The Scottish Government’s funding for the next financial year will be reduced by £390m as a result of budget reconciliation changes.
Under the fiscal framework between the Scottish and UK governments, Scottish income tax revenues and revenues from the rest of the UK are compared to calculate the Block Grant Adjustment (BGA).
The BGA stood at £1.85bn for the 2024/25 financial year, reducing the amount the Scottish Government receives from the Treasury.
However the Scottish income tax out-turn was higher than forecast, meaning Scottish Government self-funding will rise by £1.46bn.
The budget for the current financial year is £59.7bn.
Ministers in Edinburgh will set out their 2024/25 budget later this year.
Public Finance Minister Tom Arthur said high inflation is “profoundly challenging” and “tough choices” will be required to balance the books.
He said: “I welcome the fact that Scotland has seen a record growth in income tax receipts, exceeding the original budget forecasts for 2021-22 by almost £1.5bn.
“However, under the fiscal framework this does not translate directly to additional funding for the Scottish Government because of the reconciliation process.
“Income tax reconciliation is part of the devolved budgeting process. It involves adjusting the Scottish budget to reflect differences between new income tax data for Scotland and the UK for 2021-22, and forecasts that were made at that time.
“As a result, the Scottish Government will see its funding reduced next year by £390m.
“This is smaller than had been forecast in May 2023, but still exceeds the £300m annual borrowing limit set by the UK Government to manage this reconciliation process.
“We continue to press the UK Government for greater borrowing powers to ease this process.”
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