Should anyone care about the Fiscal Framework Outturn Report?

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

September 21, 2018

The Fiscal Commission’s forecast evaluation

Last week, the Scottish Fiscal Commission (SFC) published its Forecast Evaluation Report.

As with all SFC publications, there was a significant degree of interest in its content.

In particular, it showed that Scottish income tax revenues were some £550m lower than expected. It also addressed the gap between the SFC’s pessimistic forecasts for growth and recent economic indicators.

This blog summarises some of the key issues from the report – with a focus on GDP and income tax. A more in depth discussion (including for the other devolved taxes) will appear in November’s Scotland’s Budget Report 2018.

Continue reading

September 10, 2018

Examining the economic case for a reduction in Air Departure Tax

Daniel Borbely is a PhD student in the Department of Economics. In this post he examines the potential economic impacts of a reduction in the rate of Air Departure Tax in Scotland.


Following devolution of Air Passenger Duty (APD), the Scottish Government has set out its plan to introduce a new Scottish version of the tax, the Air Departure Tax (ADT).[1] The ADT would be levied on passengers departing from Scottish airports.

As part of this, the Government has committed to reduce ADT by 50% by the end of this parliament, and abolish it, in the long-run, “when finances allow”. The aim is to increase the connectivity of Scottish airports and to make them more competitive.

But there remains debate over the evidence base to support (or argue against) the notion that cutting ADT will deliver the expected economic, budgetary and environmental benefits hoped for.Continue reading

August 14, 2018

Outturn Scottish income tax revenues 2016/17

Buried away in a technical annex to its 2017/18 Annual Accounts, HMRC last week published Non-Savings, Non-Dividend (NSND) income tax outturn data for Scotland in 2016/17.

This is the first published outturn data for Scottish NSND income tax since the Scotland Act 2016 transferred responsibility for setting the rates and bands of NSND income tax to the Scottish Parliament. It is also the first outturn data published on the basis of HMRC’s Scottish taxpayer codes.

So what does the data say?

HMRC estimates Scottish NSND outturn revenues at £10.7bn in 2016/17.

How does this compare to the latest forecasts? Continue reading

July 17, 2018