COVID and the UK nations' fiscal frameworks: impacts, performance and lessons
Lead Research Organisation:
University of Strathclyde
Department Name: Economics
Abstract
The UK's devolved governments (UKDGs) are responsible for much of the COVID-19 response for 10.5 million people. But they have raised concerns that the funding frameworks in which they operate are constraining their ability to respond effectively, putting vital public services and recovery at risk.
The devolved governments' funding frameworks and settlements have been tested by the COVID-19 pandemic in a way which was never envisaged. But if the funding frameworks are to be effective, they need to be robust to shocks. There is thus both a key opportunity and a vital need to assess performance, identify any pressure points, and develop beneficial reforms.
This project aims to examine these issues by examining the following two objectives:
First, to examine whether the existing fiscal frameworks are sufficiently robust to enable the UKDGs to effectively plan and deliver their responses to the COVID-19 crisis and support recovery.
Second, to appraise options for redesign of those fiscal frameworks to make them more appropriate and effective.
The outcomes of the work will inform a planned review of Scotland's Fiscal Framework to take place later in 2021, and a newly established Fiscal Commission in Northern Ireland which will examine the scope for further fiscal devolution to Northern Ireland. The project will also inform ongoing public debate around fiscal devolution and the fiscal responsibilities of the devolved governments, in the context of the upcoming elections to the devolved legislatures.
The outcomes of the project will help ensure that the UKDGs have the appropriate fiscal resources and tools to respond to the ongoing effects of the crisis and support recovery in 2021 and beyond, and ensure learning from the COVID crisis, making fiscal frameworks more robust in future.
The devolved governments' funding frameworks and settlements have been tested by the COVID-19 pandemic in a way which was never envisaged. But if the funding frameworks are to be effective, they need to be robust to shocks. There is thus both a key opportunity and a vital need to assess performance, identify any pressure points, and develop beneficial reforms.
This project aims to examine these issues by examining the following two objectives:
First, to examine whether the existing fiscal frameworks are sufficiently robust to enable the UKDGs to effectively plan and deliver their responses to the COVID-19 crisis and support recovery.
Second, to appraise options for redesign of those fiscal frameworks to make them more appropriate and effective.
The outcomes of the work will inform a planned review of Scotland's Fiscal Framework to take place later in 2021, and a newly established Fiscal Commission in Northern Ireland which will examine the scope for further fiscal devolution to Northern Ireland. The project will also inform ongoing public debate around fiscal devolution and the fiscal responsibilities of the devolved governments, in the context of the upcoming elections to the devolved legislatures.
The outcomes of the project will help ensure that the UKDGs have the appropriate fiscal resources and tools to respond to the ongoing effects of the crisis and support recovery in 2021 and beyond, and ensure learning from the COVID crisis, making fiscal frameworks more robust in future.
Publications
Bell, D.N. F.
(2022)
Stress testing the fiscal framework.
in National Institute Economic Review
David N. F. Bell
(2021)
Designing and funding the devolved nations' policy response to COVID-19
Phillips D
(2021)
Options for reforming the devolved fiscal frameworks post-pandemic
| Description | The aims of the project are to examine how effective the funding frameworks of the UK's three devolved governments have been in enabling them to respond adequately to the COVID-19 pandemic, and to consider what changes to devolved government funding arrangements may be worthwhile to improve robustness to future shocks. Our first report argued that the devolved government funding frameworks coped well with the pandemic for three reasons: • The symmetric impact of the crisis across UK nations, which meant that grant allocations based on per capita allocations were not in principle problematic. • The huge level of spending by the UK government. • One ad hoc change to the normal operation of the devolved funding frameworks - the introduction of 'funding guarantees' to bring more certainty to the devolved government budgets. Our second report explored options for improvements to the devolved government funding frameworks. Recommendations included: • The devolved governments should have enhanced ability - in normal times and on a permanent basis - to flex their budgets in response to unforeseen shocks. This should include modest powers to borrow for discretionary purposes, and enhanced limits on the use of reserves. • The funding guarantees are not appropriate in normal times, but the UK government should commit to their use if and when a similar fiscal crisis occurs in future. • Planning and implementing fiscal responses to shocks that might affect the UK nations differently is likely to be more effective if it is underpinned by robust arrangements for intergovernmental communication and decision-making. |
| Exploitation Route | (Please note, the previous question only allows me to enter one URL. I have entered the URL for our first report. Our second report, which outlines recommendations, is available here: https://ifs.org.uk/publications/15894) We hope that the findings of our project will inform reforms of the devolved governments' funding frameworks. The findings from our second report gained significant media attention. The research team was also asked to give evidence to the Scottish Parliament's Finance Committee on 11 January. Subsequent to that, the research team has been approached to undertake further research to inform the forthcoming review of the Scottish fiscal framework. We hope and anticipate that our work will be used by others in two ways: First, to raise public awareness of the way in which the devolved government funding arrangements work, the strengths and limitations, and the options for reform. Second, we hope that the Scottish and UK governments will use our findings more directly to inform ongoing debates about the scope of reforms to improve the working of the Scottish government's fiscal framework. |
| Sectors | Government Democracy and Justice |
| URL | https://fraserofallander.org/publications/designing-and-funding-the-devolved-nations-policy-response-to-covid-19/ |
| Description | In two ways: First, as a result of the grant report, the grant investigators and co-investigators were commissioned jointly by the Scottish and UK governments to review the operation of block grant adjustments under the Scottish Fiscal Framework. This work has been published, and informed the development of an updated fiscal framework for Scotland in 2023 (this impact was confirmed to the P-I in a letter from the Deputy First Minister for Scotland in August 2023. Second, having seen this project's analysis and outputs, the Covid Inquiry approached and have commissioned David Phillips to produce an expert report on local and devolved government funding during the Covid-19 pandemic. |
| First Year Of Impact | 2023 |
| Sector | Government, Democracy and Justice |
| Impact Types | Economic Policy & public services |
| Description | Commissioned to produce independent report on BGAs for Scottish Fiscal Framework Review |
| Organisation | Government of Scotland |
| Country | United Kingdom |
| Sector | Public |
| PI Contribution | We undertook the official independent review of the block grant adjustments for the Scottish and UK Governments as part of the Scottish Fiscal Framework Review. |
| Collaborator Contribution | They commissioned this report from us, with a small payment made to each of us to cover the time we spent on the report. |
| Impact | Our report: https://www.gov.scot/publications/fiscal-framework-review-independent-report/ The revised fiscal framework agreement: https://www.gov.uk/government/publications/the-updated-agreement-on-the-scottish-governments-fiscal-framework In light of our conclusions, no significant changes were made to the block grant adjustment methodology in practice. Changes were made to borrowing and reserves powers in line with recommendations in our main ESRC-funded report. |
| Start Year | 2022 |
| Description | Broadcast media interviews by researchers following our second report |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | Following the publication of our 2nd report 'Options for reforming the devolved fiscal frameworks post-pandemic' on 21 December 2021, the research team undertook a number of media interviews for radio and television. These included: Pre-recorded interview for LBC Radio (David Phillips, aired 21 December) Live interview on GB News (David Eiser, 21 December, 0730) Live interview on BBC Radio Scotland's 'Good Morning Scotland' (David Bell, 21 December, 0740) Live interview on BBC Radio Scotland's 'Lunchtime Live' (David Eiser, 21 December, 1230) Pre-recorded interviews for Kingdom FM and Radio Clyde (David Eiser, aired 21 December) Pre-recorded interview for BBC Radio Scotland's 'The Nine', (David Eiser, shown 21 December, 2100) Pre-recorded interview for STV news (David Eiser, shown 21 December) Live interview on Bloomberg Radio (David Eiser, 22 December, 0730) |
| Year(s) Of Engagement Activity | 2021 |
| Description | Evidence to the Scottish Parliament's Finance Committee |
| Form Of Engagement Activity | A formal working group, expert panel or dialogue |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | All three members of the research team were invited to give evidence to the Scottish Parliament's Finance Committee on 11 Jan 2022. |
| Year(s) Of Engagement Activity | 2022 |
| URL | https://www.parliament.scot/chamber-and-committees/official-report/what-was-said-in-parliament/FPA-1... |
| Description | Presentation to civil servants as part of ESRC's 'Actionable Insights' series on 20 Jan 2022 |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Professional Practitioners |
| Results and Impact | Presentation of project findings, and subsequent discussion, with over 300 civil servants. Convened by ESRC as part of its Actionable Insights series. |
| Year(s) Of Engagement Activity | 2022 |
| Description | Presentations at RSE event |
| Form Of Engagement Activity | Participation in an activity, workshop or similar |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Professional Practitioners |
| Results and Impact | The PI and CIs were invited to present and participate in discussions at an event held by the Royal Society of Edinburgh and the Celtic Academies Alliance. The event considered the state of play of fiscal devolution in the UK nations. |
| Year(s) Of Engagement Activity | 2022 |
| Description | Press release for our first report (April 2021) |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | Press release summarised findings from our first report 'Designing and funding the devolved nations' policy response to COVID-19' published on 22 April 2021 The press release was entitled: 'Luck, huge sums of money and ad-hoc bypassing of the normal rules mean the devolved governments' funding arrangements have largely coped with COVID - but problems are brewing find IFS, Strathclyde and Stirling researchers' |
| Year(s) Of Engagement Activity | 2021 |
| Description | Press release for second report |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | Press release alongside embargoed copy of our second report |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://ifs.org.uk/publications/15893 |