices and training (£1.6bn); reduced VAT rates for “hospitality, accommodation and attractions” (£4.1bn); vouchers for people who eat out in restaurants (£0.5bn); an infrastructure package which was first announced in June (£5.6bn); a number of grants and investment in creating green homes and decarbonising (£3.1bn); and a temporary cut to Stamp Duty (£3.8bn).
Together these amount to “up to” £30bn in funding. This is the maximum support available, and many of these estimates rely on full take-up of the various schemes and bonuses. This is unlikely, however, and the UK Government admits that “final costs are likely to be lower than the maximum set out”.
The Office For Budget Responsibility estimated these costs would actually be just under £20bn.
Forbes’ claim is that only 0.1 per cent, or £21m, of the £30bn, would go to the Scottish Government. According to analysis by the Scottish Parliament Information Centre (SPICe), the amount of money to be added to the Scottish Government’s block grant from the ‘Plan for Jobs’ announcement will be £20.6million in 2020-21. This is achieved through the Barnett formula, which calculates the yearly change in everyday funding for the devolved nations, based on the amount of UK Government spending per department.
The Fraser of Allander Institute also came to similar conclusions, reporting that “only around £20m” will come into the Scottish budget from the ‘Plan for Jobs’, largely through money allocated to apprenticeship funds.
However, Sunak’s announcement will provide money for Scotland in several other ways.
Much of the funding announced in the plan is for UK-wide schemes, which will benefit those in Scotland. Chief among this is the job retention bonus, a “one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021.” This will be paid in relation to take-up and will include Scottish employers. It will cost up to £9.4bn, according to Treasury figures, while the OBR estimated it would cost £6.1bn.
The Kickstart scheme is also UK-wide, and will provide work placements of six months for young people currently on benefits who are “deemed to be at risk of long-term unemployment”. This has been allocated £2.1bn in the ‘Plan for Jobs’.
There are several other UK-wide schemes including decarbonisation, the ‘Eat Out to Help Out’ scheme, and various projects to help people looking for work.
The amount of money which will be available to those in Scotland from these schemes has not been revealed, but it will be substantially higher than £21m. The IFS suggested it “could amount to around £1 billion”.
What is the Barnett formula?
The Barnett formula calculates the annual change in funding allocated to Scotland and other devolved powers, not the amount of money. The aim is to make sure that if changes are made to public spending in England, equivalent changes (in pounds-per-person) are made in Scotland, Wales and Northern Ireland.
The formula relates to “block grants”, which cover the normal, everyday costs of running services. The block grant can change depending on increased devolution—greater spending powers would increase the block grant, while greater tax powers reduce it.
How is the change calculated?
The formula multiplies the change in department spending by the proportion of services that have been devolved (this is the comparability percentage), and by Scotland’s population.
For services which have been completely devolved (like education), the “comparability percentage” is 100 per cent, though many departments are made up of a combination of devolved and reserved services.
Finally, the figure is multiplied by Scotland’s population as a percentage of the population of England (or England and Wales).
Once the total for each department (known as the “Barnett consequential”) has been calculated, these are added together to produce a final sum of money, which is then allocated to the devolved power.
It will not come to the Scottish Government through adjustments to the block grant, which means Ministers in Scotland will not be able to allocate it in ways they see fit.
Some of the announcements which would be expected to have Barnett consequentials, such as the £2bn Green Homes Grant scheme for England, are being funded from reallocations of existing budgets – as are around half of the apprenticeship, traineeships, school leavers and careers help schemes, according to Institute of Fiscal Studies (IFS) analysis.
The reduction in Stamp Duty is also an important factor as this is devolved to Scotland where it is called the Land and Buildings Transaction Tax (LBTT). The UK Government increased the threshold for having to pay the tax from £125,000 to £500,000 until March 2021. The Scottish Government has announced an increase to the LBTT threshold from £145,000 to £250,000.
The IFS reports that the money heading to the Scottish Government from the cut “could amount to around £120 million spread over this year and next”.
Sunak’s announcement also included £49bn in funding for public services, £33bn of which is new, according to the IFS. Much of this money will be for the NHS, including the purchase of personal protective equipment (PPE) and other frontline support.
This will result in significant Barnett consequential money for the devolved administrations (Scotland, Wales and Northern Ireland). The IFS found that of the £49bn, around £4.1bn would come to the devolved governments.
Chancellor Rishi Sunak suggested that the plan included £800 million for Scotland “through the Barnett formula”. Much of the money will be from extra NHS spending, plus a package announced for the arts, according to the Fraser Allander Institute.
The IFS calculated the Scottish Government will get “over £700 million as a result of other funding confirmed” in the summer economic update, as well as the £21 million previously mentioned.
Including the additional funding from the Stamp Duty holiday, the final total will likely be “£900 million”.
Ferret Fact Service verdict: Half True
Kate Forbes is using a very narrow definition of the money announced in Rishi Sunak’s speech. The Barnett consequentials from the specific new business policies announced in the ‘Plan for Jobs’ will be relatively small, but they are part of a much larger package of support. This comes through direct funding from the UK Government for job retention and work placement schemes, VAT cuts and the cut to Stamp Duty. There will also be money to the Scottish Government from the announced funding increases to public services.
In response to an evidence request, The Scottish Government provided links to SPICe and Fraser of Allander analyses of the budget.
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Photo thanks to Fraser Bremner/Scottish Daily Mail.