Scottish Government funding is set to be cut by £390m next year

As part of the tax framework between the Scottish and UK governments, Scottish income tax receipts and receipts from the rest of the UK are compared to calculate the Block Grant Adjustment (BGA).

The BGA for the 2024/25 financial year was £1,851m, reducing the amount the Scottish Government receives from the Treasury.

However, Scottish income tax revenue was higher than forecast, meaning the Scottish Government’s self-funding will increase by £1,461m.

The budget for the current financial year is £59.7 billion.

Ministers in Edinburgh will present their budget for 2024/25 later this year.

Scottish Finance Minister Tom Arthur said high inflation was “a major challenge” and “hard decisions” would be needed to balance the balance sheet.

He said: “I welcome the fact that Scotland has seen record growth in income tax revenue, beating original budget projections for 2021-22 by almost £1.5bn.”

“However, within the budgetary framework, this does not translate directly into additional funding for the Scottish Government due to the reconciliation process.

“Income tax reconciliation is part of the decentralized budget planning process. The aim is to adjust the Scottish budget to reflect differences between the new income tax figures for Scotland and the UK for 2021-22 and the forecasts made at the time.

“As a result, the Scottish Government’s funding will be cut by £390million next year.

“That is less than forecast in May 2023 but still exceeds the £300m annual borrowing limit set by the UK Government to help manage this reconciliation process.

“We continue to urge the UK government for greater borrowing powers to facilitate this process.”