Fiscal framework outturn report: 2022

1. Introduction

1. This is the fifth Fiscal Framework Outturn Report published by the Scottish Government. It forms part of a revised Budget process, as recommended by the final report of the Budget Process Review Group. ^[1]

2. In keeping with the recommendations of the Group, it contains the following information:

• Outturn and, where appropriate, provisional outturn data for Scottish tax revenues and Social Security benefits expenditure (including comparison of outturn with forecast)
• Calculation of outturn Block Grant Adjustments (BGAs) and comparison with forecast
• Net effect on Budget (revenue/expenditure minus BGA) for each tax and Social Security benefit relative to forecast
• Implications of reconciliations for subsequent financial year
• Commentary on latest available interim outturn data on income tax
• Payments into the Reserve and withdrawals from the Reserve
• Balance of Scottish Reserve at the start and end of the previous financial year (with explanations for reasons for withdrawal or source of surplus)
• Borrowing undertaken during the past financial year, and assessment of how far Government remains below its various different borrowing limits
• Implications of borrowing in terms of estimated profile of future repayments.

Terminology used in this document

3. The Scottish Government must rely on forecasts when setting each Budget, and the UK Government also relies on forecasts when determining BGAs. When information about actual revenues and expenditure becomes available – known as ‘outturn data’ – subsequent Budgets are adjusted to account for the difference between forecast and outturn data. This process is known as a ‘reconciliation’ and can involve additions or reductions to the Scottish Government’s Block Grant.

4. Outturn figures are often first published on a provisional basis before a final figure is published. As this data becomes available for different taxes and Social Security benefits at different times, reconciliations are made throughout the Budget cycle. A full explanation of the reconciliation process, BGAs and the calculation of Scottish Government’s Block Grant can be found in the Technical Note on the Fiscal Framework.^[2]

Data used in this document

5. The 2022-23 to 2027-28 tax revenue and Social Security benefits expenditure forecasts within this report have been drawn from the forecasts published by the Scottish Fiscal Commission (SFC) on 31 May 2022, as has the forecast of the 2021-22 Scottish Income Tax revenues.

6. The 2022-23 to 2026-27 forecasts of the BGAs are based on the Office for Budget Responsibility (OBR) forecasts of UK tax revenues and Social Security benefits expenditure at the Spring Statement on 23 March 2022, as is the forecast of the 2021-22 BGA for Income Tax. Since the last set of SFC and OBR forecasts, the economic outlook has changed significantly. Inflationary pressures have been more intense than expected; interest rates have risen sharply domestically and internationally and the UK Government has already announced one emergency Cost-of-Living Fiscal Package in May^[3], with another expected shortly.

7. Changes in the economic outlook since the latest SFC and OBR publications will be reflected in (i) updated forecasts from the SFC, which will be published alongside the 2023-24 Scottish Budget, and; (ii) the OBR’s next set of forecasts, which is usually published alongside the UK Government’s autumn fiscal event, which will allow for the calculation of updated forecasts of BGAs.

8. As a result of changes to previous publication schedules, some of the outturn data used in this report is provisional. Whether the data is final or provisional is detailed as follows:

• The publication of the Office of National Statistics (ONS) mid-year population outturn data for 2021-22, which is used to calculate the final outturn BGAs, has been delayed until November 2022. Consequently all outturn BGAs detailed in this report are provisional, with the exception of the 2020-21 income tax BGA, which is final.
• HMRC 2020-21 income tax revenue outturn data are considered final, as is the 2020-21 income tax BGA.
• The 2021-22 outturn revenue data for England and Northern Ireland, which feeds into the BGA calculation for Land and Buildings Transaction Tax (LBTT) and Scottish Landfill Tax (SLfT), are considered final.
• The final 2021-22 LBTT and SLfT Scottish revenue data will be published as part of Revenue Scotland’s Annual Reports and Accounts in November 2022 and the revenue outturn data used within this report is provisional.
• Provisional Scottish expenditure data is also used for 2021-22 Scottish Government Social Security benefits expenditure. Final data will be available as part of the Social Security Scotland Annual Report and Accounts, published by November 2022.
• Provisional UK Government Social Security benefits expenditure outturn data has also been used to calculate the BGAs, with final outturn being made available when the Local Authority, Parliamentary, and Country and Regional Tables 2021/22 are published later this year.

9. The following outturn data, which reflects a period in which the impacts of the COVID-19 impacts on the economy were material, is therefore included in the report:

• Final BGA and revenue reconciliations for 2020-21 Scottish Income Tax;
• Provisional BGA reconciliations and revenue outturn for 2021-22 LBTT and SLfT;
• Provisional BGA reconciliations and expenditure outturn for 2021-22 Social Security benefits expenditure, and;
• Provisional BGA reconciliation and revenue outturn for 2021-22 Fines, Forfeitures and Fixed Penalties.

10. Due to the use of provisional data, the overall reconciliation applying to the 2023-24 Scottish Budget cannot be finalised at this point, but will be confirmed in the 2023-24 Scottish Budget document.

11. In summary, the following points are relevant for 2023-24 Budget considerations:

• The total provisional reconciliation required in the 2023-24 Budget will be a positive £22.5 million. This figure includes final reconciliations for 2020-21 Income Tax revenue and BGA and the provisional reconciliations of the BGAs for 2021-22 LBTT, SLfT, Social Security benefits expenditure and Fines, Forfeitures and Fixed Penalties.
• The provisional residual balance on the reserve for 2021-22 is £650 million.
• Under current plans, the Scottish Government’s capital debt will be £2.1 billion by the end of 2023-24, 71 per cent of its overall £3 billion limit.
• The 2022-23 Scottish Budget included plans to use resource borrowing powers to borrow £15 million. However, this remains subject to change throughout the financial year depending on the movement of in-year reconciliations and volatility of Social Security benefit expenditure.