Scotland Finance

The UK Spending Review and Scottish Local Government


David Bell is Professor of Economics at the University of Stirling and ESRC Research Fellow at the Centre on Constitutional Change.

The Scottish government’s block grant allocation between 2015-16 and 2020-21 was set in the 25th November spending review delivered by the Chancellor of the Exchequer. Current spending will increase from £25.9 billion now, to £26.5 billion in 2019-20. This represents a 5% real cut (equivalent to £1.3 billion). In contrast, due to the UK government’s decision to increase capital spending by £12 billion compared with its plans last July, Scotland’s capital budget will increase from £3 billion to £3.5 billion by 2020-21, an increase of around 10% in real terms.

The change in Scotland’s allocated grant is much in line with those in Wales and Northern Ireland. Having suffered more severely than Scotland in the last spending review, the real reduction in the grant to Wales is 4.5% on this occasion, while the cut in Northern Ireland’s budget is exactly the same as that in Scotland.

The devolved parliaments have been partly protected by the importance of health within their overall budgets and the decision to increase real health spending in England by 3.3%, which passes through the Barnett formula, boosting their budget allocations. Local government spending in England is to remain fixed in cash terms over the Parliament, representing a real cut of around 10%. This has a negative effect on Scotland’s grant since local government in England spending, like health, affects Scotland’s settlement through the Barnett formula.

Local authorities in England have been given the power to increase council tax by 2%, above the existing referendum threshold, provided that this funding is directed towards social care. The intention is that this measure will help avert the crisis in social care provision in England. However, this poses a significant challenge to the Scottish government as to whether it will follow suit. Council tax has been frozen in Scotland since 2007, but rising demand for social care may lead to some councils seeking the freedom to follow their counterparts south of the border.

Local authorities may also have to deal with some of the changes in welfare announced in the spending review. Instead of going ahead with the full set of cuts in tax credits that were announced last July, the Chancellor instead opted to retain the two child limit on child tax credit claims and to scrap the family element for new claimants. In addition, housing benefit and pension credit payments are to be stopped for people leaving the country for more than one month. These changes will perhaps have less media impact than the previously proposed tax credit cuts, but nevertheless will cause difficulties for many families.