Designing and funding the devolved nations’ policy responses to COVID-19

Reports & Briefings

Report by David Bell (University of Stirling), David Eiser (Fraser of Allander Institute, Strathclyde Business School) and David Phillips (Institute for Fiscal Studies)

The devolved governments’ fiscal frameworks and settlements were clearly not designed with a
shock like the COVID-19 pandemic in mind.

At the outset of the pandemic there were reasons to be concerned about the ability of the
devolution funding frameworks to cope. As it happens, the devolved governments’ funding
arrangements have largely coped with the COVID-19 pandemic. This is the result of a combination of
luck, the huge sums of money provided by the UK government to address the crisis in England, and
ad-hoc bypassing of the normal rules of the frameworks.

The ‘luck’ part of the equation reflects the fact that both the devolved nations have not been
disproportionately negatively impacted by the virus in either health or economic terms.

But the shift away from the usual process of allocating funding by Barnett consequentials to the
concept of funding ‘guarantees’ has also been important in providing the devolved governments the
resources and flexibility they need to meet the evolving demands of the pandemic.

However, the COVID-19 pandemic has exposed some limitations and risks of the devolved funding
settlements, and poses a number of questions for their future. For example, do the block grant
adjustment mechanisms provide sufficient insurance against the risk of asymmetric shocks? Do the
devolved governments have enough budgetary flexibility to respond to short-term fluctuations in
need, or to vary policy in response to such events? To what extent is there a need for new
arrangements for collaborative decision-making or improved communication on policy areas which
are ‘reserved’ to the UK government? Can economic development policy operate effectively as an
area of joint competency or does more direct UK government involvement in this realm pose a
major problem for the devolution settlement and effective policymaking?

The aim of this paper has not been to answer these questions, but to lay out the issues that we will
consider throughout the remainder of our one-year project. Addressing these issues will raise
challenging questions around where the responsibility for managing various fiscal risks should lie,
and the extent to which the answer to this question depends on the nature of the fiscal powers
devolved, and the nature of constitutional arrangements more broadly.