Scottish budget: What do you need to know?

The Scottish government is to set out its budget plans for the year ahead, against the ever-present backdrop of the Covid-19 pandemic.

Finance Secretary Kate Forbes says the spending plans she outlines at Holyrood on Thursday afternoon will be the “most important in the history of devolution”.

So how big is the Scottish budget, where does the money come from, and where is it likely to go?

Normally, the Scottish government’s budget is somewhere in the region of £30bn. In 2019-20 it was just under £34bn, with £28.6bn allocated to day-to-day expenditure on public services, and £5.1bn for investment in infrastructure.

However the Covid-19 pandemic has blown previous precedent out of the water, with huge extra spending committed during lockdown.

Since the last budget in February 2020, an extra £8.6bn has been added to Holyrood’s coffers to help support people and businesses through the pandemic – and a further £1.3bn has already been added to the block grant for the coming year.

A large chunk of the Scottish budget comes from the block grant – a share of the UK-wide budget as calculated via the Barnett Formula – but tax revenues raised in Scotland have played an increasingly large role in recent years.

And as we have seen throughout the pandemic, the measures announced now can be topped up on an ongoing basis through the year via “Barnett consequentials” – effectively Holyrood’s share of cash committed to devolved areas by the UK government, which Scottish ministers can spend as they like.

The biggest wad of cash goes on health, which usually accounts for more than 40% of the overall spend – and then local government, which gets more than a quarter of the budget to spend on local services like schools.

Clearly health spending has been boosted on account of the pandemic, and local councils are on the front line of delivering a lot of the support schemes announced over the past year.

Every year there are calls for councils to be given more funding – or the power to raise it themselves via council tax hikes – and this debate is likely to be intensified in light of the role local authorities are playing in the pandemic.

This is a tricky balance – allowing councils to raise rates sharply would raise more funds, but would also hit the public in the pocket right before an election – so extra funding from Edinburgh might be the simplest course.

Education, transport and justice also take up hefty chunks of spending, with funding for the likes of the police likely to be maintained if not increased.

Further funding for job support schemes and business grants and loans can be expected, with the government warning that “the pandemic is not going to suddenly disappear”.

Finance Secretary Kate Forbes has said she will deliver “stability and targeted support”, suggesting there may be few surprises on the way.

However she has also said it will “set the groundwork for economic recovery over the next financial year”.

Since 2018, Scotland has had a separate system of income tax rates and bands to the rest of the UK.

This added two extra tax rates – one just below the basic rate, providing a break for low earners, and just one above it, to squeeze a little more from those who earn above the median wage.

Meanwhile, the higher and top rates of tax are both a percentage point higher than elsewhere in the UK, in what the finance secretary terms a “progressive” move to bolster local services.

The government is unlikely to change the five-band structure, seeing it as being set for the parliamentary term.

Ms Forbes might be tempted to tinker with the thresholds – the point at which the various rates kick in – to raise a bit of extra cash, or even to cut the gap between what higher earners pay in Scotland and the rest of the UK.

One thing to watch out for alongside the budget is the latest set of forecasts from the Scottish Fiscal Commission, which may provide an insight into the impact of the pandemic and the recovery of the economy and the employment market through 2021.

Scotland’s finance secretary normally waits for the Chancellor to set out the UK budget before drawing up their own plans.

Precisely how much money is available is directly affected by spending levels south of the border, as well as forecasts of tax revenues from the Office for Budget Responsibility. The two income tax systems are also closely interlinked, with the tax-free allowance and National Insurance Contributions still set at Westminster.

But for the second year in a row, the Scottish budget is having to be drawn up based on guesswork and pledges from the Treasury, rather than hard data.

It seems likely there will be further consequential payments heading north after the UK budget, and Ms Forbes may be left to allocate them on the fly again.

UK ministers would contend that unprecedented sums are being sent Holyrood’s way, but their Scottish counterparts will want as much certainty as possible when setting budget – particularly in these fundamentally uncertain times.

Ms Forbes has at least had more time to plan for the budget this year – she took the reins literally hours before delivering the budget speech in February 2020 after her predecessor Derek Mackay abruptly resigned.

Announcing spending plans is just the beginning of the work. The real task is getting them through parliament.

The SNP needs the support of opposition MSPs to pass a budget bill. So far this term those votes have come from the Greens, although other parties are available – when Alex Salmond ran a minority government from 2007, he paired up with the Tories each year.

The government will aim to have a deal done by the first full debate of the bill on 25 February, leaving limited time to negotiate.

This year there will be added pressure on both the government and opposition parties to agree a funding package to continue the fight against Covid-19.

There is also a more overtly political elephant in the room in the shape of the looming Holyrood election.

This would normally be prime season for some crowd-pleasing giveaways – but both Ms Forbes and opposition parties will be aware that the public expect nothing less than a laser focus on tackling the pandemic.