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When the devolved government in Scotland was given more tax raising powers, an agreement called the Fiscal Framework was negotiated, setting out how the new system would work.
Part of that was something called the Block Grant Adjustment (BGA) which meant the funding Holyrood receives from Westminster was reduced to take into the account money the Scottish government was now able to raise directly.
The BGA was intended to work on a “no detriment” principle, to stop either government being better or worse off due to devolution.
It means the UK government is able to deduct funds from the block grant that it estimates it would have received if tax-raising powers were not devolved.
If the chancellor raises income tax, the BGA will also change. However, changes to National Insurance, which is not devolved, do not have an automatic impact.
Robison argues the impact on Scotland of a UK government income tax rise would be mitigated if National Insurance changes were also factored in.
If the chancellor uses extra tax revenue to increase public spending, that could benefit Scotland’s block grant money through Barnett Formula “consequentials”.
But Reeves’ fiscal rules, which she insists are vital for economic stability, mean she has limited options to increase spending.
Faced with a reduction in the block grant, Scotland will then have to generate more tax revenue itself or cut its own public spending in order to avoid a budget shortfall.
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