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Chamber and committees

Finance and Public Administration Committee

Fiscal Framework Review - Scottish Government Response

Letter from the Cabinet Secretary for Finance and the Economy to the Convener and the Convener of the Social Justice and Social Security Committee of 2 November 2021

Dear Kenneth and Neil

I promised to update you following my meeting with the Chief Secretary to the Treasury (CST) on 14 October 2021 on progressing the Fiscal Framework Review and preceding independent report.

I am pleased to report that we had a positive and engaging discussion, and were able to reach an agreement in principle to commission an independent report on the Block Grant Adjustment arrangements. This independent report will not make recommendations, but will involve a call for evidence from stakeholders.

As you know, my position was for both a broad independent report and review, but given the CST’s stance and the need to make progress, I have agreed to a report which focuses on the Block Grant Adjustment arrangements only. In return, CST has agreed this will inform a review that will be wider in scope. This should ensure that the current arrangements are thoroughly assessed and options for reform considered, and that input is obtained from a wide range of stakeholders as part of the overall process.

This stakeholder input will be critical in helping us to develop a robust evidence base to inform the review. The Scottish Government is also undertaking a programme of analysis to inform the review. One that will build on the independent report, and other key publications and evidence, including the previous joint report that I agreed with your predecessor committees. As I take forward preparations for the review with the CST, I will seek further discussion on the evidence base that will inform the review. I will keep the committees updated as plans develop.

As you are aware, I have been pressing for progress on the review since last year therefore I welcome the additional agreement with the CST that we can commence preparations for the review process in parallel to the independent report. Whilst I recognise it may be challenging to meet the original timescales detailed in the Fiscal Framework Agreement, this will enable us to move forward with the review without further delay and commence the review as close to the beginning of 2022 as possible.

The scope and arrangements for the review will be discussed at a future Joint Exchequer Committee in due course. I have agreed with the CST that the independent report will consider the existing arrangements (for the baseline adjustments and subsequent application of the Indexed Per Capita and Comparable methods) and any alternative arrangements for calculating Block Grant Adjustments in relation to tax, welfare and non-tax revenues (FFFPs and POCA). I have asked my officials to work with his to finalise a Terms of Reference for publication, and consider potential authorship, with a view to commissioning the report as soon as possible after the UK Budget and Spending Review.

In addition, I also attended the Finance Ministers Quadrilateral on 14 October, chaired by the CST and attended by the finance ministers from Wales and Northern Ireland, where in the context of the UK Budget and Spending Review we discussed Net Zero, creating jobs across the UK, and recovering from the pandemic.

I welcome your continued support and I look forward to continued engagement with both the Finance and Public Administration and Social Justice and Social Security Committees further on these matters in the coming months.

Yours sincerely

Kate Forbes
Cabinet Secretary for Finance and the Economy