Scottish income tax outturn reconciliation for 2019-20
This technical note explains how the 2019-20 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 2019-20 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 for Budget Responsibility).
This reconciliation process for 2019-20 can now be undertaken as HMRC have published 2019-20 income tax outturn data today:
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Scottish income tax is higher than forecast at the time of the 2019-20 Scottish Budget so this will increase Scottish Government self-funding by £149 million in 2022-23
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The associated block grant adjustment is also higher than forecast at the time of the 2019-20 Scottish Budget (driven by higher than forecast income tax revenue for the rest of the UK) so this will reduce the Scottish Government’s block grant funding by £184m in 2022-23
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The net effect is a £34 million reduction in the Scottish Government’s overall funding for 2022-23. The Scottish Government has tools to manage this type of forecast error, including a £700m Scotland Reserve and powers to borrow up to £600m of resource funding in 2022-23 (within a £1.75 billion cap)