FINANCE AND CONSTITUTION COMMITTEE AGENDA 6th …...Kate Forbes, Minister for Public Finance and...
Transcript of FINANCE AND CONSTITUTION COMMITTEE AGENDA 6th …...Kate Forbes, Minister for Public Finance and...
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FCC/S5/19/6/A
FINANCE AND CONSTITUTION COMMITTEE
AGENDA
6th Meeting, 2019 (Session 5)
Wednesday 13 March 2019 The Committee will meet at 9.30 am in the David Livingstone Room (CR6). 1. Scottish VAT Assignment: The Committee will take evidence in a roundtable
format from—
Mark Taylor, Assistant Director, Audit Scotland; Charlotte Barbour, Director of Taxation, ICAS; John Cullinane, Tax Policy Director, Chartered Institute of Taxation; Professor Graeme Roy, Director, Fraser of Allander Institute; John Ireland, Chief Executive, Scottish Fiscal Commission; Dr Paul Mathews, Senior Analyst, Office for Budget Responsibility.
2. Subordinate legislation: The Committee will take evidence on The Budget (Scotland) Act 2018 Amendment Regulations 2019 [draft] from—
Kate Forbes, Minister for Public Finance and Digital Economy, and Scott Mackay, Head of Finance Co-ordination, Scottish Government.
3. Subordinate legislation: Kate Forbes (Minsiter for Public Finance and Digital Economy) to move—S5M-16046—That the Finance and Constitution Committee recommends that The Budget (Scotland) Act 2018 Amendment Regulations 2019 [draft] be approved.
4. Subordinate legislation: The Committee will take evidence on The Scottish
Landfill Tax (Standard Rate and Lower Rate) Order 2019: SSI 2019/58 from—
Kate Forbes, Minister for Public Finance and Digital Economy, and Ewan Cameron-Nielsen, Finance Directorate, Scottish Government.
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FCC/S5/19/6/A
5. Subordinate legislation: Kate Forbes (Minister for Public Finance and Digitial Economy) to move—S5M-16045—That the Finance and Constitution Committee recommends that The Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2019 be approved.
Jim Johnston Clerk to the Finance and Constitution Committee
Room T3.60 The Scottish Parliament
Edinburgh Tel: 0131 348 5215
Email: [email protected]
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FCC/S5/19/6/A
The papers for this meeting are as follows— Agenda Item 1
Cover note
FCC/S5/19/6/1
Agenda Item 2
Cover note
FCC/S5/19/6/2
Agenda Item 4
Cover note
FCC/S5/19/6/3
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FCC/S5/19/6/1
1
Finance and Constitution Committee
6th Meeting, 2019 (Session 5), Wednesday 13 March 2019
Scottish VAT assignment roundtable discussion Introduction
1. At its meeting on 6 February 2019, the Committee agreed to explore themethodology being used for Scottish VAT assignment given the impact that VATassignment will have on the Scottish Budget. This paper provides some context forthe Committee’s roundtable discussion on VAT assignment in Scotland.
Background
2. The Scotland Act 2016 provided for the first 10 pence of the Standard Rate ofValue Added Tax (VAT), and the first 2.5 pence of the Reduced Rate, to be assignedto the Scottish Government.
3. The Fiscal Framework set out that VAT assignment will be implemented in2019-20. There will be a one-year transitional period during which VAT assignmentwill be forecast and calculated, but with no impact on the Scottish Government’sbudget. From 2020-21 the Scottish Government’s budget will in part be determined byforecast and final estimated VAT receipts in Scotland.
4. The assignment of VAT will be based on a methodology that will estimateexpenditure in Scotland on goods and services that are liable for VAT. The draft modelfor calculating Scottish VAT receipts1 was published by HM Treasury on 22 November2018 and is expected to be finalised by the Joint Exchequer Committee in spring 2019.This is attached at Annexe A.
5. It highlights that the household component of the model accounts for around70% of total VAT receipts and arises from spending on household goods and services.The estimate of UK households’ total VAT liability is based on the Household FinalConsumption Expenditure (HHFCE) quarterly data set classified by Classification ofIndividual Consumption by Purpose (COICOP), at current prices and not seasonallyadjusted (CPNSA), published by the ONS.
6. The Committee’s Adviser, David Eiser, has produced a briefing paper on thedraft assignment model which is attached at Annexe B.
1 https://www.gov.uk/government/publications/scottish-vat-assignment-summary-of-vat-assignment-model
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Forecasts 7. On the 12 December 2018, the Scottish Fiscal Commission (SFC) published itsfirst full VAT forecast in the Economic and Fiscal Forecasts publication2, whichaccompanied the 2019-20 Scottish budget.
8. The forecasts are based on the concept of a VAT total theoretical liability whichis the total value of VAT that could theoretically be collected from the tax base acrossvarious sectors. The report outlines the variability in the assignment outturn model.
Volatility 9. During our pre- budget and budget scrutiny, the Committee explored themethodology being used to forecast VAT assignment and how robust it was. TheCommittee was told that the Cabinet Secretary continued to have concerns that theassignment of VAT to Scotland will be based on a statistical model rather than actualoutturn VAT receipt data.
10. The Committee concluded3 that basing VAT assignments for Scotland onestimated figures could introduce further volatility into Scotland’s finances andrecommended that both Governments should continue to review the methodologyused for assigning VAT to Scotland during the implementation year to ensure itsrobustness and reduce the risk of introducing yet further volatility into the Scottishbudget.
Roundtable
11. The witnesses taking part in the roundtable discussion are:
• Mark Taylor, Assistant Director, Audit Scotland;• Charlotte Barbour, Director of Taxation, ICAS;• John Cullinane, Tax Policy Director, Chartered Institute of Taxation;• Professor Graeme Roy, Director, Fraser of Allander Institute;• John Ireland, Chief Executive, Scottish Fiscal Commission;• Dr Paul Mathews, Office for Budget Responsibility.
12. The discussion will be based around the following themes:
• How VAT can be assigned to Scotland effectivelyo What is the purpose of VAT assignment? Will VAT assignment
influence the type of policies that the Scottish Government implements?
o To what extent is it fair or sensible to hold the Scottish Government to account for changes in Scottish VAT revenues?
2 http://www.fiscalcommission.scot/media/1435/scotlands-economic-and-fiscal-forecasts-december-2018-full-report.pdf 3 https://www.parliament.scot/S5_Finance/Reports/Budget_Report_201920_-_FINAL(2).pdf
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o Does reliance on an uncertain estimate of VAT receipt – ratherthan on outturn data – undermine the case for tax assignment?
• The robustness and transparency of the VAT assignmentmethodology
o To what extent does the governments’ joint paper on VATassignment provide sufficient information on the VAT estimationmethodology? On which aspects is further information needed?
o How robust is the VAT methodology proposed by thegovernment?
o How much uncertainty is acceptable in estimates of VATreceipts where these inform the budget?
o In estimating Scottish VAT, how should the complexity of thecalculations be balanced against the need for transparency?Does the methodology set out in the governments’ joint paperstrike the right balance?
• Issues around VAT forecasting and risks to the Scottish Budgeto What risks does VAT assignment pose the Scottish budget?o What is the short term risk from forecasting error, and how might
this be managed?o What risks arise from the fact that the Scottish VAT revenues
could grow more slowly than rUK VAT revenues?o What can the Scottish Government do to maximise growth of
Scottish VAT relative to rUK VAT revenue?o Is forecasting Scottish VAT revenues more or less difficult than
forecasting Scottish income tax?o Is the error associated with Scottish VAT forecasts likely to be
higher or lower than the error associated with Scottish incometax forecasts?
Next steps
13. The Committee will hear from the Cabinet Secretary for Finance, Economy and Fair Work at a future meeting on issues raised during discussion.
Committee Clerks, March 2019
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Scottish VAT Assignment: Summary of Assignment Model
November 2018
Annexe A
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Scottish VAT Assignment: Summary of Assignment Model
November 2018
Annexe A
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© Crown copyright 2018
This publication is licensed under the terms of the Open Government Licence v3.0 except
where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-
government-licence/version/3 or write to the Information Policy Team, The National
Archives, Kew, London TW9 4DU, or email: [email protected].
Where we have identified any third party copyright information you will need to obtain
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Annexe A
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Contents
Chapter 1 Introduction 2
Chapter 2 VAT assignment principles 3
Chapter 3 The Scottish VAT assignment model 4
Chapter 4 Categories of expenditure 8
Annex A VAT assignment and the Scottish Government Budget 15
Annexe A
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Chapter 1
Introduction
1.1 In 2015 the Smith Commission, convened to examine which further powers
could be devolved to the Scottish Parliament, recommended that “the
receipts raised in Scotland by the first 10 percentage points of the standard
rate of Value Added Tax (VAT), and the first 2.5 percentage points of the
reduced rate of VAT, will be assigned to the Scottish Government’s budget.”
The Commission further recommended that “these receipts should be
calculated on a verified basis to be agreed between the UK and Scottish
Governments, with a corresponding adjustment in the block grant….”.
1.2 Following the Smith Commission’s recommendations, the UK and Scottish
Governments subsequently agreed in the Scottish Government’s Fiscal
Framework that a VAT assignment methodology would be jointly developed
by UK and Scottish Government officials, to calculate the Scottish share of
UK VAT receipts. The fiscal framework also set out how the Scottish
Government’s block grant would be adjusted, to account for the fact that
more of the Scottish Government’s spending power will be determined
through assigned VAT.
1.3 This paper outlines the Scottish and UK Governments’ implementation of the
assignment of Scottish VAT and details the methodology for calculating
Scottish VAT receipts - the Scottish VAT assignment model. In line with the
Smith Commission’s recommendations, the model outlined in this paper was
jointly developed by HMRC, the Scottish Government and HM Treasury. It is
based on HMRC’s VAT Total Theoretical Liability (VTTL) model, which is an
internationally recognised method for calculating the theoretical amount of
VAT that should be received by a tax jurisdiction. We are publishing this
paper at this time to invite comments and provide technical detail for the
Office for Budget Responsibility and Scottish Fiscal Commission’s benefit.
1.4 Further detail on how VAT assignment will interact with the Scottish
Government’s Budget is outlined in Annex A.
Annexe A
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Chapter 2
VAT assignment principles
2.1 VAT is a tax on final consumption and applies to most goods and services.
Although VAT is borne by consumers it is collected by HM Revenue and
Customs (HMRC) through VAT registered businesses across the UK.
2.2 The information collected by HMRC through its VAT compliance work does
not specify the UK region in which goods and services are consumed.
Therefore, to calculate the Scottish share of UK VAT, a VAT assignment
model is required to estimate the VAT incurred on goods and services which
are consumed within Scotland compared with other UK regions.
2.3 VAT on final consumption is equal to the VAT incurred on expenditure which
is not reclaimable from HMRC under VAT recovery and refund rules. The
Scottish VAT assignment model uses this principle to calculate the Scottish
share of UK VAT. It uses comprehensive UK expenditure data, together with
Scottish shares of that expenditure, and applies relevant VAT rates to derive
an estimate of the VAT receipts attributable to consumption in Scotland. This
model therefore calculates the VAT Total Theoretical Liability (VTTL) for
Scotland. The VTTL is a measure of the theoretical VAT collected by a
jurisdiction’s tax authority assuming there are no losses in collections from
non-compliance.
2.4 UK VAT forecasting currently uses the internationally recognised VTTL model
to estimate theoretical VAT liabilities for the UK as a whole. The Scottish VAT
assignment model is similar to the VAT revenue sharing arrangements the
Canadian Government uses with some Canadian provinces.
Annexe A
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Chapter 3
The Scottish VAT assignment model
Summary of the model
3.1 The VAT assignment model calculates the theoretical proportion of UK VAT
that would arise in Scotland in the absence of any compliance losses. This is
calculated by multiplying comprehensive categories of expenditure in
Scotland by their appropriate VAT rates, allowing for any other relevant rules
determining liability for tax, and calculating the share that this represents of
the Total UK VAT.
3.2 There are a number of areas of expenditure which contribute to the UK VAT
base, with the largest contribution coming from household spending. The
VAT assignment model is made up of five spending components and two
adjustment components.
3.3 Each spending component represents an area of expenditure where the
consumers are ‘final consumers’. As noted in Chapter 2, VAT is collected
from consumers through the VAT registered businesses that sell goods and
services. VAT registered businesses can generally recover VAT that they
incurred on their purchases to the extent that those purchases are used for
taxable business activity and are therefore not final consumers. In addition,
some charities, local government and central government organisations can
also recover the VAT they incur on certain purchases through special VAT
refund rules for these organisations.
3.4 The VAT assignment model therefore calculates the VAT on expenditure in
Scotland by consumers, businesses and other organisations who cannot
recover the VAT they incur (final consumers). The majority of these
consumers are private individuals and families and their expenditure is
included in the Household component of the model. Others include VAT
exempt businesses (financial services, property, health etc.), non-VAT
registered traders, charities and central government organisations.
3.5 The adjustment components take into account special rules in VAT which
may allow some organisations or individuals to recover VAT which would not
normally be recoverable or vice versa. These components are outlined in
more detail in Chapter 4.
Annexe A
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Box 3.A: Categories of expenditure contributing to VAT base
Expenditure components
3.6 The VAT Assignment model takes the expenditure in Scotland in each of the
above expenditure components and then estimates the amount of that
expenditure that is subject to VAT. This can be compared to the same
expenditure component analysis for the whole of the UK to calculate the
Scottish share of UK VAT. The Scottish share of VAT can then be applied to
VAT receipts to calculate the Scottish share of UK VAT receipts.
3.7 The model analyses these expenditure components using data from multiple,
mostly publicly available, sources of information including, but not restricted
to: the ONS Blue Book, ONS Living Cost and Food Survey, ONS International
Passenger Survey, VisitBritain and Statistical tables published by other
government departments.
VAT liability of expenditure components
3.8 The VAT liability of the expenditure components outlined above is
determined by the VAT treatment of the goods and services that are
included in the expenditure component. Although most goods and services
are subject to 20% VAT, many are subject to the zero and reduced rates
(5%) of VAT. Therefore, expenditure categories need to be disaggregated to
goods and services that have consistent VAT rate treatment in order to
accurately calculate the VAT liability relating to that expenditure.
3.9 For example, certain foods in the UK are subject to the zero rate of VAT. The
model must therefore disaggregate food expenditure by type of food in
order to determine the proportion of food consumption which is subject to
VAT at 20%. This analysis can then be used to calculate the VAT liability of
the total food expenditure.
Calculation of Scottish share of VAT
3.10 In simple terms, the model establishes expenditure on goods and services in
the UK as a whole and then calculates an estimate of the proportion of that
expenditure which took place in Scotland, using official statistics. It then
Household (70% total)
Charities (<1% total)
Central Govt (11% total)
Exempt (16% total)
Housing (5% total)
Consumer spending serving households
Public non-profit making bodies and
non-profit institutions serving
households
Current and capital expenditure
Intermediate consumption & other
input tax blocks where VAT cannot be
reclaimed
Household’s capital expenditure by the public and private
sectors
DIY House Builders, Retail Export
Scheme, Museums & Galleries, Tourism,
DIY builders, Contracted out VAT
Trading below the VAT registration
threshold
Corrections Unregistered
Traders
Annexe A
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establishes the amount of VAT that would have been paid on that
expenditure in both Scotland and the rest of the UK. The ratio between
VATable expenditure in Scotland versus the rest of the UK can be applied to
VAT receipts to calculate the Scottish share of VAT receipts.
3.11 The following example illustrates how this works in practice and has been
simplified to show the core calculations required. In brief, the method
comprises:
1 Calculation of Scottish VATable expenditure
a) UK expenditure is split according to the expenditure components
outlined above.
b) Each expenditure component is split by country/region to determine
the Scottish percentage of expenditure – this uses mostly publicly
available data (outlined in chapter 4).
c) This data is analysed further to calculate the VAT liability of each
expenditure component in Scotland (outlined in chapter 4).
d) Combining each expenditure component provides the total VATable
expenditure in Scotland.
2 Calculation of UK VATable expenditure
a) UK expenditure is analysed according to the expenditure components
outlined above.
b) This data is analysed further to find the VAT liability of each
expenditure component in the UK.
c) Combining each expenditure component provides the total VATable
expenditure in the UK.
3 Calculation of Scottish share of UK VAT receipts
a) Scottish VATable expenditure as calculated in step 1 is divided by UK
VATable expenditure as calculated in step 2. This percentage is the
Scottish share of UK VAT.
b) This percentage is applied to UK VAT receipts to provide the Scottish
share of UK VAT receipts.
Annexe A
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Box 3.B: Simplified calculation of Scottish share of UK VAT
3.12 Chapter 4 provides further details on each of the expenditure components
that make up the mode and outlines how the Scottish proportion of
expenditure and the VAT liability is calculated.
UK expenditure
UK expenditure
Scottish proportion of expenditure
(from surveys)
% Scottish expenditure
subject to VAT
Scottish VATable
expenditure
% UK expenditure
subject to VAT
UK VATable expenditure
Scottish VATable
expenditure
UK VATable expenditure
Scottish share of UK VAT
Annexe A
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Chapter 4
Categories of expenditure
4.1 The following chapter outlines the calculations required for each expenditure
component of the model:
• Household expenditure
• Charities and Central Government
• Exempt sectors
• Housing
• Corrections
• Unregistered traders
4.2 For each expenditure component, the data sources and method for
calculating the UK and Scottish VATable expenditure is outlined below.
Household expenditure
4.3 The household component of the model accounts for around 70% of total
VAT receipts and arises from spending on household goods and services,
such as adult clothing and fuel and power.
4.4 The estimate of UK households’ total VAT liability is based on the Household
Final Consumption Expenditure (HHFCE) quarterly data set classified by
Classification of Individual Consumption by Purpose (COICOP), at current
prices and not seasonally adjusted (CPNSA), published by the ONS.
4.5 The calculation for estimating the Scottish share of household VAT is
outlined below:
1 Relevant VAT rates are assigned to each category of expenditure. In most
cases a single rate of VAT applies and can be assigned as standard, reduced
or zero rate or as exempt expenditure. In other cases, expenditure must be
split using additional data to assign appropriate VAT rates (an example
with respect to clothing is outlined below).
2 Expenditure is split by country/region to determine the Scottish percentage
of expenditure. Detailed series from various sources are used to determine
the Scottish proportion of the expenditure at the different VAT rates. The
main source of the data for Scottish proportions is the Living Costs and
Food Survey (LCFS). The high-level data from this survey is a major
contributor to the calculation of the HHFCE and the detailed information
can be used to provide the Scottish share. In order to increase the accuracy
of the regional splits HMRC and the Scottish Government have jointly
Annexe A
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sponsored a boost to the sample size, the first results of which are due in
March 2019.
4.6 An example with respect to the VAT receipts attributable to clothing
expenditure in Scotland is provided below:
1 Clothing is generally standard rated however, children’s clothing and
footwear is zero rated where it is designed for children 13 years old and
younger.
2 The ONS Living Costs and Food Survey reports clothing expenditure with
respect to children under 16 years old. Therefore, for the purposes of the
model, Scottish population demographics are used to calculate the
proportion of this expenditure spent on clothing for under 13s. This
calculation provides the proportion of Scottish spending on clothing which
is subject to VAT at the standard rate and zero rate.
3 Regional expenditure data is used to calculate VATable expenditure in
Scotland. The Scottish VATable expenditure in spending categories which
contribute to clothing are combined to calculate the Scottish share of
VATable expenditure on clothing.
4 This process is repeated for the UK.
5 The Scottish and UK VATable expenditure on clothing is combined with all
other VATable expenditure in the household sector. The proportion
between UK and Scottish Expenditure provides the Scottish share of VAT.
Charities
4.7 There are several complex VAT rules for charities which mean that, unlike
most businesses, they do not recover all of the VAT incurred on their
purchases. This means VAT incurred by these bodies should be included
when calculating the UK VAT base and the Scottish share of UK VAT
receipts. Therefore, a separate component of the VAT assignment
methodology is required to calculate the VAT on consumption of goods and
services by these bodies in Scotland and the UK.
4.8 For the purposes of the charities component of the model, only VAT incurred
in relation to charitable activities is considered. Some charities carry out
business activity as well as charitable work and where this business activity is
VAT exempt it is accounted for as part of the VAT Exempt Businesses
expenditure component of the model (see below). Where charities carry out
taxable business activity, then this VAT is recoverable and therefore does not
form part of the UK total VAT receipts.
4.9 The VAT assignment methodology uses NPISH (non-profit institutions serving
households) data which includes charities, higher and further education
institutions, political parties and trade unions to calculate VAT incurred by
charities.
4.10 Relevant VAT rates are applied to expenditure in these sectors to calculate
the total VATable expenditure of in the charities component:
• Research and development
Annexe A
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• Other professional, scientific and technical activities
• Services to buildings and landscape activities
• Office administration, office support and other business support activities
• creative arts and other entertainment activities
• Sports activities, amusement and recreation activities
4.11 The Scottish share of charitable expenditure is calculated using labour
market data. The proportion of staff costs (full time employees) arising in
Scotland is calculated using data from the Annual Survey of Hours and
Earnings (ASHE) and the Business Register Employment Survey (BRES).
Central government
4.12 Most government activity is outside the scope of VAT as it is part of the
statutory functions of government organisations. However, some central
government bodies do not recover VAT on certain expenditure and therefore
VAT incurred by these bodies must be considered for the purposes of the
model.
4.13 VAT incurred by local government does not need to be considered for the
VAT assignment model. This is because local government organisations and
other bodies funded through local taxation can recover the VAT they incur
when carrying out local authority activities.
4.14 VAT rates are applied to each component of central government current
expenditure included in the model. The following categories of central
government current expenditure are used:
• Public administration and defence services; compulsory social security
services
• Education
• Human health activities
• Residential care activities
• Social work services without accommodation
4.15 The Scottish share of central government current expenditure is calculated
using labour market data. The proportion of staff costs (full time employees)
arising in the government sector in Scotland is calculated using data from
the Annual Survey of Hours and Earnings (ASHE) and the Business Register
Employment Survey (BRES).
4.16 Central government capital expenditure is analysed separately in the VAT
assignment model. VAT rates are applied to the following categories of
central government capital expenditure included in NPIS:
• other buildings and structures,
• transport equipment
• other machinery and equipment
Annexe A
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4.17 The Scottish share of central government capital expenditure is calculated
using identifiable capital spending.
4.18 The final part of government expenditure regards the VAT on Contracted
Out Services. These are services on which central government departments
can recover VAT and therefore do not form part of the VAT incurred by
central government. As this expenditure is included in the current and capital
central government expenditure calculations outlined above, a correction
must be made to the model to deduct any VAT that departments can
recover.
4.19 For the purposes of this correction, the VAT assignment model uses data
that HMRC receives from government departments on the VAT relating to
Contracted Out Services. The Scottish share of this VAT is calculated with
reference to the expenditure incurred in relation to devolved responsibilities
and regional employment splits by government departments. Exceptionally
for defence, the VAT on contracted out services is shared on the basis of
population. This is on the basis that defence is for the benefit of all members
of the population equally.
VAT exempt businesses
4.20 No VAT is charged on VAT exempt goods and services but the suppliers of
goods and services cannot recover the VAT incurred on their purchases from
HMRC. As such, expenditure incurred by businesses who supply exempt
goods and services is considered for the VAT assignment model.
4.21 Businesses or other organisations can recover the VAT paid on purchases
which relate to taxable supplies (standard, reduced or zero rated) but not on
those purchases which relate to exempt supplies. If a business supplies both
taxable and exempt goods and services, it must apportion any VAT that they
incur on its purchases in proportion to how those purchases are used in
making taxable or exempt supplies. The VAT which cannot be recovered is
known as irrecoverable VAT and is the amount of VAT which is paid by the
business and not recovered from HMRC.
4.22 The amount of VAT due in relation to these businesses is therefore based on
the proportion of their consumption which is standard rated as well as the
proportion of their outputs which is exempt. These proportions are
estimated at the UK level using confidential HMRC survey data and HMRC
tax rates.
4.23 The UK VAT exempt sector is mainly made up of the following significant
partially exempt industries:
• Postal and Courier Services
• Financial Services
• Education
• Human Health Activities
• Residential and Social Care
• Activities of Membership Organisations
Annexe A
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• Other personal services
4.24 The model calculates the VAT incurred in each of these sectors by using
intermediate consumption figures. The Scottish share of VAT in the UK VAT
exempt sector is calculated using labour market data, as described above.
Housing
4.25 The housing sector considers elements of housing construction and repairs
that are not included in household expenditure. This includes purchases of
dwellings (including transfer costs) and major improvements to dwellings
(e.g. conversions and extensions but not painting walls), which are standard
rated. New builds do not attract VAT and certain other elements of house
building and improvements are zero rated. Additionally, the reduced rate of
VAT is applied (instead of the standard rate) on improvements to buildings
(a change made originally as part of the Urban Regeneration Scheme).
4.26 The VAT incurred in this expenditure component is calculated using
construction industry data from the ONS. The Scottish share of VAT incurred
in this sector is calculated using sub-national breakdowns for the public and
private sectors using construction statistics and data from the UK House
Price index.
Corrections
4.27 Once the theoretical VAT liability has been calculated in each expenditure
component of the model, corrections are required to take into account areas
of expenditure where special rules or VAT reliefs are relevant.
4.28 Corrections arise from government schemes and reliefs which allow
organisations or individuals to reclaim VAT. If these corrections are not
adjusted for, then VAT on consumption in the sectors outlined above would
be overestimated. There are bespoke methodologies in place for each of the
corrections as outlined below.
Retail Export Scheme
4.29 The Retail Export Scheme allows non-European Union visitors to claim a
refund of VAT on goods they buy and take home from the European Union
in their personal luggage. The refunds are deducted from the model as the
expenditure is otherwise included in the household expenditure component
of the model but the VAT that has been included is not due to HMRC as it
has been reclaimed by the visitor. The Scottish share of VAT relating to the
Retail Export Scheme is based on International Passenger Survey data.
Do-It-Yourself Builders
4.30 A VAT refund is available under the “DIY Builders and Converters Refund
Scheme” on building materials and services used for:
• Building a new home
• Converting a property into a home
• Building a non-profit communal residence e.g. a hospice
• Building a property for charity
Annexe A
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4.31 The scheme involves single claims of VAT refunds on completion of projects
by unregistered, non-taxable persons. These refunds must be corrected for as
the VAT would otherwise be included in the Housing expenditure
component of the model. HMRC internal data on the DIY Builders and
Converters Refund Scheme is used to produce a sub-national breakdown in
order to calculate the Scottish share.
Museums and Galleries
4.32 Under UK VAT rules, museums and galleries that offer free admission to the
public can recover VAT that they incur on their purchases related to free
admission. As such, there is no VAT incurred on this activity.
4.33 A correction is required to the model to take account of the VATable
expenditure of museums and galleries that has been included in the charities
component of the model. Hence, adjustment needs to be made for the VAT
refunds provided to museums and galleries, and therefore is included in the
VAT assignment calculations.
4.34 HMRC internal data is used to calculate the VAT refunded to museums and
galleries in the UK and Scotland to calculate the Scottish share.
Domestic Tourism
4.35 Expenditure related to domestic tourism is included in the household
component of the model in each of the relevant expenditure categories.
However, in the Living Costs and Food Survey the expenditure will be
included in the usual residential country/region of the purchaser rather than
the country/region in which the expenditure occurred.
4.36 According to 2014 tourism figures English and Welsh visitors spend
approximately £1.7bn in Scotland and Scottish visitors spend about £1.2bn
in England and Wales. This would produce an extra £500m of expenditure in
Scotland that has been accounted for in England and Wales. In order to take
account of this there is an adjustment made to take into account the
additional expenditure that occurs in Scotland on domestic tourism.
4.37 The model uses expenditure data from the Great Britain Tourism Survey
(GBTS) and the Great Britain Day Visits Survey (GBDVS) is combined to give
an estimate of Scottish share of domestic tourism expenditure in Great
Britain.
Foreign Tourism
4.38 There are estimates of the expenditure by foreign tourists included in many
sectors of the household component of the model with the majority of this
expenditure being included in the accommodation and catering sector.
4.39 For VAT Assignment, foreign tourism expenditure is removed from
household expenditure component of the model and then distributed
according to where tourists visit according to the international passenger
survey.
Annexe A
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Unregistered traders
4.40 In the UK, traders below the VAT threshold do not have to register for VAT.
If a trader is below the registration threshold, then they do not charge VAT
on the goods and services that they sell. However, the sales of unregistered
traders will be recorded as expenditure in other parts of the model, where
the goods and services sold to consumers in those expenditure components
(e.g. private individuals purchasing cleaning services from businesses below
the VAT registration threshold. Therefore, the model will have overestimated
the amount of VAT due.
4.41 As a result of this, an adjustment must be made to household expenditure,
as no VAT will be paid by households on sales from these unregistered
traders, and a positive adjustment made to the intermediate current
expenditure to capture the amount of VAT that is paid on the inputs of these
traders and is unable to be reclaimed.
4.42 Information on the number of businesses from the Department for Business,
Energy and Industrial Strategy (BEIS), VAT registration information and Self-
Assessment information is used to construct the Scottish proportion.
Place of Supply
4.43 The place of supply is the place where a supply of goods or services is made
and where VAT may be charged and paid. The Place of Supply adjustment
concerns a change in treatment of electronic services and only applies to pre-
2015 VAT assignment periods. From 1 January 2015 Place of Supply changes
for business to consumer telecoms, broadcasting and electronic services
means that these digital services are taxed in the EU Member State where
the customer is located, not the location of the business supplying the
service.
4.44 Prior to these reforms in 2015 HMRC would have not received any VAT from
these specific digital services which are now taxed at the full standard rate.
Therefore, any VAT accounted for in the model from digital services must be
removed to reflect this difference.
4.45 As noted above, place of supply adjustments will not be used for VAT
assignment in future years but are included to understand the Scottish share
of VAT receipts for historic periods prior to 2015.
Bias impacts
4.46 Some budget measures and the results of litigation are often very specific
and impact a small number of traders. The impact of these particular
measures are estimated at a national level and would impact on the VAT
liability of specific sets of traders.
4.47 In these cases, it is assumed that the VAT liability is proportionally distributed
across all countries/regions and therefore are not specifically taken into
account for the purposes of the model.
Annexe A
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Annex A
VAT assignment and the Scottish Government Budget A.1 The UK Government and Scottish Government agreed in the Scottish
Government’s Fiscal Framework that VAT assignment would be implemented
in 2019-20 and that there would be a transitional period during which VAT
assignment would be forecast and calculated but with no impact for the
Scottish Government.
A.2 Both Governments have subsequently agreed that 2019-20 will be treated as
a transitional period during which Scottish VAT will be forecast and
calculated, but with no impact on the Scottish budget. From 2020-21 the
Scottish Government will be assigned receipts from the first 10p of the
standard rate of VAT and the first 2.5p of the reduced rate of VAT in
Scotland. At the same time the UK Government will reduce the Scottish
Government’s block grant to reflect the VAT receipts foregone in Scotland –
this is known as a block grant adjustment.
Block Grant Adjustments
A.3 As agreed in the fiscal framework, the Scottish Government’s block grant
will be reduced to reflect the fact that more of the Scottish Government’s
spending power will be determined through assigned VAT.
A.4 Arrangements for calculating the block grant adjustment are set out in the
Scottish Government’s fiscal framework. The block grant adjustment for VAT
assignment will work in broadly the same way as the adjustments applied for
Scottish Income Tax.
Forecasting
A.5 The VAT receipts assigned to the Scottish Government’s budget and the
corresponding block grant adjustments will both initially be based on
forecasts, and then reconciled to outturn data once available. The Scottish
Fiscal Commission will be responsible for forecasting the receipts assigned to
the Scottish Government’s budget, with the Office for Budget Responsibility
in charge of producing forecasts of VAT for the UK as a whole, as well as
forecasting comparable receipts in the rest of the UK to be used in
calculations for the block grant adjustment.
A.6 As set out in this document, the UK and Scottish Governments have jointly
developed the methodology for VAT assignment outturn data, with the
independent forecasters determining their own forecasting methodologies.
Annexe A
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Reconciliation to outturn
A.7 The assigned VAT receipts and block grant adjustments will both be
reconciled to outturn data once available. This outturn will be determined
using the agreed VAT assignment methodology, as above.
Annexe A
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HM Treasury contacts
This document can be downloaded from www.gov.uk
If you require this information in an alternative format or have
general enquiries about HM Treasury and its work, contact:
Correspondence Team
HM Treasury
1 Horse Guards Road London SW1A 2HQ
Tel: 020 7270 5000
Email: [email protected]
Annexe A
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Annexe B
Scottish VAT Assignment: questions arising from the paper ‘Summary of Assignment Model’ – David Eiser, Adviser
Introduction Following the recommendations of the Smith Commission, the first ten percentage points of the standard rate of VAT and the first 2.5 percentage points of the reduced rate of VAT will be assigned to the Scottish Government’s budget. The Scottish Government will have no powers to vary VAT rates or exemptions, but the Scottish budget will be influenced by the growth rates of the assigned Scottish VAT revenues relative to the equivalent rUK revenues. The 2019/20 Budget will for the first time include a forecast of Scottish VAT. However, 2019/20 will be a transitional year in which, although VAT forecasts appear in the budget, these will have no effect on the budget. From 2020/21, assigned VAT will affect the budget to the extent that the Scottish share of VAT could grow relatively more quickly or slowly than the equivalent rUK revenues. The major challenge with assigning VAT is that, unlike with other taxes, there will never be any outturn data for Scottish VAT. As a result, assigned Scottish VAT will need to be estimated. The extent to which it might make sense to partly base the Scottish budget on an estimate of a revenue depends on how reliably the revenue can be estimated (as well as the extent to which that revenue can be estimated transparently). UK and Scottish Government officials have been working together over the past two years to develop an agreed methodology to estimate Scottish VAT. The paper published in November summarises the results of this work4. The VAT Assignment methodology In broad terms, the model works by applying the VAT rates to estimates of expenditure in Scotland. This gives an estimate of the VAT Total Theoretical Liability (VTTL) which is then adjusted to account for, for example, the fact that some expenditure by Scottish households takes place in other parts of the UK (and some expenditure by English or Welsh residents takes place in Scotland). It is also adjusted to account for the fact that some expenditure is on businesses who may be below the VAT threshold. Expenditure is largely estimated from a wide range of publicly available survey data, but also from some data held internally to HMRC (including VAT registration information and self-assessment data). The strength of the Paper is that is explains what is a very complex process relatively simply. But the disadvantages are that it leaves unanswered questions about the likely level of accuracy of the method proposed, and it is sometimes unclear why a particular approach over others has been selected. Limited assessment of robustness: The main element of relevant expenditure is by the household sector (household
4 Scottish VAT Assignment: Summary of Assignment Model. HM Treasury (2018) https://www.gov.uk/government/publications/scottish-vat-assignment-summary-of-vat-assignment-model
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Annexe B
purchases account for around 70% of VAT receipts). The Scottish share of UK household expenditure is derived from various surveys, but most importantly the Living Costs and Food Survey. The Paper states that HMRC and the Scottish Government have jointly sponsored a boost to the LCFS sample size, but it does not say what the sample size will be following this boost, nor does it make any assessment of the adequacy of the sample size. The paper also makes no attempt to assess the robustness of other data sources, such as the use of various tourism and visitor surveys (the International Passenger Survey, the GB Day Visits Survey and the GB Tourism Survey).
• Limited justification for approach: The Scottish share of centralgovernment expenditure (some of which is not VAT recoverable) is calculatedusing labour market data – but it is not clear why this approach is used ratherthan drawing on public spending data.
• Lack of detail on data used: In some cases, only partial information isprovided on data sources. For example, expenditure on house building iscalculated on the basis of ‘construction industry data from the ONS’ –although it is not particularly clear what this is. ‘HMRC internal data’ is used tocalculate VAT refunded to museums and various other elements of the model.
• VAT exempt businesses: The lack of detail is particularly apparent in relationto VAT exempt businesses, an important element of the calculation of VATreceipts (accounting for 16% of the tax base). (Sales of VAT exempt servicesare not subject to VAT, but the suppliers of these services cannot reclaim theVAT paid on its inputs, unlike the case of zero-rated goods). The UK VATexempt sector includes financial services, as well as various other services inhealth, social care, education and postal and courier services. The Paperstates that the model calculates the VAT incurred in each of these sectors atUK level by using ‘confidential HMRC data’ and ‘intermediate consumptionfigures’ but gives no further information on this, and then says that the‘Scottish share of VAT in the UK exempt sector is calculated using labourmarket data’. No assessment is given of the appropriateness of this approach,nor on how sectors identified in the labour market data are mapped onto theVAT exempt sectors. How much certainty can we have in the consequentestimate of, for example, irrecoverable Scottish VAT associated with thefinancial services sector?
The main limitation of the Paper is that it does not provide any assessment of the confidence intervals likely to be associated with the VAT estimate made using the proposed methodology. For context, the GERS methodology paper states that the 95% confidence interval associated with the GERS estimate of Scottish VAT is +/- £223 million. But is the proposed methodology associated with a larger or smaller confidence interval? A confidence interval of +/- £200 million would imply that we should expect the Scottish budget to fluctuate by several million pounds each year purely as a result of sampling variability. How much of such variability would be acceptable?
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FCC/S5/19/6/2
1
Finance and Constitution Committee
6th Meeting, 2018 (Session 5), Wednesday 13 March 2019
The Budget (Scotland) Act 2018 Amendment Regulations 2019 Introduction 1. The purpose of this paper is to set out background and procedural information for the Committee’s scrutiny of the Budget (Scotland) Act 2018 Amendment Regulations 2019 (“the Regulations”). Copies of the Regulations and the accompanying Spring Budget Revision (SBR) document are available via the following links—
• The Budget (Scotland) Act 2018 Amendment Regulations 2019
• Spring Budget Revision Supporting Document
2. A briefing on the Regulations and SBR has been prepared by the Financial Scrutiny Unit in SPICe and a brief guide to the Spring Budget Revision has been prepared by the Scottish Government. These briefings are attached as Annexes A and B.
Purpose of the Regulations and the scrutiny procedure 3. The Regulations were laid on 7 February and relaid on 21 February following the withdrawal of the earlier Regulations due to a minor technical error. They amend the Budget Scotland Act 2017 which authorised the Scottish Government’s spending plans for the current financial year. The SBR provides supporting information on the revised spending plans for which the Scottish Government is seeking Parliamentary approval.
4. The Regulations are subject to the affirmative procedure under Rule 10.6 of Standing Orders. Under this procedure, the Parliament has a 40 day period in which to consider the Regulations, including consideration by a lead committee and the Delegated Powers and Law Reform Committee (DPLRC). The DPLRC considered the Regulations at its meeting on 26 February and had no issues to report.
5. As lead committee for the Regulations, the Committee will be invited to consider the following motion from the Cabinet Secretary for Finance and the Constitution—
• Motion S5M-16046: That the Finance and Constitution Committee recommends that the Budget (Scotland) Act 2018 Amendment Regulations 2019 [draft] be approved.
6. During formal consideration of the motion, Standing Orders provide that only the Minister and Members may participate in the debate. In order to inform the Committee’s consideration of the motion, there will therefore be an opportunity to take evidence on the Regulations from the Minister and his official before moving to formal consideration of the motion.
7. The deadline by which the Finance and Constitution Committee must report on the Regulations is 27 March 2019.
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FCC/S5/19/6/2
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Scotland Reserve 8. In its budget scrutiny this year and in previous years, the Committee considered the lack of transparency around the balance of the Reserve. In this year’s budget scrutiny, the Committee considered the Scotland Reserve balance and attempted to track the balance from the Autumn Budget Revision 2018/19 across to the Budget 2019-20 document.
9. The Committee asked the Scottish Government to explain the apparent difference between the figures for the Scotland Reserve in the Autumn Budget Revision and in the 2019-20 Budget.
10. The Scottish Government responded1—
The 2019-20 Scottish Budget does not explicitly set out a reserve position, only that spending plans anticipate £313m in drawdown from the Reserve. This commitment reflects additional knowledge gained since the publication of the Autumn Budget Revision. Specifically, this includes additional consequential funding for 2018-19 provided by HM Treasury at UK Autumn Budget and a developing understanding of in-year underspends that are starting to emerge. This knowledge, on top of the running in year balance of £198m shown in the Autumn Budget Revision, allowed the Scottish Government to commit to funding the additional £313m of commitments shown in the document. The running balance on the Reserve will be updated at Spring Budget Revision but, as indicated in response to question 187, precise details of the end-of-year balance will not be known until provisional outturn information is available in June. I will update Parliament at that time.
11. Table 1.7a in this year’s Spring Budget supporting document provides details of the current balance of the Reserve—
12. The Scottish Government’s brief guide to the Spring Budget Revision, accompanying the supporting document, includes a mid year report on Underspend and Reserve at Annexe C. This report does not directly read across to the table above.
1https://www.parliament.scot/S5_Finance/General%20Documents/ScotGov_response_Budget_report.pdf
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Table 1.7a shows a forecast closing balance in the Reserve of £454.2 million whereas Annexe C of the brief guide shows a forecast closing balance of £499.7 million. This is discussed further in the SPICe briefing.
Decision 13. The Committee will consider whether to approve the Regulations at agenda item 3.
Committee Clerks,
March 2019
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FCC/S5/19/6/2
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ANNEXE A: SPICe BRIEFING: SPRING BUDGET REVISION 2018-19
Introduction
The 2018-19 Spring Budget Revision (SBR) amends the Budget (Scotland) Act 2018 which authorises the Scottish Government’s spending plans for the financial year 2018-19. Details of the proposed changes are set out in the 2018-19 Spring Budget Revision to the Budget (Scotland) Act for the year ending 31 March 2019 published on 7 February 2019. The Scottish Government has also produced a Brief Guide to the 2018-19 Spring Budget Revision.
The proposed changes detailed in the SBR result in an increase in the approved Budget for 2018-19 of £3,576.2 million from £40,505.9 million to £44,082.1 million. The SBR seeks parliamentary approval for these changes.
The SBR also presents the Reserve balance in table 1.7a (discussed below).
The main changes to the Scottish Government’s spending plans arise from:
• Funding changes allocated over a number of budget lines of -£3.3 million • Net Whitehall and HM Treasury transfers to/from the Scottish Government of
£275.7 million. • Net technical adjustments of £3,308.8 million, the bulk of which are additional
non-cash and Annually Managed Expenditure funded by the UK Government • Transfers of resources between Scottish Government portfolios which have
no net overall effect on the budget.
A summary of the proposed changes by portfolio is presented in table 1.2 of the SBR and in Annex B of the Brief Guide to the Spring Budget Revision. This is reproduced below for convenience.
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Table 1: Spring Budget Revision changes by type
2018-19 Budget Approved at the Autumn Budget Revision 40,505.9
FUNDING CHANGES
Miscellaneous portfolio movements (See Annex A) -3.3
-3.3
WHITEHALL TRANSFERS
Portfolio Description Amount Type
£m
H&S Transfer from HM Treasury for Agenda for Change staff Pay Award
78.0 Res
H&S Transfer from HM Treasury for the impact of changes to the Discount Rate applied In calculating Personal Injury Claims
22.0 Res
H&S Allocation from HM Treasury in respect of the Air Ambulance
1.0 Cap
H&S Transfer from Health and Social Care in respect of HIV funding
0.8 Res
H&S Transfer from the Home Office for the Migrant Surcharge 0.5 Res
H&S Transfer from DWP for the Fit for Work programme 0.2 Res
H&S Transfer from DWP for a GP IT project 0.1 Res
H&S Allocation from HM Treasury in respect of funding for free pregnancy terminations for women from N. Ireland
0.1 Res
FEFW Transfer from UK Money Advice Service 1.5 Res
FEFW Transfer from Cabinet Office for Cyber Security 1.1 Res
FEFW Transfer from DWP for Single Gateway Project Funding
0.5
Res
E&S Transfer from Business, Energy and Industrial Strategy for research and development
1.6 Res
E&S Transfer from Cabinet Office for Cyber Security 0.5 Res
Justice Transfer from HM Treasury for the US Presidential Visit 3.2 Res
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Justice Transfer from Cabinet Office for Cyber Security 1.4 Res
Justice Allocation from HM Treasury in respect of LIBOR funding for Scottish Mountain Rescue
0.7 Res
TIC Transfer from Business, Energy and Industrial Strategy for public sector energy efficiency
3.6 Cap
SSOP Transfer from DWP for Carers Allowance 157.3 Res
SSOP Allocation of budget from HM Treasury to provide grants to women’s organisations (Tampon Tax)
1.0 Res
SSOP Transfer from DWP for the Sure Start Maternity Grant 0.6 Res
TOTAL 275.7
TECHNICAL CHANGES
Various Additional budget cover for provisions, impairments, fair value adjustment, pension liabilities and Depreciation of donated assets (AME)
178.6 Res
H&S Health and Sport portfolio non-cash adjustment for NHS Boards write downs and accelerated depreciation
63.0 Res
E&S Education and Skills portfolio non-cash adjustments due to impact on the carrying value of loan book (non-cash)
668.8 Res
Justice Grant-in-Aid to Scottish Police Association to support working capital requirements
15.0 Res
TIC Repayment of a pre-paid funding for the sleeper service -27.9 Res
ECCLR Adjustment to Scottish Water net loans -3.7 Cap
Teachers and NHS Pensions
Appeal court ruling –adjustments to cover potential future costs of remedy from NHS and Scottish Teachers’ Pension Scheme (AME)
2,329.5 Res
Teachers and NHS Pensions
Increase to NHS and Teachers pensions due to equalisation and indexation
53.9 Res
Various Technical adjustments to align budgets with accounting requirements (ODEL)
24.8
Various Various other DEL non-cash adjustments 1.8
TOTAL 3,303.8
Proposed Budget following Spring Revisions 44,082.1
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The remainder of this briefing raises some areas for discussion with the Minister.
The Reserve balance
Table 1.7a reports on the Scotland Reserve. The Reserve balance brought forward from 2017-18 is shown as £430.3 million.
The table then lists the Barnett consequentials which have arisen from UK fiscal events, as well as carry forwards or underspends from 2017-18.
Incomings and outgoings in the Reserve from the various factors listed in table 1.7a mean that according to the SBR the Scottish Government is forecasting a Reserve balance at the end of the current financial year of £454.2 million.
However, as the Minister and Cabinet Secretary has told Committee in the past, the Reserve position moves throughout the year. The Brief Guide to the Budget Revision Annex C provides the latest overall Reserve position which presents a later analysis than that which is reflected in the SBR. For example, it includes the expenditure commitments made for 2019-20 during the Budget Bill process at stage 2 (£94 million), as well as the Spring Supplementary consequentials (£148 million) used to fund the Stage 2 amendments, as well as Queens and Lord Treasurer’s Remembrancer (QLTR) receipts2 deferred from 2018-19.
This all leaves a forecast closing balance in the Reserve of £499.7 million (as opposed to £454.2 million reported in the SBR).
One apparent anomaly between the two tables is the opening balance, which in the SBR appears to be £430.3 million, but in Annex C is shown as £538 million. This is due to timing differences – the SBR shows an opening balance as at SBR last year whereas the opening balance for 2018-19 shown in the brief guide starts after the inclusion of the additional carry forward from 2017-18 (£96.7m and 10.9m).
Members may wish to discuss the reserve balance with the Minister. Whilst recognising that the Reserve is a constantly moving picture, the different numbers presented in the SBR and in the Brief Guide potentially confuse the picture.
It is also not clear why the SBR for 2018-19 contains a different opening balance to what was actually the case once the additional carry forward was included.
2 Queens and Lord Treasurer’s Remembrancer receipts relate to ownerless goods and the revenues raised from them which have been surrendered to the Scottish Consolidated Fund since Devolution. Following legal advice it was agreed that these funds could be used by Scottish Ministers as a funding source. The original plan was to use them in 2018-19 but they will now be used in 2019-20.
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Additionally, given the SBR was published on 7 February 2019 and the Stage 1 budget deal was agreed on 1 February, it is not clear why the Reserve position presented in the SBR does not include the additional Barnett consequentials and spending commitments agreed between the Scottish Government and Green Party.
The final picture for 2018-19 provisional outturn (and underspends) will be presented to the Scottish Parliament in June.
Funding Changes
Funding changes included in the SBR amount to a net reduction of £3.3 million. The main reason for this net reduction figure is due to the repayment of £175 million (capital) of farmers’ loans in the Rural Economy portfolio, which offsets the additional funding. It is not clear whether or how this £175 million reduction (which is Financial Transaction capital) is being used to fund day-to-day resource expenditure.
A full breakdown of the funding changes is provided in the Scottish Government’s Brief Guide and is reproduced in Annex 1 of this paper.
Members may wish additional information on some of the other funding changes identified in annex 1. There are a number of changes, some of which are reasonably substantial. For example:
• there is £95 million (resource) added to Justice for Police and Fire pension pressures;
• £40 million (resource) for an acceleration of the Waiting Times Improvement Plan;
• £34 million (resource) for the Carer’s Allowance Supplement (it is not clear whether this reflects an increase in demand for this recently devolved benefit);
• £20 million (capital) for the GP Premises loan scheme; • A reduction of £43 million (capital) in ‘projected’ housing supply receipts • A £56 million reduction (resource and capital, but split not identified) in
Enterprise • £10.7 million (capital) for the Scottish Qualifications Authority
Whitehall Transfers/Allocations from HM Treasury
There are 13 Whitehall transfers in the SBR and seven additional allocations from HM Treasury. These have a net positive impact on the Scottish Budget of £275.7 million. These are presented in table 1 above.
The most significant in budgetary terms are the £157.3 million from the DWP for the transfer of responsibility for the Carer’s Allowance; £78 million from HM Treasury for the Agenda for Change staff Health Pay award; and £22 million for funding the impact of changes to the Discount Rate applied in calculating Personal Injury claims. HM Treasury also transferred £3.2 million to fund the costs of the US Presidential visit.
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Members may wish further information on some of these transfers.
Technical Transfers
The SBR records a significant level of Technical transfers (£3,308 million or 7.5% or the proposed budget in the SBR). There is a detailed explanation for the changes in the Supporting document and in the Brief Guide. Rather than reproduce that explanation in full, this note suggests possible areas members may wish to explore with the Minister.
The most significant change relates to the increase to the Annually Managed Expenditure (AME) provision for future NHS and Teachers pension costs. This follows the outcome of the appeal court rulings on the Judicial Pension Scheme and Firefighters Pension Scheme discrimination on age related protections. The SBR, therefore adjusts the budget by £2,329.5 million to reflect the level of resource that may be required by the NHS Pension Scheme (Scotland) and the Scottish Teachers’ Pension Scheme to remedy any future implications. Adjustments are not made in the SBR for other unfunded schemes that might be impacted (Police, Fire and Civil Service) as these are not shown in the Scottish Government Consolidated accounts.
Members may wish to explore further details from the Minister on the decision and its implications. For example:
• The implications for Scottish public sector workers from this decision; • The knock on implications for other public sector workers pension schemes; • The extent to which (either directly or indirectly) this decision might impact on
the discretionary spending power of the Scottish budget now and in the future.
The Brief Guide states that “the UK Government is expected to seek to appeal this case further and the final position is not likely to be resolved for some time. The adjustment is made on the basis of legal opinion on the probability of a successful appeal.” Possible areas for members to explore are as follows:
• The extent to which the Scottish Government is involved (or not) with the UK Government’s appealing of this case;
• Whether the Scottish Government agrees with the appeal; • Likely timeframe for any appeal decision; • On the basis of whose legal opinion the adjustment was made (ie Scottish or
UK Government lawyers?); • Whether, by making the adjustment in the SBR, the view is that the appeal is
unlikely to be successful; • If appeal unlikely to be successful, the reasons for it being made.
Other significant technical adjustments are made to the non-cash budget for the impairment of Student Loans (in the Education and Skills portfolio) of £668.8 million. Members may wish to explore the impact of this further. It relates to the
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announcement in June that the Scottish Government would match the UK repayment threshold of £25,000 and reduce the repayment period before any loan is written off to 30 years. Although the increase in the repayment threshold to £25,000 won’t come into force until April 2021, it impacts existing loans. Increasing the repayment threshold and reducing the write off period to 30 years has the effect of increasing the proportion of loan funding that is expected to be written off over the lifetime of the loans – hence the need for this adjustment in the SBR.
Other technical adjustments are summarised in the Supporting document as follows:
• The Health and Sport portfolio has increased its non-cash budget by £63 million to cover non-cash costs to NHS Boards of write downs and accelerated depreciation. Members may wish additional information on what this means in practice.
• There is an increase of £53.9 million to the NHS and teachers pensions budget due to indexation and equalisation;
• an increase in Grant-in-Aid for the Scottish Police Association (£15 million) which has been allocated to support working capital requirements;
• an adjustment to budgets in respect of repayment of a pre-paid funding for the sleeper service -£27.9 million;
• an adjustment to Scottish Water net loans -£3.7 million; and a number of other small miscellaneous technical adjustments.
• There are also additional allocations of AME budget, as agreed and funded by HM Treasury, to cover provisions, impairments, fair value adjustments and pension liabilities (£178.6 million) as well as a small number of changes (£24.8 million) to align budgets with accounting requirements under the Government Financial Reporting Manual (the FReM).
Further details on these are provided in the Brief Guide, and members may wish further information from the Minister.
Some of these technical adjustments are made to provide ‘AME cover’ in case they are needed. If they are not needed, members may wish to enquire how they will be accounted for in the future. Is there a likelihood that future iterations of Budget revisions will require negative technical adjustments?
Internal transfers
Although not impacting on the overall aggregate Scottish Budget, there are a number of planned internal transfers between portfolios. The most financially significant of these transfers identified by the Scottish Government (presented on p3 of the supporting document) are as follows:
• Transfer of £71.0 million from Finance, Economy and Fair Work portfolio to Social Security and Older People portfolio for Social Security Implementation and Administration (split £56 million Resource and £15 million Capital).
• Transfer of £25.0 million from Finance, Economy and Fair Work portfolio to Communities and Local Government portfolio for the Building Scotland Fund.
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• Transfer of £7.0 million from Transport, Infrastructure & Connectivity portfolio to Rural, Economy portfolio for Wave Energy.
• Transfer of £6.7 million from Health and Sport portfolio to Education and Skills portfolio in relation to clinical academics and senior academic GPs.
• Transfer of £5.3 million from Rural Economy portfolio to Education & Skills portfolio in relation to the South of Scotland Enterprise Project.
Notable transfers and points of interest contained in the SBR are presented by portfolio below. Finance, Economy and Fair Work
As can be seen in Annex 1 of this paper and p28 of the SBR, there is a ‘release of emerging underspend to support priorities’ in the Enterprise budget of £56 million, comprising £29 million in resource and £27million in capital. This is a sizable proportion of the Enterprise budget. It is not clear where these resources are being directed or why the underspends have emerged.
Education and Skills
Page 2 of the SBR reports the £668.8 million technical adjustment regarding student loans. Schedule 3.4 on p37 reports this as £669.5 million.
The Scottish Funding Council budget (p38) shows a ‘return of funds to Scottish Government in relation to reprofile of Capital project’ of £7.1 million. Members may wish additional information on how that will be spent and why it is shown in Operating budget when it relates to Capital.
Justice
There is a £5.3 million ‘adjustment to the Prisons PPP/PFI budget’ on p50 (split -£0.2m Operating and £5.5m Capital). Members may wish further information on this – PPP unitary payments usually come out of Operating/Resource budgets, rather than scoring as Capital.
There is a £29.6 million transfer into the Scottish Police Authority (SPA) budget for the implementation of Policing 2026 (p52).
Environment, Climate Change and Land Reform
There is a ‘transfer of responsibility for Private Water to Scottish Water’ in the Environmental Services budget of £1.7 million (p69, 71).
Rural Economy
As well as the £9.8 million transfer in EU Support and Related Services for the CAP payments IT system, there is a transfer out to Rural Services of £7.5 million to ‘support payment of farmers loans and the bovine ScotEID project.’ (p73).
Government Business and Constitutional Relations
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There are transfers from other Scottish Government portfolios into the Govt Business and Constitutional Relations budget of £6.6 million for “social advertising and public information in 2018-19”.(p86).
Ross Burnside, Financial Scrutiny Unit, March 2018
Annex 1: List of Funding Changes
Portfolio Description Amount Type
£m
H&S Acceleration of Funding from 2019-20 Budget for Waiting Times Improvement Plan
40.0 Res
H&S Support for the GP Premises loan scheme 20.0 Cap
H&S Additional indirect capital for health research 14.3 Res
H&S Net capital to indirect capital transfers for NHS Scotland Health Boards
9.9 Res
C&LG Projected Housing Supply receipts -43.0 Cap
C&LG Release of emerging/planned underspend to support priorities
-15.0 Cap
C&LG Release of emerging/planning underspend to support priorities
-9.7 Res
C&LG Repayments in relation to SPRUCE -7.7 Cap
C&LG Reclassification of expenditure -1.2 Res
FEFW Miscellaneous Minor Transfers 2.2
FEFW Release of emerging/planned underspend from Enterprise
-56.0
Res
Cap
FEFW Release of emerging/planned underspend from other finance
-6.0 Res
E&S Release of emerging/planned underspend to Scottish Qualifications Authority
10.7
Res
Cap
E&S Additional funding for Child Abuse Enquiry 9.2 Res
E&S Additional funding for Raising Attainment 6.9 Res
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E&S Student support review 3.5 Res
E&S Additional funding for SQA 2.7 Res
E&S Additional funding for SDS 2.5 Res
E&S Additional funding for Child Abuse Enquiry 2.3 Res
E&S Additional funding for Education Scotland 1.6 Res
E&S Additional funding for Gaelic 1.0 Res
E&S Additional funding for ITE Students 1.0 Res
E&S Miscellaneous Minor Transfers -0.5 Res
Justice Reprioritisation of resources to meet additional costs 95.0 Res
Justice Additional funding to support police workforce 10.9 Res
TIC Deployment of emerging/planned underspend 18.4 Cap
TIC Release of emerging/planned underspend to support priorities
-2.5 Res
ECCLR Additional funding for Peatlands Restoration 4.4 Res
RE Additional funding for CAP payments IT system 9.8 Cap
RE Additional funding for Croft House Grant 0.8 Res
RE Net repayment of farmers loans -175.0 Cap
CTEA Deployment for emerging/planned underspends to the Glasgow 2018 European Championships
5.0 Res
CTEA Transfer to Visit Scotland for Rural Tourism Infrastructure Fund
1.0 Res
SSOP Deployment of emerging/planned underspend to fund Carer’s Allowance Supplement and Best Start Grant
35.0 Res
SSOP Transfer from Finance, Economy and Fair Work for Social Security Policy and programme costs
15.0 Cap
SSOP Miscellaneous minor transfers -0.6 Res
GBCR Miscellaneous minor transfers 0.5 Res
COPFS Additional funding to cover increased caseload 2.3 Res
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NRS Release of emerging/planned underspend to support priorities
-0.8 Res
NRS Release of emerging/planned underspend to support priorities
-0.2 Cap
RS Miscellaneous minor transfers 0.3 Res
RS Release of emerging/planned underspend to support priorities
-2.7 Cap
Total -3.3
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ANNEXE B: SCOTTISH GOVERNMENT BRIEF GUIDE TO THE 2018-19 SPRING BUDGET REVISION (SBR)
Background
1. The Spring Budget Revision is part of the annual Budget process. The Budget process for 2018-19 commenced with the publication of the Draft Budget and the subsequent consultation process. This was followed by the annual Budget Bill and Parliamentary approval of the Scottish Government’s spending plans.
2. Once the Budget Act has been approved by the Scottish Parliament, there are usually two opportunities to amend the budget as the year progresses - the Autumn Budget Revision in October and a Spring Budget Revision in February. The Spring Budget Revision provides the final budget figures, against which outturn is reported in the Scottish Government’s annual accounts.
Spring Budget Revision
3. The Spring Budget Revision is routine Parliamentary business that proposes amendments to better align the Government’s budget with its planned spending profile.
4. The aim of the Brief Guide to the Spring Budget Revision is to explain the main changes to the Budget since the publication of the Autumn Budget Revision and give some further background on why the changes have been made.
5. The changes proposed in the Spring Budget Revision result in an increase in the approved budget of £3,576.2 million from £40,505.9 million to £44,082.1 million.
The changes to the Budget are traditionally broken down in to four main areas:
• Funding changes which have arisen since changes to the Autumn Budget Revision (-£3.3million).
• Whitehall Transfers and HM Treasury allocations (£275.7 million). • Technical Changes (£3,303.8 million). • Transfers between Portfolios.
6. The main changes included under each heading are summarised below.
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Funding Changes
7. Funding changes represent adjustments to the budget available to the Scottish Government that provide spending power within portfolios and programmes.
8. The funding changes are allocated over a number of lines. As in past years, as part of the internal robust monitoring process and in line with good practice, we have also taken the opportunity at the Spring Budget Revision to ensure that we maximise the budget available in 2018-19 through the redeployment of emerging/planned underspend alongside the remaining unallocated resources held centrally. This strategy is reflected in the portfolio schedules and Annex A shows the detail of the funding changes. The main reason for the net reduction is due to the net repayment of £175m of farmers’ loans in the Rural Economy portfolio.
Whitehall Transfers / Allocation from HM Treasury
9. There are thirteen Whitehall transfers recognised at the Spring Budget Revision together with six additional allocations from HM Treasury. The net positive impact on the Scottish Budget is £275.7 million and a full breakdown is given at Annex B.
10. In respect of Whitehall transfers, there are transfers of responsibility from the Department for Work and Pensions for Carers Allowance (£157.3m) and Sure Start Maternity Grant (£0.6m), along with a £0.5m transfer for Single Gateway Project funding, £0.2m for the Fit for Work programme and £0.1m for a GP IT project. There are three transfers of £1.4m, £1.1m and £0.5m respectively from the Cabinet Office for Cyber Security, two transfers from the Department of Business, Energy and Industrial Strategy for public sector energy efficiency (£3.6m) and Research & Development (£1.6m), and transfers of £1.5m from the UK Money Advice Service, £0.5m from the Home Office for Migrant Surcharge and £0.8m from the Department for Health and Social Care in respect of HIV funding.
11. From HM Treasury there are allocations of £78.0 million in respect of Agenda for Change staff Health Pay Award, £22.0m for funding the impact of changes to the Discount Rate applied in calculating Personal Injury claims, £3.2m to fund the policing costs associated with the US Presidential visit, a £1.0m allocation to provide grants to women’s organisations (from the Tampon Tax), and allocations of £1.0m in respect of the Air Ambulance service, £0.7m in respect of LIBOR funding for Scottish Mountain Rescue and £0.1m in respect of funding for free pregnancy terminations for women from N. Ireland.
Technical Adjustments
12. In line with past years, the Spring Budget Revision recognises a number of technical changes which are essentially budget neutral and do not provide additional
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spending power for, or detriment to, the Scottish Government. These changes are substantial in this year’s Spring Budget Revision with total net technical changes of £3,303.8 million described in paragraphs 13 to 20 below.
13. The largest technical change is the increase to the provision for future NHS and Teachers pension costs (which is a change to the Annually Managed Expenditure (AME) budget). This flows from the outcome of appeal court rulings on the Judicial Pension Scheme and Firefighters Pension Scheme discrimination claims. The ruling relates to protections afforded to some scheme members on the transition that was made from final salary to the current career average revalue earnings (CARE) scheme arrangements. This ruling has potentially significant implications for the future costs of these unfunded public sector pensions schemes (the Teachers, NHS, Police, Fire and Civil Service pensions schemes). The budget has therefore been adjusted to reflect the level of resource that may be required by the NHS Pension Scheme (Scotland) and the Scottish Teachers’ Pension Scheme to meet the potential future costs of remedy. This is a £2,329.5 million adjustment to non-cash AME budgets. The change is consistent with adjustments that will be made to other UK departments following discussion with HMT on the implications of the decision. The UK Government is expected to seek to appeal this case further and the final position is not likely to be resolved for some time. The adjustment is made on the basis of legal opinion on the probability of a successful appeal. Adjustments are not required in the SBR for Police, Fire and Civil Service pensions as the future liabilities for these schemes are not shown within the Scottish Government consolidated accounts.
14. There is also a significant adjustment to the non-cash budget for the impairment of Student Loans within the Education and Skills portfolio of £668.8 million. This is largely driven by the changes to the terms and condition associated with Student Loans announced in June, which increase the repayment threshold to £25,000 and reduce the repayment period before any loan is written off to 30 years. Although the increase in the repayment threshold to £25,000 is not due to come into force until April 2021 it impacts on all existing loans. Together these changes increase the proportion of loan funding that is expected to be written off over the lifetime of the loans.
15. There has been a change to the way that public bodies need to account for loans and receivables (other than Student Loans) following the introduction of a new International Financial Reporting Standard – IFRS9. This introduces an “expected loss” model that focuses on assessing and quantifying the risk that a loan may default rather than recording any financial impact only when a loss has already been incurred. As expected credit losses represent possible outcomes, these amounts are not necessarily “expected” nor actual “losses”, as those terms are generally understood, they represent measures of an asset’s credit risk. £140m of additional non-cash AME budget has been added to allow for the impact of any expected credit losses. Work is still on-going in implementing IFRS9 and this sum does not represent the actual assessment of expected credit losses, but rather a prudent level of AME cover, requested as part of the UKG supplementary estimates process, within which these adjustments can be accommodated.
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16. In addition, the Spring Budget Revision reflects net technical adjustments of £24.8 million, to align the IFRS based budgets with the year-end accounting requirements for the Scottish Budget for revenue financed infrastructure projects under the Government Financial Reporting Manual (the FReM).
17. The Spring Budget Revision records other increased AME, as agreed with HM Treasury to cover provisions, impairments, fair value adjustments and pension liabilities (£38.6 million).
18. There has also been an increase of £53.9 million to the NHS and teachers pensions budget due to indexation and equalisation carried out by HM Treasury.
19. As well as the adjustment for the Student Loans impairment referred to above there are also a number of other technical adjustments to the Expenditure Limit (EL) budget, relating to non-cash budgets totalling £63.1 million. This is primarily a Health and Sport portfolio increase in its’ non-cash budget of £63 million to cover costs of NHS Boards in respect of write downs and accelerated depreciation. Small adjustments to non-cash budgets were also made to the Finance, Economy & Fair Work and Justice portfolios.
20. Other technical adjustments to the Expenditure Limit budget include £15 million to support working capital requirements for the Scottish Police Association, -£27.9 million in respect of repayment of prepaid funding for the sleeper service and -£3.7m to Scottish Water net loans.
Internal Transfers
21. There are a number of internal transfers within the Scottish Block as part of the Spring Budget Revision process. Virement between and within portfolios are ‘zero-sum’.
The significant budget internal transfers between portfolios include:
• Transfer of £71.0 million from Finance, Economy and Fair Work portfolio to Social Security and Older People portfolio for Social Security Implementation and Administration.
• Transfer of £25.0 million from Finance, Economy and Fair Work portfolio to Communities and Local Government portfolio for the Building Scotland Fund.
• Transfer of £7.0 million from Transport, Infrastructure & Connectivity portfolio to Rural, Economy portfolio for Wave Energy.
• Transfer of £6.7 million from Health and Sport portfolio to Education and Skills portfolio in relation to clinical academics and senior academic GPs.
• Transfer of £5.3 million from Rural Economy portfolio to Education & Skills
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portfolio in relation to the South of Scotland Enterprise Project.
22. The Spring Budget Revision records a small number of internal portfolio transfers which have no effect on the portfolio totals, but play a role in ensuring effective internal budget management.
23. Annex B provides a summary of all the changes from the Autumn Budget Revision.
Transparency
24. Tables 1.7 (a) and (b) of the Spring Budget Revision supporting document provide details of the sources of funding that support the changes applied and the movement on available resources.
25. Annex C sets out a mid-year report on revenue and spending up to the end of January (the latest available), to aid scrutiny by the Finance Committee of the Amendment Regulations. Budget figures in the January report are updated to include additional funding allocations formalised within the Spring Budget Revision and show the late HMT additional funding allocation at UK Supplementary estimate. The overall funding position shown reflects a later analysis than that which underpinned the changes reflected in the SBR.
26. Table 1.8 on page 12 of the supporting document provides a complete picture of capital spending. As the Finance and Constitution Committee is aware, in respect of the Scottish Budget, the definition of capital applies to only spending that scores as capital in the Scottish Government’s consolidated accounts or the accounts of Directly Funded Bodies.
Scottish Government
Finance Directorate
Corporate Reporting Division
February 2019
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Annex A - Breakdown of Funding Changes
Portfolio Description Amount Type
£m
H&S Acceleration of Funding from 2019-20 Budget for Waiting Times Improvement Plan
40.0 Res
H&S Support for the GP Premises loan scheme 20.0 Cap
H&S Additional indirect capital for health research 14.3 Res
H&S Net capital to indirect capital transfers for NHS Scotland Health Boards
9.9 Res
C&LG Projected Housing Supply receipts -43.0 Cap
C&LG Release of emerging/planned underspend to support priorities
-15.0 Cap
C&LG Release of emerging/planning underspend to support priorities
-9.7 Res
C&LG Repayments in relation to SPRUCE -7.7 Cap
C&LG Reclassification of expenditure -1.2 Res
FEFW Miscellaneous Minor Transfers 2.2
FEFW Release of emerging/planned underspend from Enterprise
-56.0
Res
Cap
FEFW Release of emerging/planned underspend from other finance
-6.0 Res
E&S Release of emerging/planned underspend to Scottish Qualifications Authority
10.7
Res
Cap
E&S Additional funding for Child Abuse Enquiry 9.2 Res
E&S Additional funding for Raising Attainment 6.9 Res
E&S Student support review 3.5 Res
E&S Additional funding for SQA 2.7 Res
E&S Additional funding for SDS 2.5 Res
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E&S Additional funding for Child Abuse Enquiry 2.3 Res
E&S Additional funding for Education Scotland 1.6 Res
E&S Additional funding for Gaelic 1.0 Res
E&S Additional funding for ITE Students 1.0 Res
E&S Miscellaneous Minor Transfers -0.5 Res
Justice Reprioritisation of resources to meet additional costs 95.0 Res
Justice Additional funding to support police workforce 10.9 Res
TIC Deployment of emerging/planned underspend 18.4 Cap
TIC Release of emerging/planned underspend to support priorities
-2.5 Res
ECCLR Additional funding for Peatlands Restoration 4.4 Res
RE Additional funding for CAP payments IT system 9.8 Cap
RE Additional funding for Croft House Grant 0.8 Res
RE Net repayment of farmers loans -175.0 Cap
CTEA Deployment for emerging/planned underspends to the Glasgow 2018 European Championships
5.0 Res
CTEA Transfer to Visit Scotland for Rural Tourism Infrastructure Fund
1.0 Res
SSOP
Deployment of emerging/planned underspend to fund Carer’s Allowance Supplement and Best Start Grant
35.0 Res
SSOP Transfer from Finance, Economy and Fair Work for Social Security Policy and programme costs
15.0 Cap
SSOP Miscellaneous minor transfers -0.6 Res
GBCR Miscellaneous minor transfers 0.5 Res
COPFS Additional funding to cover increased caseload 2.3 Res
NRS Release of emerging/planned underspend to support priorities
-0.8 Res
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NRS Release of emerging/planned underspend to support priorities
-0.2 Cap
RS Miscellaneous minor transfers 0.3 Res
RS Release of emerging/planned underspend to support priorities
-2.7 Cap
Total -3.3
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Annex B – Summary of Changes from Autumn Budget Revision
2018-19 Budget Approved at the Autumn Budget Revision 40,505.9
FUNDING CHANGES
Miscellaneous portfolio movements (See Annex A) -3.3
-3.3
WHITEHALL TRANSFERS
Portfolio Description Amount Type
£m
H&S Transfer from HM Treasury for Agenda for Change staff Pay Award
78.0 Res
H&S Transfer from HM Treasury for the impact of changes to the Discount Rate applied In calculating Personal Injury Claims
22.0 Res
H&S Allocation from HM Treasury in respect of the Air Ambulance
1.0 Cap
H&S Transfer from Health and Social Care in respect of HIV funding
0.8 Res
H&S Transfer from the Home Office for the Migrant Surcharge
0.5 Res
H&S Transfer from DWP for the Fit for Work programme 0.2 Res
H&S Transfer from DWP for a GP IT project 0.1 Res
H&S Allocation from HM Treasury in respect of funding for free pregnancy terminations for women from N. Ireland
0.1 Res
FEFW Transfer from UK Money Advice Service 1.5 Res
FEFW Transfer from Cabinet Office for Cyber Security 1.1 Res
FEFW Transfer from DWP for Single Gateway Project Funding
0.5
Res
E&S Transfer from Business, Energy and Industrial Strategy for research and development
1.6 Res
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E&S Transfer from Cabinet Office for Cyber Security 0.5 Res
Justice Transfer from HM Treasury for the US Presidential Visit
3.2 Res
Justice Transfer from Cabinet Office for Cyber Security 1.4 Res
Justice Allocation from HM Treasury in respect of LIBOR funding for Scottish Mountain Rescue
0.7 Res
TIC Transfer from Business, Energy and Industrial Strategy for public sector energy efficiency
3.6 Cap
SSOP Transfer from DWP for Carers Allowance 157.3 Res
SSOP Allocation of budget from HM Treasury to provide grants to women’s organisations (Tampon Tax)
1.0 Res
SSOP Transfer from DWP for the Sure Start Maternity Grant
0.6 Res
TOTAL 275.7
TECHNICAL CHANGES
Various Additional budget cover for provisions, impairments, fair value adjustment, pension liabilities and Depreciation of donated assets (AME)
178.6 Res
H&S Health and Sport portfolio non-cash adjustment for NHS Boards write downs and accelerated depreciation
63.0 Res
E&S Education and Skills portfolio non-cash adjustments due to impact on the carrying value of loan book (non-cash)
668.8 Res
Justice Grant-in-Aid to Scottish Police Association to support working capital requirements
15.0 Res
TIC Repayment of a pre-paid funding for the sleeper service
-27.9 Res
ECCLR Adjustment to Scottish Water net loans -3.7 Cap
Teachers and NHS Pensions
Appeal court ruling –adjustments to cover potential future costs of remedy from NHS and Scottish Teachers’ Pension Scheme (AME)
2,329.5 Res
Teachers and NHS Pensions
Increase to NHS and Teachers pensions due to equalisation and indexation
53.9 Res
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Various Technical adjustments to align budgets with accounting requirements (ODEL)
24.8
Various Various other DEL non-cash adjustments 1.8
TOTAL 3,303.8
Proposed Budget following Spring Revisions 44,082.1
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Annex C – Mid Year report on Underspend and Reserve
2018-19 Forecast Outturn at 31 January 2019 HM Treasury
Fiscal £million
Scottish Budget
£million
Budget (32,666.1) (44,081.9)
Forecast Outturn 32,306.4 43,820.9
Forecast Underspend (359.7) (261.0)
Less: Late budget consequentials carried forward through HMT Reserve 148.0
Forecast underspend to be carried forward through the Scotland Reserve (211.7)
2018-19 Scotland Reserve Forecast at 31 January 2019 HM Treasury
Fiscal £million
HM Treasury
Fiscal £million
2018-19 Opening Balance (538.0)
2018-19 Forecast Movements
In-year Reserve Drawdown 250.0
Forecast Underspends (211.7)
38.3
2018-19 Forecast Closing Balance (499.7)
2019-20 Expenditure Commitments
Budget Bill 313.5
Budget Bill - Stage 2 94.0
407.5
Less: Additional 2019-20 Funding
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Late budget consequentials carried forward through HMT Reserve (148.0)
QLTR Receipts deferred from 2018-19 (60.0)
(208.0)
2019-20 Planned Reserve Drawdown 199.5
2019-20 Forecast Residual Balance (300.2)
Of Which
Devolved Taxes Income 136.2
Financial Transactions 78.5
Balance set aside to fund spending commitments 85.5
300.2
Notes:
• The position shown for the Reserve reflects Budget Bill amendments • HMT control total for 2018-19 includes £148m in late consequentials added at UK
Supplementary Estimate. By agreement with HM Treasury these amounts are subject to separate carry forward arrangements.
• Funding for Stage 2 amendments flows from these late consequentials. • Current forecast allows deferral of the drawdown of QLTR funding into 2019-20. This
maintains flexibility within Reserve drawdown limits. • The 2018-19 forecast figures are drawn from a wide range of income and expenditure
activities, including a number of demand-led budgets where forecasts are difficult to estimate exactly, and the forecast will be updated regularly through to year-end.
• The Cabinet Secretary for Finance, Economy and Fair Work will provide the Scottish Parliament with a full breakdown of the 2018-19 provisional outturn figures by portfolio, in June as is normal practice.
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FCC/S5/19/6/3
1
Finance and Constitution Committee
6th Meeting, 2019 (Session 5), Wednesday 13 March 2019
Subordinate Legislation: Scottish Landfill Tax Introduction
1. The purpose of this paper is to highlight background and procedural information for the Committee’s consideration of the following statutory instrument (“the Order”) relating to the Landfill Tax (Scotland) Act 2014—
• The Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2019: SSI 2019/58
2. The Order is accompanied by a Policy Note (Annexe A).
3. In advance of formal consideration of the Order, the Committee will take evidence from the Minister for Public Finance and Digital Economy before moving motion S5M-16045—
“That the Finance and Constitution Committee recommends that the Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2019 be approved.”
The Order
4. The current rates for the Scottish Landfill Tax are—
• The standard rate is £88.95 per tonne; and
• The lower rate is £2.80 per tonne for less polluting materials.
5. The Scottish Government’s Budget 2019-20 proposes the following rates apply on or after 1 April 2019—
• The standard rate is £91.35 per tonne; and
• The lower rate is £2.90 per tonne.
6. The Budget states that the proposed increase is “in line with RPI inflation” and ensures “consistency with Landfill Tax charges in the rest of the UK.” This follows the approach of previous years and intends to address “waste tourism”, should one part of the UK have a lower tax charge than another; and provide for investment in alternative waste treatments.
7. The Budget also proposes that the credit rate for the Scottish Landfill Communities Fund for 2019-20 will remain at a maximum of 5.6 per cent of an operator’s tax liability.
8. The Order seeks to implement the proposed increased rates on or after 1 April 2019.
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Scrutiny Procedure
9. The Order was laid on 20 February 2019 and is subject to the provisional affirmative procedure. Section 41(3)b of the Landfill Tax (Scotland) Act 2014 states that such an order—
“ceases to have effect at the expiry of the period of 28 days beginning with the date on which it was made unless, before the expiry of that period, the order has been approved by resolution of the Parliament.”
10. The Delegated Powers and Law Reform Committee considered the Order on 26 February 2019 and determined that it did not need to draw the attention of the Parliament to the instrument.
11. During formal consideration of the Minister’s motion, Standing Orders provide that only the Minister and members may participate in the debate. To inform the Committee’s consideration of the motion, there will therefore be an opportunity to take evidence on the Order from the Minister and officials before moving to formal consideration of the motion.
12. The date on which the 28-day period expires is 18 March 2019. Once the Committee has considered and reported on the Order, the Parliament will be invited to consider a further Scottish Government motion seeking its approval of the Order.
Decision 13. The Committee will consider whether to approve the Regulations at agenda item 5.
Committee Clerks, March 2019
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FCC/S5/19/6/3 Annexe A
3
POLICY NOTE
SCOTTISH LANDFILL TAX (STANDARD RATE AND LOWER RATE) ORDER 2019
SSI No: 2019/58
The instrument above was made in exercise of the powers conferred by section 13(2) and (5) of the Landfill Tax (Scotland) Act 2014 (LT(S)A 2014). The making of this order is subject to the provisional affirmative procedure.
Policy Objectives
The LT(S)A 2014 provides for a Scottish Landfill Tax (SLfT) which took effect on 1 April 2015. Sections 13(2) and (5) of the LT(S)A 2014 provide a power allowing the rates of tax to be set.
Scottish landfill tax is chargeable by weight and the two rates will be uprated from 1 April 2019:
• the standard rate is £91.35 per tonne; and
• the lower rate is per £2.90 tonne.
A list of material qualifying for the lower rate and conditions that have to be met are provided for in the Scottish Landfill Tax (Qualifying Materials) Order 2016.
The Scottish Government considers that these rates will provide appropriate financial incentives to support delivery of its waste policies, namely reducing the amount of material being sent to landfill, especially non-qualifying material which is particularly harmful from an environmental point of view.
Consultation
There is no statutory requirement to consult on this Order. The Scottish Government’s proposed SLfT rates from 1 April 2019 were published in the Scottish Budget 2019-20 in December 20181.
Impact Assessments
A Business and Regulatory Impact Assessment (“BRIA”)2 was published looking at different rates and bands associated with the LT(S)A 2014. An Equality Impact Assessment (“EQIA”)
1 https://www.gov.scot/budget/ 2 ‘Scottish Landfill Tax Final Business and Regulatory Impact Assessment’, published 14 December 2014, available at: http://www.scotland.gov.uk/Publications/2014/12/6274
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on landfill tax was also published1 previously in December 2014 and landfill tax rates and bands orders will have no negative impact on equality issues.
A strategic environmental screening exercise was also conducted and LT(S)A 2014 Scottish Statutory instruments raising landfill tax rates will have no negative impact on the environment2.
Financial Implications
The Scottish Government estimates that Scottish Landfill Tax will generate revenue of around £104 million in 2019-20. This is a full-year estimate. This forecast has been independently produced by the Scottish Fiscal Commission3.
Scottish Government
Tax Directorate
Scottish Exchequer
1 ‘Scottish Landfill Tax – Equality Impact Assessment Results’, published 17 December 2014, available at: http://www.scotland.gov.uk/Publications/2014/12/7976 2‘Scottish Environmental Screening Exercise results available at: http://www.scotland.gov.uk/Topics/Environment/environmental-assessment/sea/SEAG 3 ‘Report on The on Draft Budget 2018/19, published December 2018, available at: http://www.fiscalcommission.scot/media/1435/scotlands-economic-and-fiscal-forecasts-december-2018-full-report.pdf