Budget
Both the Scottish and UK Governments must manage their finances to deliver their spending priorities. We have explored how governments can raise revenue through taxation to fund public spending. The SQA Higher specification for this section:
This balancing of expenditures and revenues is called the government budget. Below, we will explore different parts of a budget and what happens when governments spend more money than they raise in taxes.
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Knowledge Checkpoint: Describe the three types of budget: deficit, surplus and balanced
🏴 The Scottish Budget
The contents of this section are from the Fraser of Allander Institute’s helpful ‘Scottish Budget Guide’ to understand the framework of Scotland’s budget and its finances.
What is in the Scottish Budget?
If you live or work in Scotland, the Scottish budget affects many parts of everyday life. It determines how much tax you will pay, and the public services and benefits available to you. Changes to NHS funding, to tax rates or higher investment in infrastructure are all government initiatives that are set out in the budget.
Within the Budget are detailed plans for how the Scottish Government will allocate its funds to each department, changes in tax rates and bands, and changes to welfare benefits. Proposals for new taxes, welfare benefits and public services are also set out in the budget.
Scottish Budget: Revenues
We previously explored Scotland’s total revenues, but the budget does not include all revenues raised in Scotland. The Scottish Budget is made up of several revenue streams: the two main revenues are the block grant and devolved taxes.
- The Block Grant is the Scottish Government’s core source of funding and is transferred from the UK Government. The Block Grant is an annual lump-sum transfer from the UK Government to the Scottish Government. The “block” of money can be spent in any way the Scottish Government sees fit.
- There are also several taxes devolved to the Scottish government, which it has full or partial control over. These are the other main source of revenue in the Scottish Budget.
- Not all of the taxes generating revenue are fully controlled by Scotland, income tax is shared between the UK and Scotland as the UK set personal allowance bands. Scotland receives VAT revenue for their budget, but do not control VAT decisions. Land and Business Transactions Tax and Landfill Tax are however fully controlled by the Scottish Government.
Tax | Revenue Forecast 21/22 |
Land & Business Transactions Tax (LBTT) | £586m |
Landfill Tax | £88m |
Income Tax | £12,263m |
VAT | £5,246m |
Air Passenger Duty | £145m |
Scottish Budget: Spending
The Scottish Budget contains 3 main types of spending: Resource Spending, Capital Spending and Annually Managed Expenditure .
- Resource Spending: The resource budget is for the day-to-day spending required to run public services.
- Capital Spending: The capital budget is for investment in assets, infrastructure like buildings and roads.
- Annually Managed Expenditure (AME): AME counts funding that are a devolved responsibility of the Scottish Government but continue to be annually funded by the UK Government on the basis of demand, such as social security payments for pensions and unemployment benefits.
- Financial Transactions: This is spending allocated to the Scottish Government by the UK Treasury to make loans or investments in private sector companies. This spending is repaid to the UK Treasury over time.
Where does all this spending go?
The following chart provides a breakdown of the Scottish budget portfolio. Health and Local Government are by far the largest categories, encompassing spending for the NHS, primary and secondary education.
The Fiscal Framework Review is a publication setting out the rules regarding the devolution of tax and social security powers. The Fraser of Allander Institute has published an article summarising the key features of this review:
UK, EU and G7 Debt and Deficit Tracker
Explore how the UK’s debt and deficit have changed over time, compared with other countries. The following graph uses a key method of assessing a country’s financial sustainability - deficit as a % of GDP.
In the Economic Futures Hub, we discuss GDP and economic growth in detail. GDP measures the total value of all goods and services in a country’s economy, and a higher % of deficit as GDP is not desired.
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