Chapter 9: Money and Power: Public Expenditure in Scotland
This chapter discusses the issue of advantage and power in relation to Scottish public finance. It outlines in detail what the Barnett formula is and why it is was adopted. It considers why the Barnett formula has endured to this day and what this tells us about power and IGR and highlights trends in Scottish Government spending and how this is scrutinised.
9.1 Post-devolution Scotland continues to receive almost all of its funding for public expenditure from the UK Treasury in the form of a block grant. The arrangements for the transfer of this money are almost identical to those which existed pre-1999 and reflect the continued use of the Barnett formula to alter the block grant at the margins.
9.2 The Barnett formula begins with Scotland’s share of public expenditure and adjusts the annual block in line with Scotland’s share of the UK population. A strict application of this formula suggests that Scotland’s advantage will eventually be eroded.
9.3 There is a contrast between Scotland’s lack of influence over the way in which money is raised and its considerable discretion over way it is distributed.
9.4 The Scottish Government’s budget accounts for only 60% of ‘identifiable’ public expenditure in Scotland with the rest determined by the UK government, either in funding which merely passes through the Scottish Government budget or is spent directly by Whitehall departments.
9.5 In recent years the Barnett formula and the issue of higher Scottish per capita spending has emerged more prominently on both the Scottish and UK political agendas. In 2007, while Labour talked of the ‘Union dividend’ and argued that the Treasury, ‘is prepared to fund an £11 billion fiscal deficit’ in Scotland, the SNP referred to the non-inclusion of oil-based revenue and the biased nature of government figures.
9.6 It is difficult to come to hard-and-fast conclusions about public expenditure statistics, since levels of comparability are often limited and the presentation of figures is determined by the source of information and the way that this information is presented. This ties in with a widespread public view that most politicians in Scotland (like everywhere else) utilise public expenditure statistics for support rather than enlightenment.
9.7 The centrality of the UK Treasury to the level of taxation raised in Scotland, as well as its influence over how the money is spent (regardless of EU involvement) demonstrates its absolute power. It also qualifies the idea of a ‘Scottish Political System’ since the ultimate decision-making authority resides elsewhere.
- Compare and contrast the processes of public budgeting of relevance to Scottish politics pre and post-devolution.
- To what extent do you agree that making the Scottish Parliament fiscally responsible is a central issue that has yet to be addressed post-devolution?
- ‘Scotland: subsidy junkies’. Discuss.
- Outline and assess the political implications of a move towards ‘fiscal autonomy’ for Scotland.
- What is the Barnett formula? The ‘Barnett squeeze’?
- What is incrementalism and how would an incrementalist characterise Scottish public budgeting?
- What does fiscal autonomy mean in the context of Scottish politics?
- Why do Scottish public expenditure statistics cause political controversy?
- In what way is the UK Treasury still an important player in Scottish politics?
- How does the Scottish Parliament monitor budgeting and expenditure?
Update June 2008: Budget Process
The biggest change since 2007 (bar some moves to replace Public Private Partnerships with a new model of finance – the Scottish Futures Trust) relates to the budget process. In previous years the Scottish Parliament effectively rubber stamped the Scottish Executive’s proposals. 2008 saw the first real prospect of a government defeat, causing the SNP to seek agreement with the Conservatives, Greens and Margo MacDonald to support the bill (or, in the case of the 2 Green MSPs, to abstain from the vote).