Scottish Budget

Scottish income tax outturn data 2019/20: deciphering the numbers that matter

How much did income tax contribute to the Scottish budget in 2019/20? On one level there is a straightforward answer to this question. The outturn statistics published today show that devolved Scottish income tax contributed £11.833bn to the Scottish budget in 2019/20.

But there are a number of more interesting and important questions we might ask, including:

  • What difference did Scottish income tax policy make to the outturn?
  • How much better or worse off is the Scottish budget as a result of the devolution of income tax, compared to its position if income tax had not been devolved?
  • How different is the outturn figure from what was forecast at the time the 2019/20 budget was set, and what are the implications of forecast error?

Lets consider each in turn.

How much difference does Scottish income tax policy make?

When it published the 2019/20 budget in December 2018, the Scottish Government estimated that its tax policy would raise around £500m in additional revenues compared to the case if Scotland implemented the same tax policy as in the rest of the UK. Our own modelling is also consistent with this £500m estimate.

Today’s income tax outturn data in itself cannot shed much light on the accuracy of these estimates. In fact we will never know with certainty the exact contribution that the Scottish tax policy has made to the Scottish budget (because we never observe the counterfactual scenario, in which UK tax policy applies in Scotland). But there is nothing in today’s data to indicate that the £500m estimate is unreasonable.

Is the Scottish budget better or worse off with income tax devolution than it would have been without it?

This is a subtly but importantly different question from the preceding one.

When we ask how much better or worse off the Scottish budget is as a result of income tax devolution, we have to compare the Scottish income tax figure with the ‘block grant adjustment’ for income tax. Specifically, we have to deduct the BGA for income tax from the Scottish income tax revenue figure.

Doing this for 2019/20 indicates that the Scottish budget was £148 million better off as a result of income tax devolution in 19/20 than it would have been without:

A £148 million difference doesn’t sound bad, but its clearly less than the £500 million difference that the tax policy on its own was estimated to make. And the implication is that, whilst Scottish income taxpayers in aggregate paid £500m more in income tax in 2019/20 than they would have done under rUK tax policy, the Scottish budget is only £148 million better off than it would have been without tax devolution. So what’s going on?

The calculation of the net tax position takes into account the rate of growth of income tax revenues in Scotland and the rate of growth of income tax revenues in rUK. As such, the BGA is a measure of how much income tax would have been raised in Scotland in 2019/20, if the rUK tax policy had applied in Scotland, and if the Scottish tax base per capita had grown at the same rate between 2016/17 and 2019/20 in rUK. (The growth of the income tax base is determined by things like the growth of earnings and employment). The box below sets out more detail on why income tax devolution is operationalised in this way.

If the Scottish tax base per capita had grown at exactly the same rate as the rUK tax base, then we would expect the net tax number to reflect purely the difference in tax policy – and thus to be around £500m.

The fact that the net tax position is less than this implies that the Scottish tax base has grown slightly more slowly in Scotland than in rUK. Further analysis by the SFC and Scottish Government will hopefully shed more light on the reasons behind this. It seems likely that slower tax base growth in Scotland relative to rUK did not occur significantly in 2019/20 itself – instead it occurred during the first two years of income tax devolution, and this slower growth in 2017/18 and 2018/19 remains ‘baked in’ to the 2019/20 numbers.

Why do we have BGAs?

The idea that the Scottish budget might not benefit in full from the revenue impacts of Scottish tax policy, because the tax base grew slightly slower than it did in rUK, is interpreted by some people to signify a flaw in the operation of the fiscal framework.

But you need to remember that the Scottish block grant remains determined by the Barnett Formula. Increases in income tax revenue in rUK that are used to increase spending on health or education in England generate Barnett consequentials for the Scottish budget.

The BGA ensures that the Scottish budget doesn’t benefit from income tax revenue growth in England, now that income tax is devolved.

Looking only through the lens of the income tax adjustments themselves, it can seem as if the Scottish budget is being short-changed. But this perspective is wrong – the BGA ensures that the Scottish budget receives all of the Scottish income tax revenues raised in Scotland. But it also ensures that the Scottish budget only benefits from devolved income tax revenues, and does not receive a share of spending financed by the relatively faster growth of the rUK tax base. In other words, the fiscal effects of the relatively stronger rUK tax base growth (in 17/18 and 18/19) is no longer pooled and shared across the UK.

(The BGAs serve other purposes too, like protecting the Scottish budget from shocks to income tax revenues that are common across the UK, like the ones we have seen during the pandemic).


How different is the outturn from forecast?

When the 2019/20 budget was set, Scottish income tax revenues were forecast to be £11.684 billion, and the BGA was forecast to be £11.501 billion. This left a ‘net’ tax position of £182 million.

In other words, the forecasts boosted the Scottish budget by £182 million compared to what would have been the case without income tax devolution.

The outturn figures, as we have seen, imply a net tax position of £148 million. This is £34 million less than what was forecast when the budget was set.

The outcome is that the Scottish budget in 2022/23 will face a downward reconciliation of £34 million to reflect these forecast errors.

Later this year, the Scottish Fiscal Commission will publish an evaluation of its 2019/20 income tax forecast. In truth, both the SFC’s 2019/20 forecast for Scotland, and the OBR’s 2019/20 forecast for rUK (which is the basis for the BGA) look to have been pretty robust. Scottish outturn is 1.3% higher than forecast, whilst the BGA is 1.6% higher than forecast.

The very marginal difference in forecast errors explains the very marginal reconciliation. A reconciliation of £34 million is peanuts in the context of the Scottish budget, and represents only 11% of the Scottish Government’s annual limit for forecast error borrowing in normal times (and only 6% of temporarily increased borrowing limits).


Deciphering the impact of Scottish income tax data on the Scottish budget can frequently leave one feeling dazed and confused. This is because of the multitude of comparisons that can be made.

Conditional on the fact that income tax is devolved, the Scottish budget is likely to have been around £500m better off in 2019/20 than it would have been had the Scottish Government implemented the same policy as in rUK.

But comparing the Scottish budget with what it would have been without income tax devolution gives a different answer. Because of relatively slower growth of the Scottish income tax base compared to rUK, the Scottish budget in 2019/20 is only £148 million better off than it would have been without tax devolution. The upshot is that while Scottish income taxpayers in aggregate paid some £500m more in income tax than they would have under rUK policy, they are only getting an additional £148 million in public expenditure than they would have without tax devolution.

This arises because stronger rUK tax base growth is no longer ‘pooled and shared’ across the UK. It does not mean that the Scottish budget is being short-changed, but that it benefits only from devolved Scottish income tax revenues, and not a share of the (faster) growth of the rUK tax base. Remember that this relative performance of the Scottish and rUK tax bases could conceivably flip in future, changing the calculus. This is of course a known risk of tax devolution.

Finally, whilst the Scottish budget in 2019/20 is £148m better off as a result of income tax devolution, the 2019 budget was based on an assumption that it would be £182m better off. A subsequent negative reconciliation of £34m is due in the Scottish budget 2022/23 to address the difference.


David is Senior Knowledge Exchange Fellow at the Fraser of Allander Institute