Income tax reconciliations and the Scottish economy: Q&A

It has been widely publicised that the Scottish budget may face income tax ‘reconciliations’ totalling £1bn over the next few years. But what are these reconciliations and why do they come about? Do they tell us anything about Scotland’s economic performance, or do they just reflect forecast error?Continue reading

June 20, 2019

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

Last week, the Scottish Government published its 2nd 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.

Continue reading

June 5, 2019

What is the case for increasing council tax rates in Scotland?

This blog shows that council tax rates are now markedly lower in Scotland than in England and Wales. Increasing council tax in Scotland to match rates in Wales (or England) would raise substantial revenues, but would have adverse distributional implications. On balance, the case for more fundamental reform of property taxation would appear much stronger than the case for increasing rates within the existing system.

Differences in income tax policy between Scotland and rUK have been the subject of heated debate. There has been relatively little attention paid to differences in council tax policy in Scotland compared to England and Wales. But in some ways, the differences in council tax policy are more pronounced than they are for income tax.Continue reading

May 22, 2019

The emerging outlook for Scottish income tax revenues

How have Scotland’s revenues from income tax been performing since income tax powers were transferred to the Scottish Parliament in April 2017?

This is clearly an important question to ask. The Scottish budget in any year is determined in part by the rate of growth of Scottish income tax revenues per capita since 2016/17 compared to the growth of equivalent income tax revenues per capita in the rest of the UK (rUK).

We are nearly at the end of the second year of Scottish income tax devolution. But official income tax revenue outturn figures for 2017/18 will not be published until this summer, whilst outturn figures for 2018/19 will not be available until summer 2020.

Whilst income tax revenue data is not yet available, HMRC has published some information on the number of taxpayers who pay tax through Pay as you Earn (PAYE), and the average income of those PAYE income taxpayers, in 2017/18 and the first two quarters of 2018/19.Continue reading

February 26, 2019