I am co-authoring a 2nd edition of Scottish Politics with Neil McGarvey (2013). It includes a revised chapter on "Money and Power: Public Expenditure in Scotland". It still argues that nothing much has changed regarding the system used to determine the Scottish Government's budget. Of course, what has changed is that there is less money now than before - but, come on now, let's be careful with this sort of statement. As the chapter remarks:
"Overall, the real rise in spending in Scotland from 2000-11 has been 53% – a figure that gives some important context to current discussions of economic austerity below (but note that the cash rise, close to 100%, is a very (and increasingly) misleading figure often used by elected politicians to reinforce the importance of the Union dividend). The first drop in real spending (2010-11) follows a series of very large real rises in annual budgets since devolution".
Now, if you don't plan to read the whole thing, note that this is a discussion of all identifiable spending in Scotland, not the Scottish Government budget.
I will copy and paste the introduction below and you can find the rest here -
https://docs.google.com/document/d/1XJYv-6Lj1bMY06oTHqTluO6KjWOA4bHETY3afNE8hfo/edit . If you have any polite comments on my numerical skills, please make them politely. Thanks to Richard Ashcroft (the academic, not the singer) for helping with the equations necessary to work out future spending using the GDP deflator in table 11.2 (although I don't show my working in the chapter).
"In this chapter we discuss what may be the most important area of Scottish politics. Public finance is a key aspect of the political process, and the issues raised in this chapter inform most of the themes discussed in this book. Yet, despite the importance of finance to Scottish politics, and long running debates producing calls for reform, the system of raising and distributing money has not changed since devolution. Post-devolution Scotland contin¬ues to receive almost all of its funding for public expenditure from the UK Treasury in the form of a block grant. The arrangements for the transfer of this money are almost identical to those which existed pre-1999 and reflect the continued use of the Barnett formula to alter the block grant at the margins.
[Barnett formula: A mechanism used by the Treasury to determine the adjustment in devolved public expenditure (Scotland, Wales, Northern Ireland) following changes to expenditure in England (in certain policy areas).]
This formula, and its history, is the main focus of the chap¬ter since it is central to an understanding of power relations between Scotland and the UK. These relations are often linked to the idea of Scotland’s ‘financial advantage’ compared to the rest of the UK and the ability of the Scottish Government to spend, but not raise, its money (the issue of finance also informs our discussion of power within Scotland, but the Scottish Government relationship with the Scottish Parliament and local authorities is discussed in chapters 5 and 10).
There are perhaps two main threats to the current settlement. First, the debate on constitutional change has produced renewed calls for some form of fiscal autonomy even if Scotland does not vote for independence. Chapter 12 examines such future proposals in more depth. All we note just now is that, despite this new agenda, the Barnett formula remains. Second, the global economic crisis has contributed to the UK’s new ‘age of austerity’ and a reduction in UK and Scottish public expenditure. Consequently, devolution has been marked by significant rises in Scottish funding settlements approximately for the first eight years, followed by minimal rises and then reductions in the Scottish Government budget. This chapter:
• discusses the issues of fairness, advantage and power in relation to Scottish public finance;
• outlines in detail what the Barnett formula is and why it was adopted;
• considers why the Barnett formula has endured to this day and what this tells us about power and IGR;
• highlights the role of the Treasury, examining Scotland’s unusual inability to determine its budget but discretion on how it is spent;
• highlights trends in Scottish Government spending.
• examines the consequences of the global economic crisis and the UK’s new ‘age of austerity’."