Windfalls, dilemmas and deals: looking ahead to the Scottish budget

Wednesday’s Scottish Budget announcement will almost certainly play second fiddle to Brexit as a news story, and justifiably so given the significance of the UK’s future relationship with the EU.

But the Scottish budget is important too, and not just because it tell us how much income tax and council tax we can expect to pay next year. It also sets the direction of devolved public spending in Scotland, which, when set alongside budgets of previous years, is beginning to tell a story of substantial change in the way in which devolved public spending is distributed across public services.Continue reading

December 10, 2018

VAT Assignment – A bridge too far for fiscal devolution?

Alongside this month’s Budget, the Scottish Fiscal Commission will set out forecasts for VAT revenues in Scotland.

2019-20 will mark the first year in which VAT assignment will be explicitly incorporated into the Budget (although, as with all the phased implementations of Scotland’s new tax powers it will be 2020-21 before it has a meaningful implication for spending).

In this blog we remind readers of the background to VAT assignment, discuss the approach that has been put forward for implementation and outline some implications for the Scottish Budget.

Working out how much VAT is raised in Scotland is exceptionally difficult. Unfortunately, a paper published recently by the UK Government on how it plans to do this suggests that little progress has been made in finding a robust way forward after over 3 years of trying.

Given the sums involved, the Scottish Parliament would be taking on a significant – and unreasonable – risk based upon current plans. It should, at the very least, press for a delay in the assignation of VAT to the Scottish Budget.Continue reading

December 6, 2018

What’s next for taxpayers in Scotland?

We’ll soon find out what the Scottish Government has in store for income tax in Scotland in 2019/20 when the Scottish Budget is published next week.

Taxpayers in the rest of the UK already know what to expect after Chancellor Philip Hammond announced changes to income tax in the UK Budget at the end of October.

These were to:

  1. increase the personal allowance from £11,850 in 2018/19 to £12,500 in 2019/20
  2. to increase the Higher Rate Threshold in the rest of the UK from £46,350 to £50,000.

As it is entirely possible that readers might not have made it through our 160 page Budget report on the 8th November, this blog will set out some tax options available to Mr Mackay for the forthcoming year.

Before we do so, here is a summary of the differences between Scottish and rUK taxpayers in the current financial year.

Continue reading

December 5, 2018

UK Budget 2018: Additional spending but tax dilemmas for the Scottish Government

The 2018 budget was yet again underpinned by some fairly underwhelming projections for economic growth over the next few years – the outlook for which has not changed materially since spring.

But Mr. Hammond’s budget was boosted by the fact that economic growth has proved relatively more ‘tax rich’ recently than had been forecast.

The Chancellor has spent all of this spending windfall, whilst achieving early his ‘fiscal mandate’ – that the cyclically adjusted deficit should remain below 2% of GDP from 2021, and his ‘supplementary target’ (that debt should fall as a percentage of GDP 2020/21).

From the perspective of the upcoming Scottish budget, which will be presented by Derek Mackay on 12 December, the UK Budget contained two major announcements.Continue reading

October 29, 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