The disclaimed audit opinion from the Comptroller and Auditor General (C&AG), Gareth Davies, on the Whole of Government Accounts (WGA) 2022-23 is the first ever.
The cause is the severe backlogs in English local authority audits, with the consequence that there is inadequate assurance over material amounts throughout the WGA.
The WGA is a vital tool in the management and scrutiny of public spending, as it brings together all public sector assets and liabilities. It is essential that the steps being taken by Government to restore timely and robust local authority audited accounts are effective.
The PAC Chair’s statement can be found here PAC Chair’s statement – WGA.pdf. The link to the WGA 22/23 can be found in the notes to editors.
Backlogs in firms’ audits of England’s 426 local authorities have led to the National Audit Office (NAO) disclaiming the 2022-23 WGA for the first time.
As well as local authority accounts, the WGA combines the accounts of over 10,000 public bodies, such as central government departments, devolved administrations, the NHS, academy schools and public corporations.
Within his audit report, the NAO’s head, Gareth Davies, said he had been “unable to obtain sufficient, appropriate evidence upon which to form an opinion”.
Just over 10% (43) of England’s 426 local authorities submitted reliable data to the WGA.
Of the near 90% of local authorities that failed to submit reliable data, 46% (196) submitted information that hasn’t been audited, and 44% (187) did not submit any data at all.
The Government is taking steps to address the backlog in audited accounts for English local authorities, including the use of fixed dates by which each year’s audits must be completed.
This process is unlikely to allow the disclaimer on WGA to be removed for 2023-24, but it does offer a medium-term solution to the problem.
The WGA is a vital tool in the management and scrutiny of public spending, as it brings together all public sector assets, liabilities, income and expenditure. This means that long-term costs to the public purse such as clinical negligence and nuclear decommissioning are visible to policy makers and Parliamentarians.
Gareth Davies, head of the NAO said:“It is clearly not acceptable that delays in audited accounts for English local authorities have made it impossible for me to provide assurance on the Whole of Government Accounts for 2022-23.
“It is essential that the steps being taken by Government to restore timely and robust local authority audited accounts are effective”.
The disclaiming of the WGA is in relation to local authority audit omissions and unaudited returns. The impact of this impact is so large and pervasive that the Comptroller and Auditor General is unable to give any opinion on the WGA at all. The C&AG continues to provide assurance over all central government departments via their statutory departmental accounts on an annual basis, and the disclaimer of the WGA does not impact upon the opinions he gives on those accounts.
Public services will come under further threat if the Scottish Government does not set out and deliver a clear and costed vision for public service reform, says Scotland’s spendingwatchdog Audit Scotland.
Spending pressures have become more acute in recent years and are forecast to grow. But ministers have continued to rely on short-term decisions to balance the books, rather than making fundamental changes to how services are delivered.
Public service reform is a key component of the Scottish Government’s approach to fiscal sustainability. But there is no evidence of large-scale change on the ground, while the Scottish Government:
has not yet fully established effective governance arrangements for a reform programme
does not know what additional funding is required to support reform
and has not provided enough leadership to help public sector bodies deliver change.
The Scottish Government has not been transparent enough with the Scottish Parliament or the public about the medium-term risks it is facing.
The medium-term financial strategy and financial plans for the NHS and infrastructure investment have all been delayed. The absence of these documents makes scrutiny of the current uncertain financial situation more difficult.
Stephen Boyle, Auditor General for Scotland, said: ““People do not fully understand the medium-term risks public services are facing because of a lack of transparency from the Scottish Government.
“The reality is that we need a fundamental change to how public money is spent to ensure services can meet demand and remain affordable beyond the short-term.
“To turn that into action on the ground, the Scottish Government must set out a clearer vision of what its plans for reform will achieve, including delivery milestones and the likely impact of reform on services and people.”
Prime Minister Keir Starmer delivered a speech in the Downing Street garden today on fixing the foundations of our country
When I stood on the steps of Downing Street – just over there – two months ago. I promised this government would serve people like you.
Apprentices. Teachers. Nurses. Small business owners. Firefighters. Those serving our community and our country every day.
I promised that we would get a grip on the problems we face. And that we would be judged by our actions, not by our words.
I said before the election – and I say it again really clearly today: Growth.
And, frankly, by that I do mean wealth creation…
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is the number one priority of this government.
That’s why, in our first few weeks, we set up the National Wealth Fund –
because we want every person and every community to benefit.
It’s why we’ve unlocked planning decisions –
Because we are going to build 1.5 million new homes.
It’s why we’ve set up Great British Energy –
To create good jobs and cut people’s bills.
And it’s why we ended the national strikes that have crippled our country for years.
Because I defy anyone to tell me that you can grow the economy…
when people can’t get to work – because the transport system is broken.
Or can’t return to work – because they’re stuck on an NHS waiting list.
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And these are just the first steps towards the change that people voted for.
The change I’m determined to deliver.
But before the election I also gave a warning.
I said change would not happen overnight.
When there is deep rot in the heart of a structure, you can’t just cover it up.
You can’t tinker with it or rely on quick fixes.
You have to overhaul the entire thing.
Tackle it at root.
Even if it’s harder work and takes more time.
Because otherwise what happens?
The rot returns.
In all the same places.
And it spreads.
Worse than before.
You know that – I know that.
That’s why this project has always been about fixing the foundations of this country.
But I have to be honest with you. Things are worse than we ever imagined.
In the first few weeks, we discovered a £22 billion black hole in the public finances.
And before anyone says ‘oh this is just performative’.
Or ‘playing politics’.
Let’s remember.
The OBR did not know about this.
They didn’t know.
They wrote a letter saying they didn’t know.
[Please note political content redacted here.]
Even just last Wednesday, we found out that
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We borrowed almost £5 billion more than the OBR expected in the last three months alone.
That’s not performative – that’s fact.
But as well as the things we’ve discovered, we’ve also seen shocking scenes across the nation.
A mindless minority of thugs – who thought they could get away with causing chaos.
Smashing up communities and terrifying minorities.
Vandalising and destroying people’s property.
Even trying to set fire to a building – with human beings inside it.
And as if that wasn’t despicable enough.
People displaying swastika tattoos.
Shouting racist slurs on our streets.
Nazi salutes at the cenotaph –
The cenotaph – the very place we honour those who gave their lives for this country.
Desecrating their memory….
Under the pretence – and it is a pretence – of ‘legitimate protest’.
Now they’re learning that crime has consequences.
That I won’t tolerate a break down in law and order under any circumstances.
And I will not listen to those who exploit grieving families, and disrespect local communities.
But these riots didn’t happen in a vacuum. They exposed the state of our country. Revealed a deeply unhealthy society. The cracks in our foundation laid bare –
Weakened by a decade of division and decline.
Infected by a spiral of populism…
Which fed off cycles of failures
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Stuck in the rut of the politics of performance.
And I saw the beginning of that downward spiral firsthand.
Back in 2011.
When riots ripped through London and across the country.
I was then Director of Public Prosecutions.
And when I think back to that time.
I see just how far we have fallen.
Because responding to those riots was hard – of course it was.
But dealing with the riots this summer was much harder.
In 2011, I didn’t doubt the courts could do what they needed to do.
This time – to be honest with you – I genuinely didn’t know.
Let me tell you this. Every day of that disorder – literally every day – we had to check the precise number of prison places we had and where those places were.
To make sure we could arrest, charge and prosecute people quickly.
Not having enough prison places is about as fundamental a failure as you can get.
And those people throwing rocks, torching cars, making threats.
They didn’t just know the system was broken.
They were betting on it.
Gaming it.
They thought – ‘ah, they’ll never arrest me.
And if they do, I won’t be prosecuted.
And if I am, I won’t get much of a sentence.’
They saw the cracks in our society after 14 years of populism and failure – and they exploited them.
That’s what we have inherited.
Not just an economic black hole.
A societal black hole.
And that’s we have to take action and do things differently.
And part of that is being honest with people – about the choices we face. And How tough this will be. And frankly – things will get worse before they get better.
I didn’t want to release prisoners early.
I was Chief Prosecutor for five years.
It goes against the grain of everything I’ve ever done.
But to be blunt – if we hadn’t taken that difficult decision immediately.
We wouldn’t have been able to respond to the riots as we did.
And if we don’t take tough action across the board. We won’t be able to fix the foundations of the country as we need.
I didn’t want to means test the Winter Fuel Payment. But it was a choice we had to make.
A choice to protect the most vulnerable pensioners. while doing what is necessary to repair the public finances.
Because pensioners also rely on a functioning NHS.
Good public transport.
Strong national infrastructure.
They want their children to be able to buy homes.
They want their grandchildren to get a good education.
So we have made that difficult decision –
To mend the public finances.
So everyone benefits in the long term –
Including pensioners.
Now that is a difficult trade off.
And there will be more to come.
I won’t shy away from making unpopular decisions now…
If it’s the right thing for the country in the long term.
That’s what a government of service means.
This shouldn’t be a country where people fear walking down their street.
Their TVs showing cars and buildings being set on fire.
This shouldn’t be a country where the Prime Minister can’t guarantee prison places.
This shouldn’t be a country where people are paying thousands more on their mortgage.
Or waiting months for hospital appointments they desperately need.
Where our waters are filled with sewage.
Where parents worry that their kids won’t get the opportunities they did.
Where nothing seems to work anymore.
So, when I talk about the inheritance the last government left us…
The £22 billion black hole in our finances…
This isn’t about a line on a graph.
That’s about people’s lives.
Your lives.
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This government won’t always be perfect, but I promise you this:
You will be at the heart of it…
In the forefront of our minds…
At the centre of everything we do.
That’s why I wanted to invite you here today.
To show that decent, hard-working people who make up the backbone of this country belong here.
This government is for you.
A garden and a building that were once used for lockdown parties…
Remember the pictures just over there? With the wine and the food.
Well this garden…
And this building…
are now back in your service.
[Please note political content redacted here.]
Those things happened precisely because the government itself lost its focus.
on the hopes and ambitions of working people.
During those recent riots, I made huge asks…
of the police and of the criminal justice system –
People already stretched to the limit.
They knew I was making big asks of them.
And I’m not going to apologise for it.
But let me tell you this – they delivered.
They deserve our gratitude.
And that’s why I went to Southport…
To Lambeth…
To Belfast…
To thank them personally. To shake the hands of the first responders who rose up to the ask I made of them.
They deserve a government that trusts them.
Supports them.
And works with them.
That is the sort of government we will be.
One that works with people, not does things to them.
One that believes in hard graft, not gimmicks.
Honest about the challenges we face…
And working tirelessly to fix them.
That is how we will always work.
Now, next week, parliament returns. The business of politics will resume. But it won’t be business as usual.
Because we can’t go on like this anymore. Things will have to be done differently.
We will do the hard work to root out 14 years of rot. Reverse a decade of decline. And fix the foundations.
Between now and Christmas, we will carry on as we have started. Action not words.
We will introduce legislation and take decisions to protect taxpayers’ money.
To take on the blockers by accelerating planning. to build homes and boost growth.
We’ll move forward this autumn with harnessing the full potential of AI for growth and the public good.
We’ll bring rail service into public ownership, putting passengers first.
The biggest levelling up of workers’ rights in a generation to give people security, dignity and respect at work.
And Great British Energy will be owned by the taxpayer, making money for the taxpayer. Producing clean energy and creating good jobs.
That is our focus for the rest of the year.
But I will be honest with you. There’s a budget coming in October. and it’s going to be painful.
We have no other choice given the situation that we’re in. So those with the broadest shoulders should bear the heavier burden. And that’s why we’re cracking down on non-doms.
Those who made the mess should have to do their bit to clean it up. That’s why we’re strengthening the powers of the water regulator and backing tough fines on water companies that have let sewage flood our rivers, lakes and seas.
But just as when I responded to the riots – I’ll have to turn to the country and make big asks of you as well.
To accept short term pain for long term good.
The difficult trade-off for the genuine solution.
And I know that after all that you’ve been through – that is a really big ask and really difficult to hear.
That is not the position we should be in. It’s not the position I want to be in. But we have to end the politics of the easy answer that solves nothing.
But I also know that we can get through this together.
Because the riots didn’t just betray the sickness. They also revealed the cure.
Found not in the cynical conflict of populism. But in the coming together of a country.
The people who got together the morning after. All around the country. With their brooms, their shovels, their trowels. And cleared up their community.
They reminded us who we really are.
I felt real pride in those people who cleaned up the streets.
Rebuilt the walls. Repaired the damage.
And I couldn’t help thinking about the obvious parallels.
Because imagine the pride we will feel as a nation.
When, after the hard work of clearing up the mess is done.
We have a country that we have built together.
Built to last.
That belongs to every single one of us.
And all of us have a stake in it.
Our hard work rewarded – a dozen times over.
Because we’ll have an economy that works for everyone.
An NHS not just back on its feet, but fit for the future.
Streets that everyone feels safe in.
No longer dependent on foreign dictators…because we’re producing our own clean energy right here.
And giving every child – wherever they come from. Whatever their background.The chance – to go as far as their talent will take them.
I won’t lose sight of that prize. I won’t lose sight of what we were elected to do.
And most importantly – I won’t lose sight of the people that we were elected to do it for.
The annual Government Expenditure and Revenue report underlines the collective economic strength of the UK, says Scotland Office Minister Kirsty McNeill
The collective economic strength of the UK means higher spending on public services in Scotland, according to new figures released today [14 August].
The Scottish Government’s Government Expenditure and Revenue (GERS) figures show that people in Scotland benefit from £2,417 more per head of additional spending compared to the UK average, as a result of the redistribution of wealth throughout the UK.
In 2023-24, £88.5 billion in tax receipts was raised in Scotland through devolved and reserved taxation, with £111 billion in public spending for Scotland. That works out to 8.1 per cent of UK revenue and 9.1 per cent of spending.
The figures also reveal that the ‘notional deficit’ in Scotland grew to around £22 billion, or 10.4 per cent of GDP, more than double the UK deficit of 4.5 per cent of GDP.
The UK Government is committed to retaining the Barnett Formula and funding arrangements agreed with the Scottish Government in the Fiscal Framework, which enables this higher spending for Scotland, and working in partnership with the Scottish Government to drive economic growth in Scotland.
UK Government Minister for Scotland Kirsty McNeill said: “These figures underline the collective economic strength of the United Kingdom.
“By pooling and sharing resources across the UK, Scots benefit by £2,417 more per head in public spending than the UK average. That means more money for schools and hospitals, if the Scottish Parliament chooses to invest in those areas.
“Ensuring economic stability and then delivering economic growth are two of the driving missions of the UK Government. We have reset relationships with partners across the UK, and want to work closely with the Scottish Government to produce better results for people in Scotland.”
The Scottish Conservatives added: “Today’s GERS figures underline the huge benefits Scotland gains from being part of the United Kingdom.
“Every single person is almost £2,400 better off because of higher spending on Scotland’s public services.”
Better Together? The GERS figures can be found here.
Plans to reveal which new hospitals, surgeries and treatment centres will be built in Scotland have been delayed.
In a letter to Holyrood’s finance committee, Cabinet secretary for Finance and Local Government Shona Robison explained: ‘To provide as much certainty as possible to parliament and wider stakeholders of our capital investment plans, I must wait until I have confirmed capital allocations from the new UK government”.
That confirmation is not expected until late Autumn – and, given the new Labour government’s warnings about a £20 bn. ‘black hole in the UK’s finances, it’s not expected to be good news.
Lothian Conservative MSP, Miles Briggssaid: “This further delay to finding out if SNP Ministers will reinstate the funding for a new Princess Alexandra Eye Pavilion is extremely disappointing.
“We urgently need a new eye hospital to improve the delivery of ophthalmology across the South East of Scotland.
“The decision by SNP Ministers not to reverse funding for a new hospital has been a disastrous decision and will ultimately lead to additional costs for the delivery of a new hospital.
“I will continue to lead calls for the funding for a new eye hospital. What we desperately need is to see some leadership from SNP Ministers.”
An Open Letter from Pamela Tulloch, chief executive officer of the Scottish Library and Information Council (SLIC)
It’s no secret that Scotland’s libraries, along with the rest of our world-class culture sector, are currently embroiled in a perfect storm: budget pressures, reduced income generation, and rising costs have created a potent force for our services to contend with.
That’s why we’ve written to councillors across the City of Edinburgh, ahead of final decisions being taken on 2024/25 public spending, to not only remind them of the vast benefits a thriving public library service can provide, but to highlight those who stand to lose the most if our services are cut even further – communities across Edinburgh.
The Scottish Library and Information Council (SLIC) is the advocacy body for Scotland’s network of over 500 public libraries – celebrating the creativity, commitment, and value that libraries offer the communities they serve. A lifeline of support for so many.
Our latest research, Scotland’s Public Library Survey, helps to demonstrate the immense value, trust, and appreciation that people across Edinburgh place in their library service. With over 93 per cent of respondents agreeing that using the library improves their quality of life, the pivotal role they play is clear.
This is best evidenced by:
Closing the attainment gap by supporting children’s development, education and improving literacy through adulthood;
Combatting social isolation and helping those struggling with mental health;
Bridging the digital divide through free e-learning opportunities;
Connecting rural and remote communities through mobile library provision; and
Providing free IT equipment, employability sessions and activities to alleviate the impact of the ongoing cost-of-living crisis.
This is supported by the poignant feedback shared by library users across Edinburgh. When asked about the positive impact library use had had on their life, one local commented:
“The library is a busy meeting place for groups, acting as a hub for all sorts of activities, including groups of parents and children who meet here to play. Staff at the library are very helpful in recommending books that suit my tastes.
“The library is a very social place with a lovely atmosphere and is welcoming place to go. It always cheers me up.”
This sentiment is common and is underpinned by a strong economic case: for every £1 invested into our libraries, there’s a return on investment of £6.95 for the local economy.
And it is to the credit of our public libraries that this is the case, despite budgets having been hollowed out over the past 14 years which has resulted in reduced opening hours and staffing levels.
Indeed, Scotland’s libraries remained the most frequently visited cultural places in 2022, and also enjoy the highest customer satisfaction rate of any local authority cultural service, at 89 per cent.
Now is the time for the City of Edinburgh Council’s elected members to give libraries the financial backing that they need – that they deserve – to continue delivering the public services which have become vital to communities across the country.
This is more than a bid for culture funding – it’s a plea to prioritise community wellbeing. We hope that all elected members will consider both the financial and social cost of not maintaining these essential services and use the upcoming budget period to protect the services that matter most to their constituents by ensuring continued investment in our libraries.
Pamela Tulloch,
Chief executive officer of the Scottish Library and Information Council (SLIC)
UK Government will continue to top-up the Scottish Government’s tax revenues, worth £1.4 billion last year, as a benefit of strength and scale of the UK.
Boost to borrowing powers and backing of Barnett formula will build a better future for Scotland and help to grow the economy.
Chief Secretary to the Treasury John Glen hails a fair and responsible deal in line with the Prime Minister’s economic priorities.
The UK and Scottish Governments have today reached an agreement on an updated Fiscal Framework.
Holyrood’s capital borrowing powers will rise in line with inflation, enabling the Scottish Government to invest further in schools, hospitals, roads and other key infrastructure that will help to create better paid jobs and opportunity in Scotland.
The new deal maintains the Barnett formula, through which the Scottish Government receives over £8 billion more funding each year than if it received the levels of UK Government spending per person elsewhere in the UK. It also updates funding arrangements in relation to court revenues and the Crown Estate.
Chief Secretary to the Treasury, John Glen, said:“This is a fair and responsible deal that has been arrived at following a serious and proactive offer from the UK Government.
“We have kept what works and listened to the Scottish Government’s calls for greater certainty and flexibility to deliver for Scotland.
“The Scottish Government can now use this for greater investment in public services to help the people of Scotland prosper. These are the clear benefits of a United Kingdom that is stronger as a union.”
The funding arrangements for tax will be continued, with the Scottish Government continuing to keep every penny of devolved Scottish taxes while also receiving an additional contribution from the rest of the UK.
Under the previous Fiscal Framework, the Scottish Government could borrow £450 million per year within a £3 billion cap, as well as receiving a Barnett-based share of UK Government borrowing. Going forward these amounts will instead rise in line with inflation, which supports additional investment across Scotland and lays the foundations for economic growth.
The UK Government has listened to calls from the Scottish Government for greater certainty and flexibility to help them manage their Budget and agreed a permanent doubling of the resource borrowing annual limit from £300 million to £600 million.
Limits on how much can be withdrawn from the Scotland Reserve to spend in future years will also be removed. This will boost spending through borrowing by £90 million in 2024/25. All future limits will increase in line with inflation.
Scottish Secretary Alister Jack said:“The renewed Fiscal Framework shows what can be achieved when there is a collaborative focus on delivering economic opportunity and why we are stronger and more prosperous as one United Kingdom.
“The deal – worth billions of pounds to Scotland over the coming years – builds upon work to support economic growth and provide more high skill jobs, investment and future opportunities for local people, such as the establishment of Investment Zones and Freeports in Scotland.
“The UK Government knows that high prices are still a huge worry for families. That’s why we’re sticking to our plan to halve inflation, reduce debt and grow the economy. As well as providing targeted cost of living support, we are directly investing more than £2.4 billion in hundreds of projects across Scotland as we help level up the country.”
As both governments continue to work together to tackle challenges like the cost of living, an updated Fiscal Framework equips the Scottish Government with the instruments for growth while protecting the wider public finances.
Scotland’s Deputy First Minister Shona Robison said: “This is a finely balanced agreement that gives us some extra flexibility to deal with unexpected shocks, against a background of continuing widespread concern about the sustainability of UK public finances and while it is a narrower review than we would have liked, I am grateful to the Chief Secretary to the Treasury for reaching this deal.
“As I set out in the Medium-Term Financial Strategy, we are committed to tackling poverty, building a fair, green and growing economy, and improving our public services to make them fit for the needs of future generations.
“We still face a profoundly challenging situation and will need to make tough choices in the context of a poorly performing UK economy and the constraints of devolution, to ensure finances remain sustainable.”
This morning the UK and Scottish governments have published the long-awaited update to the Fiscal Framework, following the review that has been going on for the last couple of years (writes MAIRI SPOWAGE of the Fraser of Allander Institute).
Since this was due to happen in 2021, we have been waiting for the outcome of this review. For more background, see our blog from late 2021.
For those new to it, the Fiscal Framework sets out the rules for how devolution of tax and social security powers following the Scotland Act 2016 is supposed to work in terms of finances. It sets out the mechanisms by which the Scottish block grant is adjusted to reflect the fact that large amounts of tax and social security powers are now the responsibility of the Scottish Parliament.
It also sets out fiscal flexibilities that the Scottish Government can choose to use in managing these new powers, as new tax and social security powers also come with risks that require to be managed.
In this blog, we set out the main headlines and our initial reaction to the updates.
The mechanism for adjusting the Block Grant will remain permanently as the Index Per Capita (IPC) method.
This is one of the most complex areas of the fiscal framework but definitely one of the most significant.
For tax, it sets out the mechanism for working out how much the UK Government has “given up” by devolving a tax to Scotland, given that it is a significant loss in revenue. As, following devolution, there are different policies pursued in rest of UK and Scotland, this is not straightforward. Essentially though, the mechanism agreed in 2016 was to grow the tax at the point of devolution at the rate, per person, that it grows in the rest of the UK. This is known as the Index Per Capita (IPC) method.
So, the idea is that if taxes per head grow quicker in Scotland, the Scottish Budget will be better off – conversely, if taxes per head grow more slowly, the Scottish Budget will be worse off.
In 2016, when the fiscal framework was first agreed, the IPC method was the SG’s preference, whereas the UKG preferred the “Comparable Method” (which would generally be worse than the IPC method for the Scottish Budget). SO they agreed to use IPC for the first 5 years and review it in this review published today.
They have now agreed that the IPC method will remain on a permanent basis.
Interestingly, this means that on a permanent basis, the mechanisms for adjusting the block grants for Wales and Scotland will be different, given Wales’s Fiscal Framework uses the Comparable Method, albeit with additional provisions to keep a funding floor in place.
Borrowing Powers for managing forecast error have been increased significantly
Resource borrowing powers to manage forecast error associated with tax and social security powers have been increased from £300m to £600m. This is required because when budgets are set, the tax, social security and block grant adjustment estimates are set on the basis of forecasts from both the Scottish Fiscal Commission and the Office for Budget Responsibility. When the outturn data is available, if there is a discrepancy (which is very likely) then the Scottish Budget has to reconcile these differences.
This will be good news for the Deputy First Minister looking ahead to delivering her first budget in December, given that it was confirmed recently that there will be a large negative reconciliation to reflect income tax receipts in 2021-22 of £390m. As these changes are coming into effect for the 2024-25 budget year, this means she will have more flexibility to borrow to cover this.
All limits, such as resource and capital borrowing powers, will be uprated in line with inflation
When the Fiscal Framework was first agreed, the limits on borrowing for both resource and capital, and the limits for what could be put into the Scotland reserve, were set in cash terms and have been fixed ever since.
This agreement today sets out that the ones that remain will be uprated by inflation (although the exact inflation measure and timing is still to be confirmed), and that the limits on the additions and drawdowns on the Scotland Reserve will also be abolished.
The VAT Assignment can gets kicked down the road again
One thing that is a little disappointing is that there was no final decision on VAT Assignment. See our blog from 2019 to get the background in this.
VAT Assignment was included as part of the Smith Commission powers. The idea was that half of VAT raised in Scotland would be assigned to the Scottish Budget, which would mean, if the Scottish Economy was performing better than the UK as a whole, the budget would be better off, and conversely, if VAT was growing less quickly in Scotland, the budget would be worse off.
However, after almost 10 years, it has become clear that there is no way to estimate VAT in Scotland that is precise enough for this to have budgetary implications. It is a large amount of money (more than £5 billion) so even small fluctuations in how it is estimated can mean changes of hundreds of millions of pounds.
Today, the Governments have agreed to just keep discussing it. We think it is time that everyone admitted it is just not a sensible idea.
We’ll keep digging through the detail of everything published today and will provide more commentary through our weekly update on Friday.
The Scottish Government needs to improve its set up to deliver the country’s climate change goals. says public spending watchdog Audit Scotland.
The government’s climate governance has improved since the former First Minister declared a climate emergency in 2019 – however, adapting to the impact of climate change has received less focus than reducing emissions and hitting net zero targets.
The government is not clear enough on how its internal groups co-ordinate their work. There are gaps in reporting, making it difficult to assess progress against climate policy.
And there has been no workforce plan for climate change since the Net Zero department was established in late 2021. However, one is expected in spring 2023.
Government risk management arrangements around climate change are underdeveloped. For example, the process to identify risks is not always clear. Actions to address risks are sometimes vague.
And there is not a systematic process in place for tracking actions in risk registers.
Stephen Boyle, Auditor General for Scotland, said: “The Scottish Government’s set up for responding to the climate crisis has constantly evolved since 2019. But the different parts of government could be better co-ordinated.
“The government’s risk management arrangements also need to improve, particularly the work needed to ensure Scotland adapts to the impact of climate change.
“Work is ongoing across the Scottish Government to tackle these organisational weaknesses, and it’s vital that happens quickly given the urgency of the climate situation.”
Additional half a billion pounds raised for public services
Changes to income tax in Scotland have come into force and are estimated to raise more than half a billion pounds of additional revenue this financial year to support vital public services.
The tax rates for earnings between £12,571 and £43,662 remain the same while earnings above £43,663 are now taxed at the Higher tax rate of 42%.
The threshold at which people pay the Top Rate of tax has reduced from £150,000 to £125,140 with earnings over that threshold now taxed at 47%.
According to the Scottish Fiscal Commission, these changes will raise £129 million in 2023-24.
The Higher Rate threshold will also remain at its 2022-23 level, applying to earnings over £43,662, which will increase revenue by a further £390 million when compared to uprating the threshold by inflation, according to Scottish Government estimates.
As the new financial year begins, Scottish taxpayers are also being encouraged to check if their tax code on their first payslip is correct – people paying Scottish Income Tax should have a tax code that starts with an S.
Deputy First Minister Shona Robison said: “The decisions we have made on income tax are fair and progressive by ensuring that those who can, contribute more. They strengthen our social contract with the people of Scotland who will continue to enjoy many benefits not available in the rest of the UK such as free prescriptions.
“The additional revenue will help us invest in our vital public services including the NHS, above and beyond the funding received from the UK Government. At the same time, the majority of taxpayers in Scotland will still be paying less income tax than if they lived in the rest of the UK.
“Now that the new financial year has started, I’d also encourage people to check that the tax code is correct on the first payslip they get. If you think your tax code is wrong, you can check your details with HMRC who will be able to help.”
The new Scottish Income Tax bands and rates for the financial year 2023-24 are:
Band
Band name
Rate
£12,571* – £14,732
Starter Rate
19%
£14,733 – £25,688
Basic Rate
20%
£25,689 – £43,662
Intermediate Rate
21%
£43,663 – £125,140**
Higher Rate
42%
Over £125,140
Top Rate
47%
* Assumes individuals are in receipt of the standard Personal Allowance.
** Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.
The Personal Allowance threshold remains reserved and is set by the UK Government at the UK Budget.
Spending plan ‘will protect families and public services’
The 2023-24 Scottish Budget will take a distinctive approach to creating a fairer, more equal Scotland, Deputy First Minister John Swinney said.
He stressed the three Budget priorities of eradicating child poverty, strengthening public services and moving towards a net zero economy were strongly linked and would give more people the opportunity to flourish.
Ahead of delivering the Budget to Parliament today, Mr Swinney visited a scheme in Wester Hailes, delivered by City of Edinburgh Council and part-funded by the Scottish Government, installing insulation for households at risk of fuel poverty.
He said: “I was encouraged to see the vital work being carried out to improve energy efficiency and make homes warmer for families facing significantly higher bills this winter. This scheme highlights how tackling the increased cost of living can assist our drive towards net zero, and is an example of the importance of effective public services.
“Our Budget goals are mutually beneficial and represent a distinctive approach to the economic challenges we face. The Scottish Budget will take further steps to address inequality and eradicate child poverty. It will encourage a just transition to net zero, creating wealth and opportunity across the country. And it will be the catalyst for reforms necessary to ensure our first-class public services remain sustainable in the face of the challenges to come.
“I would like to go even further but the cost of living crisis has also laid bare the fiscal constraints of devolution, as we cannot borrow to support day to day expenditure when times are hard to assist us through these difficult days. It is clear that businesses and households are paying a steep price for the economic mismanagement of the UK Government.
“The cost of living crisis requires decisive action. In setting this Budget, the Scottish Government will use its limited powers to the maximum extent that is responsible, to meet the challenges faced by the people of Scotland.”
The Scottish Budget 2023-24 will be presented to the Scottish Parliament TODAY (Thursday 15 December).
