Scottish income tax outturn reconciliation for 2018-19
This technical note explains how the 2018-19 income tax data published by HMRC today is used to update the Scottish Government’s funding.
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Under the fiscal framework agreed between the UK and Scottish governments in 2016, the Scottish Government’s funding is initially based on forecasts of income tax and updated once actual income tax revenues are available.
In short, actual income tax data for 2018-19 replaces forecasts of Scottish Government income tax (made by the Scottish Fiscal Commission) and forecasts of the associated block grant adjustment (based on forecasts of UK government income tax made by the Office of Budget Responsibility).
This reconciliation process for 2018-19 can now be undertaken as HMRC have published 2018-19 income tax outturn data today:
- Scottish income tax is lower than forecast at the time of the 2018-19 Scottish Budget so this will reduce Scottish Government self-funding by £621 million in 2021-22
- The associated block grant adjustment is also lower than forecast at the time of the 2018-19 Scottish Budget so this will increase the Scottish Government’s block grant funding by £312 million in 2021-22
- The net effect is a £309 million reduction in the Scottish Government’s overall funding for 2021-22. The Scottish Government has agreed tools to manage this type of forecast error, including powers to borrow up to £300 million of resource funding each year (within a £1.75 billion cap) and the ability to operate a £700 million Reserve.