Fiscal framework outturn report: 2020

1. Introduction

1.1 This is the third Fiscal Framework Outturn Report published by the Scottish Government. It forms part of a revised budget process, as recommended by the final report of the Budget Process Review Group. 

1.2 In keeping with the recommendations of the Group, it contains the following information:

• Outturn data for Scottish tax revenues and social security benefits (including comparison of outturn with forecast).
• Calculation of outturn Block Grant Adjustments (BGAs) and comparison with forecast.
• Net effect on budget (revenue/expenditure minus BGA) for each tax and social security benefit relative to forecast.
• Implications of reconciliation for subsequent financial year.
• Commentary on latest available interim outturn data on income tax. 
• Payments into the Reserve and withdrawals from the Reserve (with explanations for reasons for withdrawal or source of surplus). 
• Balance of Scottish Reserve at the start and end of the previous financial year.
• Borrowing undertaken during the past financial year, and assessment of how far Government remains below its various different borrowing limits.
• Implications of borrowing in terms of estimated profile of future repayments.

1.3 Due to COVID-19, Scotland’s Fiscal Outlook: The Scottish Government’s Five Year Financial Strategy was not published in May as per the normal timings, but will instead be published alongside the Budget. That means that the Scottish Fiscal Commission did not publish forecasts of tax revenues and social security expenditure in May, and the forecasts contained in this report are from the Scottish Budget in February. Therefore, the forecasts included in this report do not account for the impact of COVID-19 and are likely to change significantly.

1.4 Similarly, the forecasts of the Block Grant Adjustments are based on the OBR’s forecasts of UK tax revenues and social security expenditure at the UK Budget in March, as no forecasts have been published since then. This also means that the implications of COVID-19 are not fully reflected in the BGA forecasts.

1.5 As a UK Budget had not been published at the time of the Scottish Budget in February, provisional Block Grant Adjustments (BGAs) were used to inform the Scottish Budget as directed under the Fiscal Framework. Updated BGAs were produced at the UK Budget in March. However, the Cabinet Secretary for Finance decided to use the provisional BGAs to inform the Scottish Budget.  Where we refer to latest BGA forecasts in this document, we are referring to the updated BGAs produced at the UK Budget in March.

1.6 Updated forecasts from the Scottish Fiscal Commission will be published alongside the 2021-22 Scottish Budget. The OBR will publish its next set of forecasts in mid to late November which will allow for the calculation of updated forecasts of BGAs. These forecasts will be the first to include the full impact of COVID-19.

1.7 Due to COVID-19, the publication of much of the final data included in this report has been delayed. Therefore, this report uses provisional 2019-20 outturn revenue and BGA data for Land and Buildings Transaction Tax (LBTT) and Scottish Landfill Tax (SLfT). The final revenue data will be published as part of Revenue Scotland’s Annual Reports and Accounts later in the year. HMRC outturn data, which is used to calculate the final BGAs, will also be available in due course.  Provisional Scottish expenditure data is also used for 2019-20 Carer’s Allowance and final data will be published as part of the Social Security Scotland Annual Reports and Accounts. 

1.8 The following data is therefore included in the report:

• Final reconciliation for 2018-19 Scottish Income Tax.
• Provisional 2019-20 outturn and BGA reconciliations for Land & Buildings Transaction Tax (LBTT) and Scottish Landfill Tax (SLfT).
• Provisional 2019-20 outturn and final BGA reconciliation for Carer’s Allowance. 
• Provisional 2019-20 outturn for Proceeds of Crime and Fines, Forfeitures, and Fixed Penalty Notices.

1.9 Due to the use of provisional data, the overall reconciliation applying to the 2021-22 Scottish Budget cannot be finalised at this point, but will be confirmed in the 2021-22 Scottish Budget document.

1.10 In summary, the following points are relevant for 2021-22 budget considerations: 

• The total provisional reconciliation required in the 2021-22 Budget will be -£321 million. This figure includes final reconciliations for 2018-19 Income Tax revenue and BGA and the provisional reconciliations of the 2019-20 BGAs for Land and Building Transaction Tax, Scottish Landfill Tax and Carer’s Allowance.  
• The closing balance of the Scotland Reserve in 2020-21 is projected to be £211 million, on the basis of provisional outturn 2020 and planned drawdowns following the Autumn Budget Revision.
• Under current plans, the Scottish Government’s capital debt will be £1.99 billion by the end of 2020-21, well within its overall £3 billion limit.
• The Scottish Government plans to use its resource borrowing powers for the first time in 2020-21, to borrow £207 million.

Terminology used in this document

1.11 The Scottish Government must rely on forecasts when setting each Budget, and the UK Government also relies on forecasts when determining BGAs. When information about actual revenues and expenditure becomes available – known as ‘outturn data’ – subsequent Budgets are adjusted to account for the difference between forecast and outturn data. This process is known as ‘reconciliation’, and can involve additions or reductions to Scotland’s Block Grant. 

1.12 Because this data becomes available for different taxes and social security benefits at different times, reconciliations are made throughout the budget cycle. A full explanation of the reconciliation process, Block Grant Adjustments, and the calculation of Scotland’s Block Grant can be found in the Technical Note on the Fiscal Framework.^[1]