Question reference: S6W-09564
- Asked by: Daniel Johnson, MSP for Edinburgh Southern, Scottish Labour
- Date lodged: 1 July 2022
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Current status: Answered by Tom Arthur on 12 July 2022
Question
To ask the Scottish Government what research it has done on whether the Scotland Reserve's £700 million cap will be breached in the next five years.
Answer
The Scotland Reserve provides the Scottish Government with a limited facility to manage the smoothing of all types of spending, assist the management of tax volatility and manage the timing of expenditure between financial years. As the cap is not index linked it has remained at £700m since it was implemented in 2017. In real terms it becomes proportionately smaller each year.
Under the terms of the Fiscal Framework the Scottish Government is unable to overspend its budget in a financial year. It must therefore achieve a net underspend each year and these amounts are carried forward within the Scotland Reserve to be utilised in future years.
The balance within the Scotland Reserve following the 2021-22 Provisional Outturn exercise was £650 million . This amount, subject to any adjustments as part of the Final Outturn process, will be drawn down in full to support 2022-23 spending plans as outlined in the Budget. This means the Scotland Reserve balance will be reduced to nil, allowing for an underspend of up to £700m in 2022-23 to be recorded without breaching the Reserve.
Later in the financial year 2022-23 there will be greater certainty around the funding position and spending levels. Financial management will focus on ensuring the Scottish Government achieves a balanced budget without breaching the Scotland Reserve cap. This will take the following into account:
- Ensuring sufficient headroom is included in the Scotland Reserve for a net underspend still to be achieved following post year-end accounting and audit adjustments
- Including any targeted carry forward balances to support future financial years. In the recently published Medium Term Financial Strategy there is an assumption of £279 million of funding from the Scotland Reserve being used to support 2023-24 which would be factored into the Scotland Reserve workings. This figure is subject to change as part of the 2023-24 budget as well as any in-year revisions as circumstances change.
This process will then be replicated in financial year 2023-24 with a full draw down of any carry forward amounts in the Scotland Reserve.