John Swinney: UK may cut Scotland’s block grant

Finance secretary John Swinney. Picture: Lisa Ferguson

The UK government has backed a one-off adjustment to the block grant - Scotland’s funding allocation - as well as a change to the ratios used to calculate the Barnett formula, which is the method used to work out the nation’s funding share.

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However, Mr Swinney, in a written submission to Holyrood’s finance committee, set out the consequences he stated Scotland would face if its block grant was reduced when MSPs become responsible for raising income tax, which will be cut by 10p in Scotland under the changes in the Scotland Act from next year.

Mr Swinney warned MSPs about a “permanent and increasing annual cut in Scotland’s budget” in a paper submitted to the committee ahead of a meeting today.

“When the smaller taxes are devolved, currently planned to be April 2015, there will be a one-off reduction which will then be deducted from the block grant for all future years.

“If tax growth was lower than the assumption, or if spending growth was higher, the Scottish budget would lose out. After the end of the extended period, it is in our view highly likely that the Scottish budget would continue to be lower, year after year, than if the two taxes had not been devolved and no block grant adjustment was in place.

“A likely gain to the Scottish budget in the short term would have to be balanced out by future losses regardless of what wider conditions may suggest.”

Meanwhile, Mr Swinney appearing at the finance committee today said the UK Government wanted to “hem in” new tax responsibilities being devolved to Holyrood.

Mr Swinney, when asked for his views on the motivation behind the UK Government position, he said: “I don’t quite understand what the rationale is because if the rationale is to increase the accountability and responsibility of the Scottish Parliament for the decisions that it takes, which was a purpose of the Scotland Act 2012, I see that as being undermined by both the Barnett abatement mechanism and the constraint factor, because it is essentially constraining what we can actually do.

“It is not actually saying to the Scottish Parliament: ‘Here are a couple of tax responsibilities, you go off and you do them and you take the risks and the rewards for this’. It is all getting put into this very contrived analysis and that to me contradicts the purpose of the Scotland Act.

“I think that’s probably the reason why they’re doing it, I think there’s a sense that the UK Government, having given out these responsibilities, wants to kind of hem them in at the same time.”

However, Labour MSP Michael McMahon - a member of the finance committee - hit back as suggested an independent Scotland would face greater levels of austerity.

He said: “This shows the kind of difficulties we’re having even when there’s agreement between the parties. It’s not hard to imagine how much more difficult would it be with independence.”