CLAIM
‘THE Summer Economic Update confirms an additional £800 million of Covid-19 funding for the Scottish Government through the Barnett formula” – Scotland Office press release, July 8, 2020.
DOORSTEP ANSWER
MOST of this so-called new money was already in the budget and has been “brought forward”. It would make more sense to grant the Scottish Government greater borrowing powers so it could deal with the Covid-19 emergency at first hand.
THE TREASURY VERSUS HOLYROOD
ON 8 July 2020, Chancellor Sunak presented an economic update on the Covid-19 crisis, including new public spending and tax plans. Normally, any increase in public spending in England results in a pro rata increase in the Scottish financial settlement (scaled by population). The Chancellor and the Scotland Office both issued statements saying the so-called Barnett consequentials for Scotland would be in the order of an extra £800m.
This figure was hotly contested by the Scottish Government, which put the “absolutely new” extra funds available to Holyrood at nearer £21m. The Financial Secretary, Kate Forbes, maintains that the bulk of the new spending announced by the Chancellor is being funneled via Whitehall departments such as the Treasury itself – doubtless for political reasons – and not through the devolved administrations. Who is right?
SUMMER STATEMENT IN DETAIL
THE Chancellor’s Summer Statement breaks down into two parts: an extra £33bn in allocations for spending on public services such as the NHS. And an additional £30bn for a targeted economic stimulus package. The latter involves a mix of tax cuts and new subsidies. At first sight, the £66bn total suggests a lot of extra cash for Holyrood under the Barnett Formula. But a closer look at the details of the package reveals that a lot of the spending proposals are either not new or don’t fall under the Barnett rules.
Spending allocations and tax adjustments which apply only at a UK level, rather than through a devolved jurisdiction, do not affect Barnett consequentials. For instance, the July measures included an extra £9.4bn for a Jobs Retention bonus, £2.1bn for a scheme to support the temporary employment of young people receiving Universal Credit, and £1.6bn for apprenticeship programmes. These appear to be UK-wide measures and so will not result in Barnett consequentials.
READ MORE: Here's where Rishi Sunak went wrong with his summer statement
The Summer Statement also allocated £2bn for the so-call Green Homes Grant in England. But at least some of this cash is not new but comes from reallocations within Whitehall departmental budgets and existing capital spending allocations brought forward in time. The relevant Barnett allocations have already been made so (again) there is no new – as in additional – cash for Holyrood.
On the tax front, the Summer Statement includes a cut in VAT, worth an estimated £4.1bn, and a reduction in Stamp Duty in England and Wales, worth £3.8bn. These revenue cuts may stimulate economic activity, but they do not translate into extra Barnett consequentials. While the Scottish Government is not obliged to alter its own equivalent of Stamp Duty – the Land and Buildings Transactions Tax – it has already decided to do so, to encourage the housing market and construction industry.
Note: paradoxically, tax reductions in England can lead (eventually) to an increase in the amount of money available to Holyrood, as a result of smaller deductions from the Treasury block grant Holyrood receives. However, such compensating adjustments take place long after the relevant budget period and are not known in advance.
HOW DID THE TREASURY CALCULATE ITS BARNETT FIGURE?
AS of July 2020, the Westminster Government has announced three separate funding packages in response to the coronavirus crisis: the March Budget, an initial emergency funding package in April, and the Summer Statement. In between, there have been ongoing financial adjustments. It seems likely the Treasury and the Scotland Office have seen fit to cherry-pick numbers within this moving target, to claim their Barnett consequential figure of £800m.
READ MORE: Rishi Sunak's Union claims dismissed as 'insular rubbish’
Since the March Budget, the Chancellor has added £49bn to public service provision, including an extra £33bn slipped into the July Summer Statement without comment or explanation by the Chancellor. Of this £33bn, the respected Institute for Fiscal Studies (IFS) reckons that £4.9bn goes to the three devolved administrations as a result of Barnett consequentials. This is not in contention.
However, the vast bulk of this “extra” £33bn spending is allocations to the NHS in England for Personal Protection Equipment for hospital and care staff, and for Covid-19 “track and trace systems”. These latter expenditures were already well trailed. The Scottish Government has already taken these Barnett consequentials into account and allocated the cash for the Scottish NHS. The “appearance” of the £33bn in the Summer Statement update is not in fact “new” money but merely an official recognition of decisions previously taken.
CONCLUSION
THE Treasury and Scotland Office are refusing the temporary flexibility in spending allocations and borrow powers requested by all three devolved administrations. Instead, the Treasury is bent on running as much of the Covid-19 emergency programmes in a centralised fashion as possible, actually limiting the Barnett consequentials and the right of the devolved governments to tailor recovery schemes to local needs. At the same time, the Treasury is exaggerating the allocation of new funds to the devolved parliaments via the Barnett mechanism, by double counting cash brought forward from existing budgets.
FACKCHECK RATING
Chancellor Sunak is good at double counting.
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