UK Budget 2010 by zxt17429

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Financial Scrutiny Unit Briefing
UK Budget 2010
                                                                                                                 25 March 2010
                                                                                                                         10/23
                                                                            Nicola Hudson and Michael Oliphant
This year’s UK budget took place just six weeks ahead of the expected date of the UK General
Election and in the context of the 2009 Pre-Budget Report commitment to halving the budget
deficit over the next four years. For Scotland, the changes announced result in an increase of
£76m to the Departmental Expenditure Limit for 2010-11. This briefing notes some of the
effects of the UK Budget on Scotland’s public finances for 2010-11, the final year of the current
Spending Review period.
CONTENTS



INTRODUCTION ..........................................................................................................................................................3

IMPACT OF THE UK BUDGET ON SCOTTISH BUDGET .........................................................................................3
    BARNETT INCREASES...........................................................................................................................................3
    CHANGES TO THE 2010-11 DRAFT BUDGET ......................................................................................................4
SOURCES ....................................................................................................................................................................6

RELATED BRIEFINGS ................................................................................................................................................8




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INTRODUCTION
The UK Budget (Treasury 2010a) was published on 24 March 2010 and outlined the Treasury’s
forecasts for UK economic growth, and the public finances. The Budget document sets out
revised GDP growth forecasts of 1-1.5% in 2010 and 3-3.5% in 2011. Independent forecasters
are anticipating slower GDP growth in 2011 of 2.1% on average (Treasury 2010b).

Borrowing in 2009-10 is now forecast to be £167bn, compared with a forecast of £178bn at the
time of the Pre-Budget Report in December 2009. As previously announced, the Budget Report
confirmed the Government’s intention to halve the deficit over four years, with the public sector
net borrowing requirement forecast to peak at 11.8% of GDP in 2009-10 then reduce to 5.2% of
GDP in 2013-14. As a result of the reduction in forecast borrowing levels, national debt
forecasts have also been reduced. Nonetheless, national debt is still forecast to rise to 75% of
GDP by 2014-15.

In terms of UK policy decisions impacting on Scotland, the Treasury highlighted the following
(Treasury 2010c):

•   A National Growth Fund to help Small and Medium Sized Enterprises (SMEs) access
    finance
•   An increase in the threshold of the Annual Investment Allowance from £50,000 to £100,000
•   Continuation of Business Payment Support Services to allow businesses more time to pay
    their tax
•   Additional Winter Fuel Payments, worth £100 for households with someone aged 80 or more
    and £50 for households with someone over female State Pension Age.
•   Introduction of Saving Gateway accounts from July 2010, potentially benefiting 750,000
    people in Scotland.
•   Freezing the interest rate used to calculate Support for Mortgage Interest (SMI) payments at
    6.08% for a further 6 months, until December 2010
•   £60 million for infrastructure development, aimed at offshore wind turbine manufacturers
    looking to locate new facilities in the UK.



This briefing focuses on some of the main effects of Budget 2010 on the devolved budget of
Scotland.


IMPACT OF THE UK BUDGET ON SCOTTISH BUDGET

BARNETT INCREASES
The 2010 UK Budget allocated an additional £76m to the Scottish Government’s Departmental
Expenditure Limit for 2010-11. These were population based “Barnett increases” flowing from
increased spending in areas which are devolved to the Scottish Parliament. The Scottish
Government is free to spend these increases in any area over which it has responsibility. The
UK budget lines from which the increases flowed are presented in Table 1. Of the total, £59m
represents an increase to the resource budget. The remaining £17m (resulting from increased
UK spending on regional transport schemes) results in an increase to the Scottish capital
budget.


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Table 1: Increases to the Scottish Budget resulting from 2010 UK Budget
 UK budget area                                                                      2010-11
                                                                                         £m
 Resource
 Higher education                                                                          31
 Roads investment                                                                           8
 Rates relief                                                                              20
 Capital
 Regional transport schemes                                                                17
 Total                                                                                     76
Source: Scottish Government 2010

HM Treasury also identified an additional £6m in Barnett consequentials for the Scottish
Government’s Annually Managed Expenditure (AME) total. This was in relation to student
loans, but would not normally be shown as a Barnett consequential as changes to the AME
budget are normally fully funded by the Treasury and therefore do not increase Scottish
discretionary spend.


CHANGES TO THE 2010-11 DRAFT BUDGET
The effect of the Barnett consequentials on the overall DEL budget is shown in Table 2 below.
Table 2 also shows the effect of the Scottish Government’s decision to re-profile capital
spending from its original 2010-11 spending plans. In the latter part of 2008, in response to the
economic crisis, the Scottish Government decided to re-profile £347m of capital spending from
its original spending plans for 2010-11 into financial years 2008-09 and 2009-10. Financial year
2010-11 is the last of the current Spending Review period. Plans for the next Spending Review
period will not be known until after the UK General Election. Please note that the figures in the
table work back from the Draft Budget 2010-11 and may differ from Government figures which
may include as yet unpublished in-year changes.

Table 2: Changes to the 2010-11 Scottish DEL Budget (cash terms)

                                             2009-10           2010-11
                                                                              % change
                                               £m                £m
Scottish DEL Budget (DB 10-11)*                 29,535.1           29,712.4
UK Pre Budget Report Consequential
                                                                      +23.0
increase (December 2009)
UK Budget Consequential increase
                                                                      +76.0
(March 2010)
Revised Scottish DEL Budget                     29,535.1           29,811.4        +0.9%
Excluding Scottish Government re-
                                                    -294               +347
profiling
Revised Scottish DEL Budget
                                                29,241.1           30,158.4        +3.1%
(without re-profiling)
Sources: Scottish Government (2009), Treasury (2009), Burnside (2009b)


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* The Scottish DEL Budget is taken from the Scottish Government’s Draft Budget 2010-11
which includes the effect of re-profiled capital.

The following table presents the Scottish DEL budget in real terms, with and without the effect of
re-profiled capital spend. Figures are shown at 2009-10 prices and have been calculated using
the HM Treasury deflator of 2.25%.

Table 3: Scottish DEL Budget (real terms: 2009-10 prices)

                                             2009-10           2010-11
                                                                                % change
                                               £m                £m
Revised Scottish DEL Budget with
                                                29,535.1             29,155.4       -1.3%
re-profiling
Revised Scottish DEL Budget
                                                29,241.1             29,494.8       +0.9%
without re-profiling


The following table provides an update to an earlier SPICe briefing on Draft Budget 2010-11
(Burnside 2009a) which tracked changes to Scottish Government spend as a result of UK and
Scottish Government responses to the recession.


Table 4: Changes to the Scottish Government’s DEL budget since Draft Budget 2009-10
                                                           2009-10              2010-11
                                                             £m                   £m

UK Government changes
UK Pre-Budget Report Consequential increases
                                                             +5.7                     +5.2
(November 2008)
UK Pre Budget Report Consequential decreases
                                                                                    -128.6
(November 2008)
UK Budget 2009 Consequential increases (April
                                                             +79.0                   +24.7
2009)
UK Budget 2009 Consequential decreases (April
                                                                                    -391.7
2009)
UK Pre Budget Report Consequential increases
                                                                                     +23.0
(December 2009)
UK Budget 2010 Consequential increase (March
                                                                                     +76.0
2010)
Scottish Government changes

Capital re-profiling                                        +294.0                  -347.0
Combined UK and Scottish Government
                                                        +378.7                      -738.4
changes
Sources: Scottish Government (2009), Burnside (2009a) and (2009b)




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SOURCES

Burnside, R. (2009a) Draft Budget 2010-11. SPICe Briefing 09/66. Edinburgh: Scottish
Parliament Information Centre. Available at
http://www.scottish.parliament.uk/business/research/briefings-09/SB09-66.pdf


Burnside, R. (2009b) Pre-Budget Report 2009. SPICe Briefing 09/86. Edinburgh: Scottish
Parliament Information Centre. Available at
http://www.scottish.parliament.uk/business/research/briefings-09/SB09-86.pdf

Scottish Government. (2009) Scottish Budget: Draft Budget 2010-11. Edinburgh: Scottish
Government. Available at: http://www.scotland.gov.uk/Publications/2009/09/17093831/0

Treasury. (2009) Pre-Budget Report. London: Treasury. Available at:
http://www.hm-treasury.gov.uk/prebud_pbr09_index.htm

Treasury. (2010a) UK Budget 2010: Securing the Recovery [Online]. Available at:
http://www.hm-treasury.gov.uk/budget2010_documents.htm

Treasury. (2010b) Forecast for the UK economy: a comparison of independent forecasts
[Online]. Available at:
http://www.hm-treasury.gov.uk/d/201003forcomp.pdf

Treasury. (2010c) Budget Report 2010 for Scotland [Online]. Available at: http://www.hm-
treasury.gov.uk/d/budget2010_regional_press_scotland.pdf




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RELATED BRIEFINGS
SB 10-06 Economic Indicators – 27 January 2010

SB 09-87 The Scottish Government's Economic Recovery Plan – 15 December 2009

SB 09-86 Pre-Budget Report 2009 – 13 November 2009

SB 09-66 Draft Budget 2010-11 – 23 September 2009

SB 09-56 Mapping the Recession – 1 September 2009

SB 09-27 Impact of Recession on Scotland's Public Finances – 29 April 2009




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