The Fiscal Framework - from 1999 to today
Timeline of Change
- Scottish parliament can increase or reduce income tax by 3p in the pound
- Scottish parliament has powers over non-domestic rates
- Land and buildings transaction tax and landfill tax fully devolved to Scottish parliament
- Scottish parliament gains partial powers to set the Scottish rate of income tax and also gains an increase in borrowing powers
- Scottish parliament gains further powers to set income tax rates and bands
- Two new bands are added to the Scottish income tax system to improve fairness, protect lower earning taxpayers and raise more funding for public services
2021 and Future Years
- Assignment of vat receipts replacement for air passenger duty aggregates levy review of the fiscal framework
The fiscal framework is an agreement from 2016 between the uk and Scottish governments that sets the rules for how Scotland's tax and social security powers are managed and implemented.
The Smith Commission - on whose conclusions the Fiscal Framework is based - envisaged a fundamental change in how the Scottish Government would be funded. It foresaw a substantial proportion of the Government's Budget coming directly from tax revenues raised in Scotland and greater borrowing powers.
The main objective of the Fiscal Framework is to support the transfer of tax and social security powers to Scotland while, to a significant extent, retaining the stability of Block Grant funding. It also increases the Scottish Government's borrowing powers.
The guiding principle of the Framework is 'no detriment'. This means neither the Scottish nor the UK Government being worse off as result of the powers transferring.
How the Scottish Budget is Calculated
Barnett formula determined block grant
Deduction to reflect UKG revenues foregone (BGA)
Addition to reflect UKG social security expenditure no longer incurred (BGA)
Revenues raised from devolved tax in Scotland
= Funding for Scottish budget
Component One - Barnett formula determined Block Grant - Barnett continues to determine the initial size of the Block Grant.
Component Two – Adjustment to the Block Grant - The Block Grant is adjusted to reflect the impact of the transfer of tax and social security powers to the Scottish Budget.
Component Three – Devolved Revenues - These are the revenues now retained from devolved tax powers which contribute to Scotland's funding.