Budget 2019 to 2020: feasibility of distributional analysis - study

Executive Summary

The Scottish Parliament's Budget Process Review Group recommended that Scottish Government "consider the feasibility of distributional analysis for tax, benefit and expenditure by protected characteristic and income distribution".

This report describes the project that was undertaken and its findings. Data from the 2019-20 Scottish Budget was used to develop and test whether a statistical model could be built for Scotland. By using Budget data it was also possible to produce outputs that could test wider issues of feasibility such as the range of assumptions that need to be made, the resource and practical implications of undertaking the work and the value and utility of results.

The feasibility project showed that it is possible to produce cumulative distributional impact analysis of the Scottish Budget, for some if not all equality characteristics. Breakdowns were possible for household net income deciles, household type and, by making certain assumptions, for age, sex and disability. Some breakdowns by ethnic and religious groupings are included in the report although the data here is based on small sample sizes and therefore are less robust. It was not possible to provide breakdowns for the other protected characteristics (sexual orientation, gender reassignment and pregnancy and maternity).

The feasibility study also showed that:

• This type of distributional analysis is a highly resource intensive and complex task.
• It is possible for the outputs to be misinterpreted, therefore distributional analysis should be accompanied by clear explanations of assumptions and guidance about interpretation of findings.
• Life stage plays a key role in determining distributional outcomes. Consideration of this is critical in the interpretation of results as it contributes significantly to the complex interplay between different characteristics.
• Even relatively large changes in spend to individual budget lines will be very difficult to spot as part of the overall expenditure, but there is potential for these methods to be utilised at individual policy level for 'what-if' analysis.
• Comparability with other models and outputs (including that used by HM Treasury), will be limited as different data sources and methods will have been used in some aspects of the model development.

In summary, the feasibility work found that cumulative distributional analysis can be a valuable tool to understand the impact of the Scottish Budget in total has on different households and individuals in Scotland. Its value was considered to be greater in providing a baseline assessment - updated at regular intervals - which can help identify areas where more detailed analysis at individual policy level might be useful.