The timing of the Scottish budget 2020/21: implications, uncertainties and risks

So now we know: the UK Budget will be presented on 11 March, having been postponed from its original date of 6 November.

What are the implications for the Scottish budget?

It seems now inevitable that the Scottish budget will have to be published in some form before 11 March.

One option is to seek to finalise all elements of the budget before the UK budget. An alternative, (with the agreement of Parliament) would be to push some final elements of the legislative process back to the second half of March, potentially allowing for last minute adjustments.

Either scenario is undoubtedly sub-optimal for the Scottish Government, Parliament, and a range of other organisations, from local authorities to Revenue Scotland.

But the idea that the Scottish budget can be delayed in full until mid to late March seems unrealistic.

Publishing a Scottish budget before the UK budget does carry uncertainties and risks, however. But what options are open to the Scottish Government to try to mitigate these challenges?Continue reading

January 8, 2020

FAI Commentary: The outlook for the Scottish Budget 2020/21

This blog post contains the policy context chapter of our economic commentary, published today. The latest economic commentary can be found here.

Budget 2020/21 will be the fourth of five to be set in this parliament. Normally of course it would have been published by now – the Scottish Government initially planned to publish it on 12 December – and the process of scrutiny and debate on the proposals contained within it would have begun.

It was inevitable that the announcement of a UK General Election on 12 December resulted in the postponement of the Scottish budget. The outlook for the Scottish budget – and the viability and outcomes of tax and spending policies – is heavily dependent on UK Government policy decisions.

A Scottish budget published in advance of knowing the complexion of the UK Government would have had to be underpinned by a range of caveats and uncertainties, and could have been subject to substantial revision once the UK Government’s plans became known with greater certainty.

The fact that the General Election result last week was so decisive has in a blink lifted much of the uncertainty that it existed, at least in the short run (i.e. for 2020/21).Continue reading

December 17, 2019

Demographic projections and income tax revenues under the fiscal framework: implications for the Scottish budget

Frantisek Brocek[1] and David Eiser

Under Scotland’s fiscal framework, Scotland’s budget will be better off (than it would have been without tax devolution) if income tax revenues per capita grow more quickly than they do in the rest of the UK (rUK).

Some have argued that demographic projections for Scotland mean that the Scottish budget will almost inevitably lose out from this arrangement.

This is because Scotland’s old age dependency ratio (the ratio of those above working age to those of working age) is projected to grow more rapidly than rUK’s over the period to 2050. Seeing as those above working age pay less income tax per capita, a more rapid growth in this group will act to slow the growth of total income tax revenues per capita, relative to rUK.

But in this blog we show that the issue is more nuanced than this. This is because, as well as there being a difference between the average revenues per capita for those of working age compared to those above working age, there is also significant variation in income tax revenues per capita by age group within the working age population.

When demographic projections by age group are taken into account on a more granular basis, it turns out that the operation of the fiscal framework might actually work in Scotland’s favour. Although Scotland’s old age population is projected to grow relatively more rapidly, its population of children and young adults (who pay little tax) is also projected to decline more rapidly. This more than offsets the impact of a faster growing older population in reducing the growth of income tax revenues per capita.Continue reading

December 4, 2019

2019 General Election: a review of the manifestos from a Scottish perspective

Inevitably, the defining feature of all the manifestos this election is the spectre of constitutional change.

For the UK-wide parties this is an issue of Brexit (or stopping Brexit), whilst in Scotland there is the added question of independence.

Beyond these major constitutional debates, reading UK election manifestos can feel a strange business from a Scottish perspective. Most of the policy pledges relate to areas that are devolved, with the next Holyrood election not for another 18 months.

Nonetheless, these pledges will still have major implications for Scotland’s budget, whilst also framing the view of what policies might be politically viable here. This is true for spending commitments, but it is now increasingly true of tax policy too.

The choices facing the electorate are stark, not just on the constitution but also day-to-day tax and spending choices. It is no surprise that with so much uncertainty, Derek Mackay has shelved plans for a pre-Christmas Scottish Budget

So what do the manifestos imply for Scotland and the Scottish Budget?Continue reading

December 2, 2019

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 12th December.

The postponement of the UK Government’s budget – which had been scheduled for 6th November – had already thrown the status of the Scottish budget date into doubt. But the announcement of the General Election on the 12th 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

November 18, 2019