Update: Can the UK Government spend in areas devolved to Scotland?

Writing in The Times on 13 June 2019, 13 Scottish Conservative MPs said the UK Government had “to be involved in investing directly in communities across Scotland.”

They said: 

That means moving beyond the arguments of constitutional politics and instead onto doing what is best for people and businesses. The Scottish government has already moved into the reserved space by having an international aid budget. It is time for the UK government to do the same.

Similarly, on a visit to Edinburgh in May 2019, the then Conservative leadership contender Michael Gove referred to “a Treasury rule which means that the UK Government can’t spend money in areas that are devolved.” He proposed: “once we’ve given the Scottish Government their fair share, the UK Government should be able to spend additional money on the basis of need for projects that will strengthen the Union.” 

In response to The Times article, the SNP MP Kirsty Blackman called it an“out and out Tory plot to tear up the Scotland Act,” by mounting “a power grab on Holyrood.”

This Insight looks at whether anything in the Scotland Act 1998 (the 1998 Act) prevents the UK Government from spending in policy areas devolved to Scotland and the proposed new spending powers in the UK Internal Market Bill. 

What does the Act say?

Part III of the 1998 Act deals with Financial Provisions such as the Scottish Consolidated Fund, debt and borrowing, but it does not explicitly cover spending decisions by the UK Government.

Section 28(7) notes that the section on ‘Acts of the Scottish Parliament’ does “not affect the power of the Parliament of the United Kingdom to make laws for Scotland,” a standard statement of UK Parliamentary sovereignty which is also included in the Government of Wales Act 2006 and Northern Ireland Act 1998. 

The 1998 Act, however, transferred the general common law powers of UK Ministers to provide financial assistance  to Scottish Ministers. These need to be in accordance with HM Treasury guidelines and subject to limits.

How does the UK Government currently ‘spend’ in devolved areas?

Since 1999, UK Ministers have only been able to spend in devolved areas where there’s statutory powers for them to do so. For example, the Industrial Development Act 1982 allows the UK Government to provide financial assistance to industry in the devolved nations in certain circumstances. Their legal powers are exercised concurrently with Scottish (and Welsh) Ministers.

The Treasury’s non-binding Statement of funding policy (most recently updated in 2015) makes it clear that: 

Funding policy and public expenditure allocation across the United Kingdom, as non-devolved or reserved matters, remain the responsibility of the UK government. 

But the statement also states that once “overall public expenditure budgets have been determined,” then the devolved administrations “have freedom to make their own spending decisions on devolved programmes within the overall totals.”

The statement goes on to detail “Principles for inter-administration financial relations,” which include the UK Government and devolved administrations working together “in a spirit of mutual respect,” in accordance with the Memorandum of Understanding between the UK government and the devolved administrations. 

How else does the UK Government allocate grants?

The UK Government already provides other grants beyond the Scottish ‘block grant’. These are usually for less predictable demand-driven spending. Changes in these grants are negotiated by the UK Government and devolved administrations; the Barnett formula is not used to determine any change. 

Examples of what are sometimes called ‘non-Barnett additions’ include City Deals in Scotland and the V&A in Dundee, both of which involved UK Government spending in devolved areas. The National Audit Office’s recent Investigation into devolved funding gives further details of non-Barnett additions. 

Disputes over spending policy

The Treasury’s Statement of funding policy sets out the process for dealing with disputes between the UK Government and devolved administrations over spending policy. Section 11.3 says the Treasury will “consult” on any “proposed changes to the Statement or the policies to which it applies.” If any disagreement cannot be resolved between the Treasury and devolved ministers then “matters can also be raised through the Joint Ministerial Committee.” 

There has been further speculation regarding changes to the current funding arrangements between the UK Government and the devolved administrations. In October 2018, the Welsh Government suggested UK Ministers were attempting to “stipulate” how it spent its budget and used its borrowing powers, an interpretation denied by the Secretary of State for Wales.

What does the Internal Market Bill say?

More recently, the United Kingdom Internal Market Bill 2019-21 includes a “general power” which allows UK Government Ministers to provide financial assistance for the purposes of “economic development, culture, sporting activities, infrastructure, domestic educational and training activities and exchanges, and international educational and training activities and exchanges.”

This could be seen as a legislative response to proposals from Scottish Conservative MPs in June 2019.

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About the author: David Torrance is a Senior Library Clerk at the House of Commons Library, specialising in devolution and the constitution.

Image: Scotland Flag under Pixabay License (cropped)