Fiscal Policy - Fraser of Allander Institute Blog

Analysis of Jackson Carlaw’s income tax proposals

Earlier this week, Scottish Conservatives leadership candidate Jackson Carlaw committed to close the income tax gap between Scotland and rUK for those earning between £27,000 and £45,000.

The majority of individuals with income in this range (those with incomes less than £43,430) currently face annual income tax liabilities of up to £150 higher than equivalent counterparts in rUK. But this difference increases rapidly beyond £43,430, reaching £500 at incomes of £45,000 (Chart 1).Continue reading

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

Has the Scottish Government received a £700m ‘bail-out’ from the UK Government?

Last week, we had the first set of income tax reconciliations for Scotland’s new fiscal framework.

For the coming year, that reconciliation figure will be around £200m.

In the aftermath of the publication of these figures, there were reports that Scotland was also in receipt of a £700m ‘bail-out’ from Westminster.

The Fiscal Framework: 2021 Review

In an article in yesterday’s Commentary, David Eiser and Graeme Roy preview the 2021 review of the Fiscal Framework. This blog provides a quick overview of that article.

The review

In recent years, the Scottish Parliament has been taking on new fiscal responsibilities – with more to follow. In 2021, the process for how these powers are operationalised – the Fiscal Framework – will be reviewed.

But what will the review cover? Will it be a ‘broad review’? Or a more narrowly focussed technical review? Will it open up debates about further devolution? And will politicians – perhaps elsewhere in the UK – seek to open up a debate about devolved funding?

The stakes are likely to be high, not least given Brexit and the prospects for a second independence referendum

Medium Term Financial Strategy: where’s the medium-term focus or strategy?

Last week, the Scottish Government published its 2^nd Medium Term Financial Strategy (MTFS).

The purpose of the MTFS, as set out by the Parliament’s Budget Process Review Group, was to ‘provide a means of focussing on the longer term sustainability of Scotland’s public finances’.

This is clearly a positive and the government should be commended for publishing the MTFS.

However, those that had been hoping that this year’s MTFS would build upon last year’s publication and provide a robust overview of the government’s fiscal strategy will be disappointed.

To fair, there are a lot of new helpful elements of information like the policies and principles on borrowing and reserves and the new detail on infrastructure investment funding.

But to be fully effective, whatever administration is in office, future MTFSs will need much more detail on future plans as well as appropriate assessments of risks & opportunities.