Fiscal framework outturn report: 2020

3. Income Tax

3.1 For Scottish income tax, outturn data is normally available around 16 months after the end of the financial year, and a single reconciliation is applied to the Budget three years after that financial year. 

3.2 Outturn data for income tax for 2018-19 was delayed due to the impact of COVID-19 and was published by HMRC on 23 September 2020. The reconciliation will be applied to the 2021-22 Budget. This data, together with the net effect on the Budget, is shown in table 2. 

* The BGA has been revised downward – this has a positive effect on net revenues.

3.3 This translates into a £309 million negative reconciliation requirement that will be applied to the 2021-22 Budget (see section 8 for a full breakdown of reconciliations for 2021-22).

3.4 The following chart demonstrates how the forecasts for both revenue and BGAs for income tax in 2018-19 have changed over time, at successive fiscal events in Scotland and the rest of the UK.

3.5 2018-19 income tax was forecast to have a positive net effect on Scotland’s finances as of the 2018-19 Budget, with revenues exceeding the BGA by £428 million. Both revenue and BGA were revised downwards at outturn and the net impact was ultimately less positive than the original forecast, with outturn revenue £119 million above the BGA. This translates into a £309 million negative reconciliation requirement that will be applied to the 2021-22 Budget.

3.6 The difference between forecast and outturn figures for 2018-19 revenue and BGAs for income tax is in part related to the fact that, at the time of the 2018-19 Scottish Budget, they were informed by a forecast 2016-17 baseline. Ultimately, income tax outturn for 2016-17 was £495 million lower than the 2016-17 forecast baseline used at the 2018-19 Scottish Budget (note the large reduction at Budget Act 2019 when the baseline was confirmed).

3.7 The outturn data for income tax for 2019-20 should be available in summer 2021, with a reconciliation to outturn being applied to the 2022-23 Budget. Table 3 shows the latest forecast reconciliation. However, newly published data from HMRC’s real time information system^[3] show that Scottish PAYE receipts, which account for around 88% of total Scottish Income Tax, grew faster than the rUK’s between 2018-19 and 2019-20 (2.7% vs. 1.4%). This implies that the outturn reconciliation may be better than the forecast in the table.

3.8 Outturn data for 2020-21 should be available in summer 2022, with a reconciliation being applied to the 2023-24 Budget. Table 4 shows the latest forecast reconciliation. As noted in the introduction, COVID-19 has meant that there have been no updated SFC forecasts of revenues since the Scottish Budget in February 2020. There has therefore been no change in the forecast of revenues.

3.9 Similarly, there have been no updated OBR forecasts since the UK Budget in March 2020. However, as noted in paragraph 1.5, the Scottish Budget used provisional BGAs as it took place in February, before the UK Budget in March. The change in the forecasts for the BGA, the net effect on the Budget, and the forecasts reconciliation therefore reflect the difference between the provisional BGA used in the Budget, and the forecast of the BGA provided at the UK Budget in March 2020.

* SFC forecasts would normally have been updated at the MTFS in Spring however its publication was delayed due to the impact of COVID.