Fiscal framework outturn report: 2023

The Fiscal Framework Outturn Report 2023 publishes outturn and reconciliation information for Scottish Income Tax, Scottish Landfill Tax, Land and Buildings Transaction Tax and devolved Social Security benefits, as well as updates on borrowing and the Scotland Reserve.

1. Introduction

1. This is the sixth 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 devolved tax revenues and social security benefits expenditure (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 reconciliations for the subsequent financial year
  • Commentary on latest available outturn data on income tax
  • Payments into the Reserve and withdrawals from the Reserve
  • The balance of the Scottish Reserve at the start and end of the previous financial year (with explanations for reasons for withdrawal or source of surplus)
  • 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.

Terminology used in this document

3. 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 a ‘reconciliation’ and can involve additions or reductions to Scotland’s Block Grant.

4. Outturn figures are often first published on a provisional basis before a final figure is published. As 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, BGAs and the calculation of Scotland’s Block Grant can be found in the Technical Note on the Fiscal Framework.[2]

Data used in this document

5. The 2023-24 to 2027-28 tax revenue and social security benefits expenditure forecasts within this report have been drawn from the forecasts published by the Scottish Fiscal Commission (SFC) on 25 May 2023, with the forecast of 2021-22 Scottish income tax revenues coming from their report on 28 January 2021.

6. The forecasts of the BGAs are based on the Office for Budget Responsibility (OBR) forecasts of UK tax revenues and social security benefits expenditure at the Spring Statement on 15 March 2023.

7. Updated forecasts from the SFC will be published alongside the 2024-25 Scottish Budget. The OBR will publish its next set of forecasts alongside the UK Government’s Autumn Statement on November 22, which will allow for the calculation of updated forecasts of BGAs.

8. As a result of changes to previous publication schedules, some of the outturn data used in this report is provisional. Whether the data is final or is provisional is detailed as follows:

  • HMRC 2021-22 outturn data for both Scottish Income Tax revenues and the equivalent revenues for the rest of the UK are considered final. However, all BGAs for 2021-22 and 2022-23 remain provisional and will be revised once the Scottish Census 2022 results are incorporated into the official population estimates used to calculate the BGA values.
  • The 2022-23 outturn revenue data for Stamp Duty Land Tax (SDLT) and UK Landfill Tax , which feed into the BGA calculations, for Land and Buildings Transaction Tax (LBTT) and Scottish Landfill Tax (SLfT) are considered final.
  • The final 2022-23 LBTT and SLfT revenue data will be published as part of Revenue Scotland’s Annual Reports and Accounts towards the end of the calendar year 2023 and the revenue outturn data used within this report is therefore provisional.
  • Provisional Scottish expenditure data is also used for 2022-23 Scottish Government Social Security benefits expenditure and final data will be published as part of the Social Security Scotland Annual Report and Accounts, which will be published by November 2023.
  • Provisional UK Government Social Security benefits expenditure outturn data has also been used to calculate the BGAs with final outturn being made available when the Local Authority, Parliamentary, and Country and Regional Tables 2022/23 are published later this year.

9. The following outturn data is therefore included in the report:

  • Provisional BGA and revenue reconciliations for 2021-22 Scottish Income Tax;
  • Provisional BGA reconciliations and revenue outturn for 2022-23 LBTT and SLfT;
  • Provisional BGA reconciliations and expenditure outturn for 2022-23 Social Security benefits expenditure, and;
  • Provisional BGA reconciliation and revenue outturn for 2022-23 Fines, Forfeitures and Fixed Penalties.

10. Due to the use of provisional data, the overall reconciliation applying to the 2024-25 Scottish Budget cannot be finalised at this point, but will be confirmed in the 2024-25 Scottish Budget document.

11. In summary, the following points are relevant for 2024-25 Budget considerations:

  • The total provisional reconciliation required in the 2024-25 Budget will be a negative £331.8 million. This figure includes provisional reconciliations for 2021-22 Income Tax revenue and BGA and the provisional reconciliations of the BGAs for 2022-23 LBTT, SLfT, Social Security benefits expenditure and Fines, Forfeitures and Fixed Penalties.
  • This negative reconciliation is largely driven by an Income Tax reconciliation of -£389.9 million. The combined reconciliation for LBTT, SLfT, Social Security benefits expenditure and Fines, Forfeitures and Fixed Penalties is positive £58.0 million.
  • The provisional residual balance on the reserve for 2022-23 is £245 million.
  • Under current plans, the Scottish Government’s capital debt will be £2.3 billion by the end of 2024-25, 76 per cent of the current £3 billion limit.
  • The Scottish Government plans to use its resource borrowing powers in 2023-24 to borrow £41 million.

Population outturn used in this document

12. Due to differences in timing of the Census in Scotland compared to the rest of the UK, the population estimates for 2021 are not yet available for both Scotland and the rUK on a consistent basis. In order to ensure that any relative population growth estimates needed for the BGA calculations are consistent, the Scottish Government and HM Treasury have agreed an interim solution to calculate Block Grant Adjustments using population figures based on the Office for National Statistics (ONS) Mid-Year Estimates 2020.

13. As such, the Block Grant Adjustments remain provisional, and will be revised once the Scottish Census 2022 results are available for the ONS to incorporate into their mid-year estimates. An additional reconciliation will then be required to account for this final population data, at a date to be determined.

14. The Scottish Government and HM Treasury have agreed that the mid-2020 estimates will continue to be used for all upcoming fiscal events until the population data is revised.

15. Although some initial census population estimates for Scotland in 2021 have now been published by the National Records of Scotland (NRS), it will take time for this information to be incorporated into the official ONS population estimates used in the Scottish Fiscal Framework, including revisions to the back-series of population estimates going back to 2011.

Updated Fiscal Framework Agreement

16. In August 2023, the Scottish and UK Governments reached agreement on the first review of Scotland’s Fiscal Framework, providing greater long-term funding clarity for Scotland and some more flexibility on how the Scottish Government manages the public finances.

17. After a joint review, both governments agreed to permanently adopt the existing Indexed Per Capita (IPC) method used to calculate the block grant adjustments that correspond to devolved taxes and social security benefits.

18. In addition, the amount the Scottish Government can borrow to mitigate against errors in forecasting will be increased from £300 million to £600 million, with no limits to the amount that can be drawn from the Scotland Reserve, providing some greater flexibility to handle funding volatility.

19. Borrowing and reserve limits will grow in line with inflation and will therefore be maintained in real terms.

20. All the agreed changes to the Fiscal Framework will take effect from 2024-25. The current Fiscal Framework will therefore still apply for 2023-24.

21. The main changes to the framework are detailed in the Table 1 below:

Table 1: Comparison table of Fiscal Framework agreement pre and post review
2016/17-2023/24 2024/25 onwards
BGA Mechanism Run both Indexed per Capita (IPC) and Comparable methods, but only use the IPC method in practice Simplify: put IPC on a permanent basis
Resource borrowing Up to £300m p.a. to cover forecast error, £1.75bn cumulative Up to £600m p.a. to cover forecast error, £1.75bn cumulative, both indexed to inflation
Capital borrowing Up to £450m, p.a.; £3bn cumulative cap Up to £450m p.a., £3bn cumulative cap, both indexed to inflation
Reserve drawdown limits £250m resource; £100m capital Abolished
Overall reserve limit £700m £700m indexed to inflation
VAT Assignment The two Governments have agreed that VAT assignment will be implemented in 2019-20. How and when to implement VAT Assignment will be discussed at a future Joint Exchequer Committee
Crown Estate Deduction to the block grant of £6.6m p.a. Deduction to the block grant profiled at £10m / £10m / £15m/ £20m / £40m. Fixed in nominal terms at £40m beyond.
Fines and penalties Block Grant Adjustment to fines and penalties revenue Flat annual deduction to the block grant
Coastal Communities Fund Baseline addition made to block grant equivalent to UKG spending on CCF in year prior to transfer Absorbed into Barnett (no immediate impact on SG)
Scotland Specific Economic Shock Up to £600m resource borrowing capacity when triggered Abolished



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