The main difference between CM and IPC relates to way differences in relative population growth between Scotland and the rest of the UK are treated.
The long-run experience is that Scotland's population grows slower on average each year than the rest of the UK. In this context, it is worth noting that inward migration is projected to account for 100% of Scotland's population growth over the next 25 years.
Slower population growth means that, for Scotland to grow total revenues at the same rate as in the rest of the UK, revenues per head would have to grow faster. That would make it more difficult for Scotland to generate the tax revenues it would need to ensure the budget was no better or worse off than before devolution. To mitigate this population risk, IPC provides full protection against slower population growth in Scotland, by indexing the block grant adjustment to growth in revenues per head in the rest of the UK.
In contrast, CM is calculated based on Scotland's population share of the cash change in corresponding to the rest of the UK's receipts and multiplied by a comparability factor. This factor is set at the level equivalent to Scotland's revenues per head as a share of the average revenues per head in the rest of the UK in the year immediately prior to devolution. This means that the population adjustment is only applied to the annual change in the BGA. Therefore, the deduction to the block grant would be larger under CM than IPC if Scotland's population continued to grow more slowly in the years ahead.
Fiscal framework review
The current fiscal framework does not include or assume the method for adjusting the block grant after 2021. The framework will be reviewed in the light of a Parliament's worth of experience. This review will be informed by an independent report presented to both Governments by the end of 2021.
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