Holyrood committee recommends ‘strategic approach’ to budgetary management

In its report on the 2020-21 budget, published today, the committee says that delivering a balanced budget annually is now much more challenging because of increased budget volatility arising from devolved taxes and social security benefits.

The committee says consideration should be given to a shift away from allocating all available spending annually to developing a medium-term approach that addresses volatility. This is an issue for both the Government and the Parliament.

The committee also recommends that HM Treasury examine the Scottish Government’s request for additional resource borrowing and reserve powers to help manage the risk.

Finance and Constitution Committee convener Bruce Crawford MSP said: “A key theme in this report is the increasing volatility and complexity of Scotland’s budget and the need to look beyond a one-year horizon approach.

“Our report seeks to address the risks and opportunities that arise from an increasingly complex landscape, both politically and economically.”

Mr Crawford added: “Our committee recognises the fundamental challenges the Scottish Government faces in managing the volatility that arises from the operation of the Fiscal Framework, while also meeting its statutory obligation to balance its budget annually.

“In that light, we recommend HM Treasury carefully examine the issues raised in our report when considering the Scottish Government’s request for additional resource borrowing and reserve powers to help manage volatility.

“We are also of the view, however, that there needs to be a clear strategy for the use of the existing budget management tools.

“We recommend therefore that the Scottish Government’s next Medium-Term Financial Strategy (MTFS) should set out the basis for a more strategic approach to budgetary management. It should look beyond the current annualised approach and seek to address medium term volatility and risk, as well as the possibility of multi-annual budgets for the public bodies. But, the Committee is also aware it will be challenging to develop this approach in the absence of a UK comprehensive spending review.”

Mr Crawford concluded: “Our committee recognises there will always be political pressure to allocate all available resources on an annual basis. But both the Government and the Parliament now need to consider whether this is sustainable.

“We are navigating new territory together here and the decisions we take about prudent financial reserves may require a different approach and perspective.”