John Swinney, the deputy first minister and interim finance minister, outlined £1.2 billion of savings earlier this month. However, £150m of this comes from moving money from the capital budget to the resource budget, something that is not allowed under fiscal rules.
Capital funding is specifically for major infrastructure projects, while resource spending pays for day-to-day spending such as wages. Money can be moved from the resource budget to the capital budget, but not in the other direction.
In what is an exceptionally rare step, public finance minister Tom Arthur confirmed to Holyrood’s finance committee the UK Government has been asked for permission to shift £150m from the capital budget to pay for day-to-day spending in Scotland. This has only happened once before, with a similar request turned down by the UK Government during the Covid-19 pandemic.
The money will also not be able to be used to support pay deals, so would cover other resource spending commitments. Mr Arthur said this “flexibility” had been requested due to the exceptional circumstances of the cost-of-living crisis.
However, the Treasury said no decision would be made about whether to accept the request until the supplementary estimates process is finished, usually concluding in late February. This process can lead to additional funding for the Scottish Government from the UK Government.
In March, finance secretary Kate Forbes complained about last-minute changes to Barnett consequentials, which led to an effective £38m cut to the Scottish budget. Should the request be turned down, Mr Swinney and Ms Forbes will be forced to find that £150m from the existing budget unless there is additional UK Government funding, potentially leading to additional cuts to the £1.2bn set out earlier this month.
Mr Arthur said: “The Scottish Government has requested from the Treasury some limited additional flexibility to offset a reduction in capital spending against resource budget commitments. The request has been made on a one-off basis given the seriousness of the situation we face and in the absence of additional funding from the UK Government to offset the significant reduction in our spending power as a result of inflation.
“No such allowance has been granted in the past and we are making no assumption that this request will be granted. We continue to work towards balancing our budget within existing limits while supporting fair and sustainable pay settlements for public sector workers.”
The UK Government said it would work with the Scottish Government to ensure requests are dealt with in a timely manner.