Miscellaneous - Fraser of Allander Institute Blog

Home » Miscellaneous

This isn’t a v-shaped recession….

Just three weeks ago, the OBR published forecasts of 1.1% growth in 2020.

How times have changed.

On the very same day, the Chancellor warned us to ignore these forecasts and to prepare for a ‘significant impact’ on our economy.

Since then the situation has deteriorated further. Hopes that the recession that we are now in would be ‘v-shaped’ – i.e. a sharp downturn followed by a bounce-back in the months to follow – have sadly largely disappeared.

The latest data, and emerging insights from on the ground, suggests that the effects of this crisis are going to be long-lasting.

In this blog we assess why.

Devolving income tax revenues to local authorities – some analysis of distributional implications

Frantisek Brocek and David Eiser

Should local authorities’ revenue sources include a locally set income tax? Or, alternatively, a proportion of the income tax revenues that are raised from its own residents?

This question has been pondered repeatedly – although with varying degrees of seriousness – over the past 15 years or so.

It stems from a view that local authorities’ financial and democratic accountability, and autonomy, would be improved if councils raised a greater proportion of revenues from own sources (rather than grant from central government), and that a local income tax would provide a fairer (i.e. proportionate ability to pay) way of achieving this than trying to extend council tax in some way.

But how much revenue would local authorities raise – collectively and individually – if a given element of the income tax schedule were devolved or ‘given over’ to them?

The Scottish budget 2020/21: postponed for now… but til when?

The Scottish Government had been due to publish its draft budget for 2020/21 on 12^th December.

The postponement of the UK Government’s budget – which had been scheduled for 6^th November – had already thrown the status of the Scottish budget date into doubt. But the announcement of the General Election on the 12^th December clearly necessitated a postponement of the Scottish budget. The Scottish Government announced last week that the Scottish budget will not be published until after Christmas.

But given that we don’t know when the next UK budget will be, when should we expect the Scottish budget? Is it even possible for the Scottish budget to be published before the UK budget, and what would be the implications if it was?Continue reading

The Fiscal Framework Outturn Report 2019

Yesterday afternoon the Scottish Government published its annual ‘Fiscal Framework Outturn Report’. It reports outturn tax and social security spend data for 2018/19 (2017/18 for income tax) and discusses the budget implications.

By necessity it is a dry report. But if you don’t want to battle your way through it, this blog summarises the key bits.

For each of Scotland’s new devolved/shared taxes, the FFOR tells us two things.

First, whether SG raised more from a given Scottish tax than was deducted from its block grant (block grant adjustment, BGA), for the latest year for which outturn data is available. In other words, is the Scottish budget better off or worse off as a result of tax devolution?
Second, how different the outturn data is from the forecasts that were made when the budget was set.

For income tax in 2017/18, £97m less was raised in Scotland than was deducted from the block grant. So the Scottish budget was a bit worse off than it would have been without IT devolution – despite an attempt to raise more revenues by freezing the higher rate threshold.

But the forecasts for budget 17/18 projected that IT revenues would be £107m more than the BGA. So, in effect, SG budgeted to spend £204m more than it had available to it (the difference between £107m and -£97m). That £204m will be deducted from the 2020/21 budget as part of the ‘reconciliation’ process.

Of course we’ve known all of that since July! What’s new is what the report says about LBTT and Landfill Tax.

In 2018/19, revenues from LBTT (£557m) were £7m higher than the BGA – partly as a result of higher LBTT rates than down south. This is slightly better than the forecast position when the 18/19 budget was set.
Revenues from LfT (£143m) were £37m higher than the BGA. Again, this is a bit better than the forecast position when the 18/19 budget was set – partly because Scotland sent more waste to landfill than anticipated.

For LBTT and Landfill Tax, most of any reconciliation required happens within the 2018/19 financial year, and thus has already been absorbed. Tiny reconciliations will apply to the 2020/21 budget, but this is so small as to be of no budgetary significance.

There is a similar story in relation to income from various other (very small) income streams – there are no significant budgetary effects from the reported figures.

The FFOR also considers spending on social security. In 2018/19, the Scottish Government spent £5m less on Carer’s Allowance than what had been added to its block grant to cover the new responsibility. (This of course excludes the effect of the Carer’s Allowance supplement that the SG began paying in 2018, which came with a price tag of £35m and that the government has to fund from its total budget).

Perhaps the most interesting bit of the FFOR is the revelation of a brewing stooshy between the Scottish and UK govs about how sums recovered under ‘proceeds of crime’ legislation (confiscation of money and assets that have been gained through criminal conduct) are budgeted for post-devolution.

Before sums raised from proceeds of crime legislation were officially devolved through Scotland Act 2016, the two governments had an agreement that the Scottish Government could retain sums raised through proceeds of crime in Scotland if these raised less than £30m in any year – which they always did. So HM Treasury never actually received any sums from proceeds of crime legislation in Scotland prior to their devolution.

But the devolution of PoC resulted in a formalised process by which the Scottish budget can be adjusted downwards to reflect the funding that the UKG has ostensibly foregone as a result of devolving these funds.

So in 2018/19, rather than being able to retain in full the £5m revenue from proceeds of crime in Scotland – as would have happened pre-devolution – the SG finds that most of this is being clawed back by HMT in the form of a reduced block grant.

The Scottish Government is miffed about this, and claims it breaches ‘no detriment’ principles. HMT’s response seems to have been to shrug and say ‘its what you signed up to’. (The Smith Commission report argued that Scotland’s block grant would need to be adjusted to accommodate the retention of PoC sums).

That the governments can have a stooshy about £4 or £5m – which is small beer for the Scottish Government and miniscule beer for the UK – perhaps gives an indication of the current state of inter-governmental relations.

Unfortunately we now have a full 12 months to wait until we have the thrill of reading the third annual FFOR.

Our work as part of the Global Environmental Measurement and Monitoring Group

On Friday, we hosted the second Global Environmental Measurement and Monitoring (GEMM) Network at Strathclyde.

GEMM is a network of scientists, engineers, economists, lawyers and policymakers who are all seeking to better understand how changes in our environment will impact our economy and society.

The initiative was established by Strathclyde in partnership with The Optical Society (OSA) and the University of Stanford’s Stanford Photonics Research Center. The first meeting took place in Stanford in 2018.