Fiscal framework outturn report: 2021
The Fiscal Framework Outturn Report 2021 publishes outturn and reconciliation information for Scottish Income Tax, Scottish Landfill Tax, Land and Buildings Transaction Tax and devolved Social Security benefits, as well as updates on borrowing and the Scotland Reserve.
2. Tax – Overview of tax revenues, BGA and net Budget position
2.1 This section provides an overview of the latest information (outturn or forecast) available regarding revenues and BGAs for Income Tax and the fully devolved taxes – LBTT and SLfT.
2.2 Table 1 includes outturn data for Scottish Income Tax and fully devolved taxes for 2018-19 and 2019-20, and for 2020-21 for fully devolved taxes. Scottish tax outturn data is provided by HMRC for Income Tax and by Revenue Scotland for LBTT and SLfT. Outturn data required to calculate the outturn tax BGAs is provided by HMRC.
2.3 Table 1 also shows the most recent forecasts. Revenue forecasts are taken from the SFC's Scotland's Economic and Fiscal Forecasts, published on 26 August.[3] BGAs are based on forecasts of equivalent UK Government tax revenue prepared by the OBR for the UK Budget published on 3 March 2021. Comparing the forecasts to the BGAs produces the net effect on the Scottish Budget.
2.4 However, due to the timing differences of the forecasts noted in paragraphs 1.3 and 1.4, comparisons of the latest available forecasts and BGAs and the resultant net effect should be interpreted with a large degree of caution. As noted by the SFC, with regards to Income Tax "[t]here is no evidence of a significant divergence in Scottish and UK economic performance that would support such a high net funding position. We expect that the updated OBR forecasts due to be published on 27 October, which will include the latest outturn data, will reduce the gap between the BGA and our forecast of income tax revenues and the net funding position for income tax will return to be more in line with previous years."[4] The timing differences also impact the fully devolved taxes.
| Outturn | Forecasts | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2018-19 | 2019-20 | 2020-21 | 2021-22 | 2022-23 | 2023-24 | 2024-25 | 2025-26 | ||
| Income Tax | Revenue | 11,556† | 11,833† | 11,938 | 13,162 | 14,069 | 14,845 | 15,660 | 16,556 |
| BGA1 | -11,437† | -11,685† | -11,762 | -11,836 | -12,616 | -13,082 | -14,027 | -14,834 | |
| Net effect | 119† | 148† | 176 | 1,326 | 1,453 | 1,763 | 1,633 | 1,722 | |
| LBTT | Revenue | 554† | 597† | 517†2 | 653 | 694 | 733 | 777 | 829 |
| BGA1 | -549† | -533† | -397† | -522 | -618 | -645 | -692 | -738 | |
| Net effect | 5† | 64† | 121† | 131 | 75 | 88 | 85 | 91 | |
| SLfT | Revenue | 149† | 119† | 106†2 | 113 | 105 | 90 | 92 | 77 |
| BGA1 | -105† | -99† | -87† | -95 | -91 | -80 | -77 | -81 | |
| Net effect | 43† | 20† | 19† | 18 | 14 | 10 | 15 | -5 | |
| TOTAL | Revenue | 12,259† | 12,549† | 12,562 | 13,928 | 14,868 | 15,668 | 16,529 | 17,461 |
| BGA1 | -12,092† | -12,316† | -12,246 | -12,452 | -13,325 | -13,807 | -14,795 | -15,653 | |
| Net effect | +167† | +233† | +316 | +1,475 | +1,543 | +1,862 | +1,734 | +1,809 | |
Note 1: The BGAs shown in this and subsequent tables are calculated using the Indexed Per Capita (IPC) indexation method. This method in practice determines the BGAs applied to the Budget. The tax BGAs are shown as negative numbers because they are a deduction from the Block Grant and thus have a negative effect on the Budget position. Note 2: 2020-21 LBTT and SLfT provisional outturn displayed excludes accounting adjustments applied by Revenue Scotland † Indicates outturn; Figures in this and subsequent tables may not sum due to rounding
2.5 The forecasts for Income Tax revenues and BGAs for 2020-21 and 2021-22 above do not have any immediate impact on the Scottish Budget, as they do not represent outturn data that will be used as the basis for reconciliations. Outturn data for 2020-21 and 2021-22 will be available in the summer of 2022 and 2023, respectively. The forecasts for the years 2022-23 onwards provide an indication of the level of revenues that the SFC anticipates, but these figures will not be used to set the 2022-23 Budget, as that will make use of updated forecasts that the SFC will produce for the Scottish Budget 2022-23.
Taxes yet to be introduced
2.6 Some taxes devolved in the Scotland Act 2016 are yet to be implemented. These are: assigned VAT, Air Passenger Duty and the Aggregates Levy.
Assigned VAT - The Fiscal Framework agreed that VAT assignment will be implemented following agreement between the two governments on a suitable assignment methodology. Due to the current economic climate and the reliability of VAT receipt forecasting being highly uncertain due to the combined effects of COVID-19 and EU exit, in October 2020 the UK and Scottish Government agreed that how and when VAT assignment should be implemented should be established as part of the review of the Scottish Government's Fiscal Framework, due to take place in 2022. The Scottish Government has also stated that it wants the full devolution of VAT to be considered in the review. In 2020-21, the Scottish and UK Governments worked together to progress the draft VAT assignment methodology with the aim of delivering the best model and implementation process. Work carried out throughout 2020 was reviewed and noted in December 2020 by senior officials in the Scottish and UK Governments. This will be included as part of the review of the Fiscal Framework.
Air Passenger Duty: Introduction of the Air Departure Tax (ADT) in Scotland has been deferred to allow the issues raised in relation to the Highlands and Islands exemption to be resolved. The Scottish Government is engaging with the UK Government on its consultation on Air Passenger Duty reform (which ran from March to June 2021) and will continue work to find a solution for aviation that remains consistent with our climate ambitions. As part of this, careful consideration will be given to the outcome of the UK Government's recent consultation on subsidy control.
Aggregates Levy - Outstanding state aid issues related to the UK Aggregates Levy have been resolved and the UK Government review is complete. The Scottish Government will work closely with stakeholders, consider policy options and develop the necessary evidence base to support the introduction of a devolved levy in Scotland. This will build on the research published by the Scottish Government last year.
2.7 Information relating to these taxes will be included in future Outturn Reports, following their implementation.
Contact
Email: rebecca.mcewan@gov.scot
There is a problem
Thanks for your feedback