As most people who read this blog will know, the increasing dependence of the Scottish budget on tax revenues means that Scottish budgets are increasingly determined by forecasts of tax revenues.
There will almost always be a degree of error associated with these forecasts. Following the end of a financial year, once revenue outturn data is available, we will know whether the Scottish Government actually had more resources at its disposal than had been forecast, or fewer.
A complication in this analysis is that the Scottish budget is not only dependent on forecasts of Scottish tax revenues. It is also dependent on forecasts of the ‘block grant adjustments’ (BGAs) – these BGAs are effectively estimates of the revenues that the UK Government has foregone as a result of transferring each tax to Scotland. The BGAs are deducted from Scotland’s block grant.
The BGAs contained in each Scottish budget are determined by forecasts of the growth of equivalent taxes in the rest of the UK. In the same way that there is likely to be forecast error associated with Scottish revenues, there is likely to be forecast error associated with the BGAs.
How these two sets of forecast error – for Scottish revenues and for the BGAs – effect the resources available to the Scottish budget is the subject of the Fiscal Framework Outturn Report which was published by the Scottish Government yesterday. As far as government reports go it is relatively short, although given the complex nature of the fiscal framework it nonetheless provides a stern test of the reader’s concentration.Continue reading