| ANNEX B |
| OPERATION OF THE BLOCK |
The Scottish Block
B.1 Changes in the size of the Block are currently determined annually by reference to planned changes in those English or English and Welsh programmes which are comparable with Scottish programmes. If planned spending on, for example, a comparable English programme goes up or down, an increase or decrease to the Block is calculated by reference to a population-based formula known as the "Barnett" formula. The sum of changes calculated by this means across all comparable programmes represents the change to the Block each year from previous plans.
B.2 This means in practice that as a result of each public expenditure survey the overall size of the Block for the following year changes, as compared with previous plans. Once the extent of that change is clear the Secretary of State has to resolve how to allocate the overall resources in the Block. While he clearly takes into account the changes which have been made in that survey to comparable English programmes, he is under no obligation to follow these.
B.3 Since these arrangements were originally introduced, the Block has been enlarged to cover more of the programmes within the Secretary of State’s budget, and to cover new responsibilities transferred to The Scottish Office. The original formula was also updated in 1992 to take account of changes in the population differentials between Scotland, England and Wales since the original formula was established in 1978.
B.4 The Scottish Block and hence the Secretary of State’s budget is not however funded entirely by grant from the Exchequer. It also includes expenditure funded by borrowing on the part of local authorities and other public bodies. There is not therefore a precise match between the size of the Secretary of State’s budget and the amount of Exchequer funding for the programmes for which he is responsible.
B.5 The main programme which currently falls within the Secretary of State for Scotland’s budget but outside the Block is the Agriculture, Fisheries and Food (AFF) programme. The annual changes in this are negotiated separately in the public expenditure survey.
B.6 Central government support for local authority current expenditure (known as Aggregate External Finance) is a large element in the Secretary of State’s budget and is included in the Block. Local authority current expenditure funded from council tax receipts (the main element of what is known as local authority self-financed expenditure or LASFE) is not part of the Secretary of State’s budget, and is not included in the Block although in recent years such expenditure along with other smaller elements of LASFE has counted towards the UK public expenditure control total - that part of general government expenditure which the Government seek directly to plan and control.
Changes to the Block
B.7 As described elsewhere in this Paper, the responsibilities of the Scottish Parliament and the Scottish Executive will differ in a number of ways from the current responsibilities of the Secretary of State for Scotland. Where these changes have financial implications, appropriate adjustments will be made to the Block. The opportunity will also be taken to make other changes to the Block in order to produce a more rational system of funding for the Parliament.
B.8 The main change from the present budgetary arrangements will lie in the treatment of the Scottish Agriculture, Fisheries and Food (AFF) programme. In future, AFF expenditure by the Scottish Parliament will be determined in one of two ways. A significant proportion of agricultural expenditure will continue to be devoted to payments under the Common Agricultural Policy schemes funded 100% by the EU, with the Scottish Parliament having no discretion in relation to the terms of this spending. This, together with expenditure on Hill Livestock Compensatory Allowances, which are also set in line with EU requirements, will be settled separately each year, based on the actual requirements of the programmes. The balance of present AFF spending will be taken into the new Block and annual changes will be determined according to the existing formula.
B.9 The budget of the Crown Office, which is currently negotiated separately with the Treasury and falls outside the Block will, in line with the devolution of the Crown Office’s functions, also be transferred and will in future be included within the new Block. Similarly the external financing limits of Highlands and Islands Airports Ltd and Caledonian MacBrayne will form part of the new Block. The transfer of other functions, including those relating to inland waterways, Scottish ports and certain residual functions relating to the ScotRail rail services franchise may also require adjustments to be made. In relation to forestry, the financial arrangements will be agreed on a fair and equitable basis, taking into account the interests of UK taxpayers, in a suitable division of the receipts from the business activities of the Commission and an appropriate adjustment to the Block will be made in the light of these arrangements.
B.10 As discussed in Chapter 7, adjustments to the new Block will be required in order to provide the resources for meeting council tax benefit and rent rebate costs in Scotland.
B.11 The decision to devolve responsibility for non-domestic rates to the Scottish Parliament will also have technical implications for the Block, though the effect on the resources available to the Parliament will be neutral. At present non-domestic rating receipts are paid into the Consolidated Fund and The Scottish Office receives the resources back as part of its Block. Under the devolved arrangements non-domestic rate income will be paid to the Scottish Executive and the Block will be adjusted to take account of this.
B.12 The details of all of these adjustments to the Block will be the subject of discussion with Government Departments with an interest in each transfer and with the Treasury.