Publication - Report

Fiscal framework: outturn report

Published: 20 Sep 2018
Directorate:
Financial Strategy Directorate
Part of:
Money and tax, Public sector
ISBN:
9781787811898

The first Fiscal Framework Outturn Report forms part of a revised budget process – as recommended by the final report of the Budget Process Review Group - and follows on from May’s publication of Scotland’s Fiscal Outlook: The Scottish Government’s Five Year Financial Strategy.

33 page PDF

5.6 MB

33 page PDF

5.6 MB

Contents
Fiscal framework: outturn report
Annex A: Fiscal Impact of 2015-16 and 2016-17 Devolved Revenues

33 page PDF

5.6 MB

Annex A: Fiscal Impact of 2015-16 and 2016-17 Devolved Revenues

This Annex provides a summary of the historic performance of devolved revenues in 2015-16 and 2016-17. Both 2015-16 and 2016-17 Budgets were set before the Fiscal Framework was agreed in February 2016. There was no permanent mechanism for annually adjusting the Block Grant in respect of the devolved revenues. This is why both 2015-16 and 2016-17 Block Grant Adjustments ( BGA) were subject to interim agreements, as detailed below.

2015-16

In 2015-16, two devolved taxes were in operation for the first time: Land and Buildings Transaction Tax ( LBTT) and Scottish Landfill Tax ( SLfT). The Scottish Government forecast these taxes and the Scottish Fiscal Commission assessed the reasonableness of the forecasts.

For the Block Grant Adjustment, as the Fiscal Framework agreement had not yet been agreed, a specific one-year agreement was reached with the UK Government for 2015-16 in January 2015. It was agreed that a Block Grant Adjustment of £494 million would be applied to the Scottish Government’s 2015-16 Budget. This figure was based on a comparison of forecasts prepared by the Office for Budget Responsibility ( OBR) and by the Scottish Government of receipts that would have been expected from SDLT and from UK Landfill Tax in Scotland in 2015-16.

As this covered both LBTT and SLfT, no figures were agreed for the individual taxes. It was agreed that this figure would not be revisited. There is no reconciliation to outturn for this BGA. The table below sets out the outturn budget position compared with the original forecasts:

Table A.1 –Budget position for LBTT AND SLFT 2015-16 compared with forecasts (£ million)

  Revenues BGA Net Budget position
Forecast as of Budget Act 2015 498 494 +4
Comprising
LBTT 381    
SLfT 117    
Outturn 572 494 +78
Comprising
LBTT 425    
SLfT 147    
Outturn against forecast +74 0 +74

As we can see in the tables above, the net Budget impact of the two devolved taxes at the Budget Act 2015 was +£4 million. On outturn, the net Budget position was +£78 million for the two taxes combined – an improvement of £74 million.

The Scottish Government therefore raised £74 million more in fully devolved tax revenue than anticipated in 2015-16. These surplus tax revenues were deposited into the Scottish Government’s Cash Reserve (now Scotland Reserve).

2016-17

In 2016-17, three devolved taxes were in operation: Scottish Rate of Income Tax ( SRIT), Land and Buildings Transaction Tax and Scottish Landfill Tax. The Scottish Government continued to forecast LBTT and SLfT. The Office of Budget Responsibility forecast SRIT revenues.

Scottish Rate of Income Tax

As part of the transitional arrangements for SRIT, it was agreed there would be no reconciliation of forecasts to outturn for tax revenues or BGA for the first year of operation of the SRIT.

The OBR forecast that SRIT would raise £4,900 million in 2016-17 at Autumn Statement 2015 and this figure was used for both the BGA and forecast revenues.

Outturn data is now available for 2016-17 SRIT Revenues – £4,350 million. Because of the prior agreement that there would be no reconciliation for either SRIT revenues or the BGA, the Scottish Government’s spending power was not affected by the difference between forecast or actual revenues/ BGA for 2016-17 SRIT.

Land and Buildings Transaction Tax/ Scottish Landfill Tax

For 2016-17, the Scottish Government forecast revenues of £671 million from the two fully devolved taxes in operation. The Scottish Fiscal Commission considered these forecasts reasonable.

For the BGA, as the Fiscal Framework had not been agreed, the Scottish and UK Governments agreed a provisional one-year BGA of £600 million for 2016-17 covering both LBTT and SLfT. The Governments agreed that this BGA would be reconciled once was outturn was available.

Table A.2 – Budget position for LBTT AND SLFT 2016-17 compared with forecasts (£ million)

 

Revenues

BGA

Net Budget position

Forecast as of Budget Act 2015

671

600

+71

Comprising

LBTT

538

   

SLfT

133

   

Outturn

633

665

-32

Comprising

LBTT

484

534

-50

SLfT

149

131

+18

Outturn against forecast

-38

+65

-103

The net Budget impact of the two devolved taxes at the Budget Act 2016 was +£71 million. On outturn, the net Budget position was -£32 million for the two taxes – a deterioration of £103 million compared to the forecast position.

The Scottish Government managed the £103 million deterioration over two years. The £38 million shortfall of revenues arose within 2016-17, as the Scottish Government receives fully devolved receipts during the financial year. As a result, this was managed within the year as part of the overall budget management strategy through a combination of offsetting underspends carried forward from previous years and in-year emerging underspends.

The £65 million increase in the Block Grant Adjustment was applied at the UK Autumn Budget 2017 after HMRC outturn data was published. This BGA was therefore dealt with separately as part of the management of the 2017-18 Budget. Given that forecasts at both Autumn Statement 2016 and Spring Budget 2017 that the BGA would be higher than £600 million, the Scottish Government foresaw a negative reconciliation and anticipated this in its budget management strategy.

The deterioration of the 2016-17 Budget position was therefore carefully managed within our established in-year budget management processes over more than one year without recourse to the Scotland Reserve, resource borrowing or any in-year cuts to portfolio budgets.


Contact

Finance.Co-ordination@gov.scot