Explainers

Annual Budget Gap

In our Fiscal Sustainability Report we use the Annual Budget Gap (ABG) to show the level of reductions in spending or increases in tax revenue that would be required by the Scottish Government each year in order to balance the budget. The fiscal framework means that the ABG is affected by any action the UK Government takes to address fiscal sustainability at the UK level.

The effect of UK Government action to address fiscal sustainability at the UK level on the Annual Budget Gap depends on what balance future UK Governments strike between reducing spending and raising tax revenue, and to what extent these are in devolved or reserved areas. Since more spending areas than taxes are currently devolved, the Scottish Government funding is more sensitive to UK Government reductions in spending. Scottish Government funding would be relatively protected from fiscal pressure if UK Government policy decisions are focussed on reserved areas.

However, changes to reserved spending and taxation will still have an impact on the people of Scotland. For example changes to Universal Credit, a reserved benefit paid by the UK Government to people in Scotland, could have important consequences for people living in Scotland.