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Scottish Budget: draft budget 2018-2019

Published: 14 Dec 2017
Part of:
Economy, Scottish Budget
ISBN:
9781788514286

Scottish Government's draft spending and tax plans for 2018-2019.

210 page PDF

4.8MB

210 page PDF

4.8MB

Contents
Scottish Budget: draft budget 2018-2019
Chapter 2: Tax

210 page PDF

4.8MB

Chapter 2: Tax

Introduction

This is the second Draft Budget in which Scottish Government spending plans are underpinned by revenue raising powers devolved by the Scotland Act 2016, in addition to taxes already fully devolved. In 2018-19, tax revenues raised in Scotland will fund
40 per cent of Scottish Government expenditure. Following the devolution of Air Passenger Duty, the Aggregates Levy and the assignment of VAT revenues raised in Scotland (over which the Scottish Government has no policy control), this proportion will increase to more than half.

The Fiscal Framework [1] agreed between the UK and Scottish Governments determines how the Scottish Government’s block grant will be adjusted to take account of newly devolved taxes set by the Scottish Government.

For the 2017-18 Budget the Scottish Government was responsible for forecasting Scottish Government tax receipts, with the Scottish Fiscal Commission ( SFC) providing scrutiny and assurance. On 1 April 2017, the SFC became an independent statutory body and is now responsible for producing forecasts of revenue from fully devolved taxes and non-savings non-dividend ( NSND) income tax. The SFC’s report ‘Scotland’s Economic and Fiscal Forecasts December 2017’ accompanies this publication. [2] All forecast tax revenues in this chapter, which underpin the Scottish Budget, are produced by the SFC.

Council Tax, which is a local tax set and collected by councils and for which the receipts are excluded from the Scottish Government’s fiscal budgets, is not considered in this chapter.

Scottish Income Tax

The Scotland Act 2016 confers on the Scottish Parliament the power to set all income tax rates and the thresholds of bands (above the Personal Allowance) that apply to the NSND income of Scottish taxpayers. The Scottish Government will receive all the revenue raised from NSND income tax in Scotland as a consequence of rates and bands set by the Scottish Parliament.

Income tax remains a partially devolved tax. The responsibility for defining the income tax base, including the setting or changing of income tax reliefs and exemptions (including the Personal Allowance), continues to rest with the UK Government. Moreover, income tax on savings and dividends continues to be paid to the UK Government, at the rates and bands it sets.

HMRC is responsible for the collection and management of Scottish income tax. The Scotland Act 2012 defines a Scottish taxpayer as someone who is a UK taxpayer and has their main place of residence in Scotland. HMRC will continue to take actions to maintain and improve the accuracy of its Scottish taxpayer database. A Service Level Agreement exists between the Scottish Government and HMRC to ensure that Scottish taxpayers and the employers of Scottish taxpayers continue to be treated in the same way as income taxpayers in the rest of the UK.

Setting Income Tax Policy

On 2 November 2017 the Scottish Government published a discussion paper on income tax, ‘The role of Income Tax in Scotland’s Budget’. [3] This informed debate ahead of the publication of the Draft Budget, including roundtables led by the Cabinet Secretary for Finance and the Constitution. Following that discussion, the Scottish Government proposes the following rates and bands for 2018-19 (Table 2.01):

Table 2.01: Scottish Income Tax Rates and Bands for NSND income

Scottish Bands Band name Scottish Rates (%)
Over £11,850* – £13,850 Starter 19
Over £13,850 – £24,000 Basic 20
Over £24,000 – £44,273 Intermediate 21
Over £44,273 – £150,000** Higher 41
Above £150,000** Top 46

*Assumes individuals are in receipt of the Standard UK Personal Allowance.
**Those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

The Scottish Government has been clear that it believes that those on the lowest incomes should not bear the burden of austerity. We therefore propose introducing a 19 per cent Starter Rate of tax on earnings over £11,850 (the Personal Allowance) and up to £13,850, and maintaining a Basic Rate of 20 per cent on earnings over £13,850 and up to £24,000 [4] (median earnings).

To deliver on a firm commitment to increasing progressivity, and to aid investment in vital public services, we propose adding an Intermediate Rate of 21 per cent on earnings over £24,000 and up to £44,273, and increasing the Higher Rate to 41 per cent on income over £44,273 and up to £150,000. We also propose the increasing the Top Rate to 46 per cent on incomes above £150,000.

For an unchanged income, as a result of these changes, the majority of people will pay less tax next year than they do this year. And when combined with the increase in the Personal Allowance next year, these proposals mean that nobody earning less than £33,000 will pay more income tax in 2018-19 than they do this year.

The Scottish Government has carefully considered the impact of increasing the Top Rate of income tax. We have published a detailed analysis of the implications of doing so, informed by technical advice from the Council of Economic Advisers. [5] This analysis demonstrates that increases to the Top Rate, which result in a substantial divergence from the equivalent rate in the rest of the UK, would carry revenue and policy risks. The analysis concludes that increasing the Top Rate of tax to 50 per cent is unlikely to raise any substantial funds for the Scottish budget, and may in fact reduce revenues, but that these risks could be alleviated if the Top Rate were increased by less than 5p.

After careful consideration, we are therefore proposing that the Top Rate of income tax, (currently named the Additional Rate) on earnings over £150,000, should be increased to 46 per cent. We believe that such a reform strikes the correct balance between making our tax system more progressive, raising revenues and ensuring that our tax changes do not damage our economic competitiveness.

Policy Tests

The discussion paper set out four policy tests that we believe any income tax policy change must meet if it is to successfully support our economy and the delivery of, and investment in, our public services. The four tests are:

  • revenue test – income tax policy should maintain and promote the level of public services which people in Scotland expect;
  • protecting lower earners test – the lowest earning taxpayers should not see their taxes increase;
  • progressivity test – any tax changes should make the tax system more progressive and reduce inequality; and
  • economic growth test – the changes we make, along with our decisions on spending, should support our economy.

The policy outlined above meets these tests in the following ways:

Revenue test – the policy is expected to raise an additional £164 million for public services for Scotland in 2018-19. Rate-setting decisions have been taken to ensure a balance where any behavioural impacts are forecast to be minimised.

Protecting lower earners test – overall, when combined with the planned increase in the Personal Allowance, for an unchanged income, 70 per cent of Scottish tax payers (those earning up to £33,000) will not pay anymore tax in 2018-19 than they do in 2017-18.

Progressivity test – the policy improves the progressivity of the tax system by increasing the number of bands, lowering the rate on income up to £13,850, and asking the highest earning 30 per cent of taxpayers to contribute more for an unchanged income than they do this year. Under our proposal the Gini coefficient in Scotland is estimated to fall.

Economic growth test – the proposal will increase income tax revenues by around 1.4 per cent and the Budget sets out a range of expenditure decisions that will support inclusive growth. As outlined in the income tax discussion paper, any economic impacts from a tax rise on this scale are likely to be relatively small. Moreover, because lower earners (who spend a higher proportion of their income) are protected, the risk of an immediate impact on consumer spending will be reduced. Increasing the Top Rate by 1p, rather than the 5p proposed under some of the alternative approaches assessed in the discussion paper, also reduces the risk that high earners would change their behaviour in ways that impact on the economy.

Scottish Rate Resolution

The Scottish Government will introduce a Scottish Rate Resolution to set the rates and bands for Scottish income tax for the 2018-19 tax year. A draft of this motion and an accompanying explanatory note will be published on the Scottish Government’s website.

Forecasts

The SFC forecasts for Scottish Income Tax receipts in 2018-19 determine the revenue that the Scottish Government will be able to draw down from HM Treasury. Forecasts for income tax receipts are set out in Table 2.02 below.

Table 2.02: Scottish Income Tax Receipts Forecasts (£ million)

£ million 2018-19 2019-20 2020-21 2021-22 2022-23
NSND Income Tax 12,115 12,582 13,084 13,662 14,296

The SFC also forecasts the amount of revenue that the Scottish Government’s income tax policy will raise compared to no change in policy. Table 2.03 below shows the SFC’s estimate that the policy we present here will raise an additional £164 million in 2018-19.

Table 2.03: Scottish Government Income Tax Policy Revenue Forecasts (£ million)

£ million 2018-19 2019-20 2020-21 2021-22 2022-23
Policy forecast 163.9 169.9 178.4 187.8 198.6

As noted in the SFC’s report, the forecasts for the years beyond 2018-19 are estimated on the assumption of an inflationary uplift to all thresholds bar the Top Rate, and no further changes to tax rates for the remainder of the forecast period.

Land And Buildings Transaction Tax

Land and Buildings Transaction Tax ( LBTT) replaced UK Stamp Duty Land Tax ( SDLT) in Scotland from 1 April 2015. LBTT is a tax applied to residential and commercial land and buildings transactions (including commercial leases) where a chargeable interest is acquired. The Additional Dwelling Supplement ( ADS) was introduced from 1 April 2016 and is payable on purchases of additional residential properties.

Policy

The Scottish Government’s policy priority for residential LBTT remains to help first-time buyers enter the property market, and to assist people as they progress through the property market.

Since the introduction of LBTT, we have:

  • taken over 25,000 house purchases out of tax compared to SDLT;
  • reduced the tax paid under LBTT relative to SDLT for a further 110,000 house purchases; and
  • ensured that 93 per cent of taxpayers were better off under LBTT by paying either less tax or no tax at all.

The Scottish Government has recently introduced the Land and Buildings Transaction Tax (Relief from Additional Amount) (Scotland) Bill to the Scottish Parliament. The Bill gives retrospective effect to the amendments made by the Land and Buildings Transaction Tax (Additional Amount-Second Homes Main Residence Relief) (Scotland) Order 2017. It will allow for a repayment of the LBTT ADS to be claimed where a couple jointly buy a home to replace a home in which they both lived, but where only one name was listed on the title deeds.

Our approach to non-residential transactions ensures that smaller businesses pay the lowest or zero rates of LBTT. Our non-residential tax rates ensure that Scotland is a competitive and attractive location for business.

Rates and Bands

In 2018-19 we propose to maintain residential and non-residential rates and bands of LBTT at their current (2017-18) levels, as summarised in Table 2.04 below.

Table 2.04: LBTT Rates and Bands for Residential and Non-residential Property Transactions

Residential transactions Non-residential transactions Non-residential leases
Purchase price
LBTT Rate Purchase price LBTT Rate Net present value of rent payable LBTT Rate
Up to £145,000 0% Up to £150,000 0% Up to £150,000 0%
£145,001 to £250,000 2% £150,001 to £350,000 3% Over £150,000 1%
£250,001 to £325,000 5% Over £350,000 4.5%
£325,001 to £750,000 10%
Over £750,000 12%

The ADS is 3 per cent of the total price of the property for all relevant transactions above £40,000, and will be charged in addition to the rates set out in Table 2.04.

LBTT First-Time Buyer Relief

In this budget, the Scottish Government will introduce a new LBTT relief for first-time buyers of properties up to £175,000. Alongside measures to increase housing supply, this will provide further support to first-time buyers in Scotland, helping them get on to the property ladder.

The relief raises the zero tax threshold for first-time buyers from £145,000 to £175,000, so 80 per cent of first-time buyers in Scotland will pay no LBTT at all. Those first-time buyers buying a property above £175,000 will also benefit from the relief on the portion of the price below the threshold, which means all first-time buyers will benefit from the relief by up to £600.

The Scottish Government will launch a consultation on the policy before introducing the first-time buyer relief in 2018-19.

Forecasts

Forecast tax revenues for residential and non-residential LBTT for the five-year period 2018-19 to 2022-23 post-policy measures are set out in Table 2.05 below.

Table 2.05: LBTT Revenue Forecasts 2018-19 to 2022-23 (£ million)

2018-19 2019-20 2020-21 2021-22 2022-23
Land and Buildings Transaction Tax 588 628 668 707 748
of which:
Residential transactions (excl. ADS) 305 336 366 395 426
Additional Dwelling Supplement ( ADS) 93 98 102 106 110
Non-residential transactions 190 194 200 206 212

In making its LBTT forecasts, the SFC estimates the amount of revenue that the Scottish Government’s first-time buyer relief policy will forego compared to no change in policy. Table 2.06 shows the SFC’s estimate that the policy presented above will lead to £5 million in revenue foregone in 2018-19.

Table 2.06: LBTT Policy Revenue Foregone Forecasts (£ million)

2018-19 2019-20 2020-21 2021-22 2022-23
Policy forecast (5) (6) (7) (7) (7)

Scottish Landfill Tax

Scottish Landfill Tax ( SLfT) was introduced on 1 April 2015, replacing UK Landfill Tax. It is a tax on the disposal of waste to landfill, charged by weight on the basis of two rates: a Standard Rate, and a Lower Rate for less-polluting materials.

Policy

SLfT rates continue to provide financial incentives to support a more circular economy, and the delivery of our ambitious targets to reduce waste, increase recycling and cut waste going to landfill.

Landfill operators are able to voluntarily contribute a capped proportion of their landfill tax liability to the Scottish Landfill Communities Fund, and claim 90 per cent of the contribution as a tax credit. In order to claim a credit, the funds must be used for one or more of the objectives set out for the Communities Fund.

Rates

We propose to increase the Standard Rate of SLfT to £88.95 per tonne and the Lower Rate of SLfT to £2.80 per tonne in 2018-19, in line with RPI inflation and Landfill Tax charges in the rest of the UK. This helps to provide a stable tax environment for industry to invest in alternative waste treatment options, whilst addressing concerns over potential ‘waste tourism’ should one part of the UK have a lower tax charge than another.

We also propose that the credit rate for the Scottish Landfill Communities Fund for 2018-19 will remain at a maximum of 5.6 per cent of an operator’s tax liability. This will ensure that that landfill site operators can continue to contribute to community and environmental projects near landfill sites to a greater degree than their UK counterparts, without any increase in the overall tax burden.

Forecasts

Forecast tax revenues for SLfT in the period 2018-19 to 2022-23 are set out in Table 2.07 below.

Table 2.07: SLfT Revenue Forecasts 2018-19 to 2022-23 (£ million), adjusted for payments to the Scottish Landfill Communities Fund

2018-19 2019-20 2020-21 2021-22 2022-23
Scottish Landfill Tax 106 88 90 82 82

Non-Domestic Rates

Policy

Non-Domestic Rates ( NDR), or Business Rates, are a property tax collected by councils to fund the local services received by the property.

The Cabinet Secretary for Finance and the Constitution responded to the Barclay Review of Non-Domestic Rates in September 2017, [6] and confirmed the new policies to be introduced in 2018-19 include:

  • a Business Growth Accelerator, which will ensure that any rates bill rises due to improvements to or the expansion of existing properties will not take effect until 12 months after those changes are made to the property;
  • a new relief for day nurseries to support the increased provision of increased childcare;
  • an expansion of Fresh Start Relief to include all property types, not limited to only listed property types as recommended by Barclay; halving the period the property has to be empty to qualify from 12 months to six; and doubling the level of relief from 50 per cent to 100 per cent for the first year of new occupation; and
  • a move to three-yearly revaluations from 2022 with valuations based on market conditions on a date one year prior.

Some of the above measures will be awarded under the EU State Aid de minimis regulation.

Following engagement with stakeholders the Scottish Government has accepted the remaining Barclay Review recommendations, with the exception of the recommendation to curtail charity relief entitlement for universities. This acceptance includes the removal of charity relief eligibility for independent schools from 2020-21, excluding special schools. The Cabinet Secretary for Finance and the Constitution has already confirmed we will not implement the recommendation on the removal of charities relief for existing council Arm’s Length External Organisations.

More details on how we will deliver the package of reforms following the Barclay Review are being published today in ‘Non-domestic rates: Implementation plan in response to the Barclay Review’.

In addition to the Barclay reforms, the Scottish Government will:

  • use the September 2017 rate for CPI (3 per cent) rather than for RPI (3.9 per cent), to calculate the annual inflationary uplift in the Business Rates poundage for 2018-19;
  • continue the transitional cap for Aberdeen City and Shire offices and all but the very largest hospitality properties. This means that 2018-19 bills will rise by no more than 12.5 per cent in real terms (15.88 per cent in cash terms) for eligible properties;
  • introduce a new 60 per cent relief for hydro generation properties; and
  • delay the entry of new build properties onto the valuation roll, ensuring that no rates are paid until they are occupied. Thereafter the tenant will qualify for the Growth Accelerator for 12 months.

Further details on Non-Domestic Rates and the package of reliefs worth a record £720 million, including the Small Business Bonus Scheme, are provided in Chapter 10.

Rates

The amount of tax paid is the rateable value of the property multiplied by the poundage rate, minus any relief to which the property is entitled.

Independent Assessors set the rateable value, which is broadly the amount of annual rent the property would attract on the open market.

The main tax rate is the poundage, which is a pence in the pound tax rate set by Scottish Ministers. A small supplementary tax rate is levied on property with a rateable value over £51,000.

Tax rates for 2018-19 will be as set out in Table 2.08 below.

Table 2.08: NDR tax rates

Poundage 48.0p
Large Business Supplement 2.6p

The Scottish Government offers a range of reliefs, worth an estimated £720 million in 2018-19. Councils make a small additional contribution towards the cost of certain reliefs and may also operate their own local reliefs.

Forecasts

Forecast tax revenues for NDR in the period 2018-19 to 2022-23 are set out in Table 2.09 below.

Table 2.09: NDR Revenue Forecasts 2018-19 to 2022-23 (£ million)

2018-19 2019-20 2020-21 2021-22 2022-23
Non-Domestic Rates 2,812 2,867 2,939 3,117 3,331

Table 2.10 shows the SFC’s estimate of revenue changes following from the policy changes presented above.

Table 2.10: NDR Policy Revenue Foregone Forecasts (£ million)

£ million 2018-19 2019-20 2020-21 2021-22 2022-23
Pre-measures forecast 2,913 2,954 3,028 3,208 3,424
Business Growth Accelerator (48) (49) (50) (51) (52)
100% relief for Day Nurseries (6) (6) (6) (6) (6)
60% relief for Hydro Schemes (6) (6) (6) (6) (6)
Continuation of transitional relief (15) - - - -
Expansion of Fresh Start Relief (2) (2) (2) (2) (2)
Delaying entry onto the roll (new build) (1) (1) (1) (2) (2)
CPI to uprate poundage in 2018-19 (24) (23) (23) (24) (25)
Post-measures forecast 2,812 2,867 2,939 3,117 3,331
Difference (101) (87) (88) (91) (93)

Air Departure Tax

Following the commencement of section 17 of the Scotland Act 2016 on 23 May 2016, the Scottish Parliament passed the Air Departure Tax (Scotland) Act 2017 on 20 June 2017.

As set out in the UK Autumn Budget 2017, the introduction of Air Departure Tax ( ADT) in Scotland will be deferred until the issues raised in relation to the exemption for flights departing from the Highlands and Islands have been resolved, to ensure that devolved powers are not compromised. The Scottish Government and UK Government will work closely in order to achieve this as early as possible. The UK Government will maintain the application of Air Passenger Duty in Scotland in the interim.

We remain committed to delivering a 50 per cent reduction in the overall tax burden of ADT by the end of this Parliament. This is intended to deliver sustainable growth for the Scottish economy by helping to generate new direct air routes, sustain existing routes and increase inbound tourism.

Aggregates Levy

Aggregates Levy is a tax paid on the commercial exploitation of aggregates, i.e. sand, gravel and rock. The Scotland Act 2016 gives the Scottish Parliament the power to legislate for a tax to replace the Aggregates Levy in Scotland. However, there are ongoing legal issues in relation to the UK tax, which need to be resolved before the power can be commenced.

The ability to set the rate of Aggregates Levy will provide opportunities to better integrate waste and other environmental policies within Scotland. The Scottish Government will work with the UK Government and stakeholders, and conduct research in anticipation of the levy’s eventual devolution.

Value Added Tax Assignment

The Scotland Act 2016 provided for the first 10 pence of the Standard Rate of Value Added Tax ( VAT), and the first 2.5 pence of the Reduced Rate, to be assigned to the Scottish Government. The assignment of VAT will be based on a methodology that will estimate expenditure in Scotland on goods and services that are liable for VAT. The details of this methodology are currently being agreed with HMRC.

The Fiscal Framework set out that VAT assignment will be implemented in 2019-20. There will be a one-year transitional period during which VAT assignment will be forecast and calculated, but with no impact on the Scottish Government’s budget. From 2020-21 the Scottish Government’s budget will in part be determined by forecast and final estimated VAT receipts in Scotland.

Tax Block Grant Adjustments

Changes in the Scottish Government’s block grant will continue to be determined via the operation of the Barnett Formula. However, an adjustment to the block grant needs to be made to reflect that some of the budget is now funded by Scottish tax revenues that were previously retained by the UK Government.

As agreed in the Fiscal Framework, the adjustments involve two elements: (i) an initial block grant baseline adjustment; and (ii) an indexation mechanism.

Initial Baseline Adjustments

The initial baseline adjustments are equal to the UK Government’s tax receipts generated in Scotland in the year immediately prior to devolution of the powers. Baseline deductions for LBTT and SLfT are already based on outturn figures. For income tax, the baseline deduction will be based on forecasts until outturn data are available. As part of the 2017-18 Scottish Government Budget, the Office for Budget Responsibility ( OBR) was responsible for forecasts to inform both the initial baseline deduction and annual indexation. However, for the 2018-19 Scottish Government Budget, the Scottish Government and HM Treasury have agreed to use the SFC’s 2016-17 forecast – rather than that provided by the OBR – for the baseline adjustment that informs the 2018-19 block grant adjustment. This is as a consequence of different methodological approaches taken by the SFC and the OBR which, without this change in approach, would have meant that the 2016-17 baseline adjustment was not fiscally neutral as anticipated in the Fiscal Framework.

This is set out in Table 2.11 below:

Table 2.11: Initial Baseline Adjustments (£ million)

Tax Initial Baseline Deduction Notes
NSND income tax 11,214 This is based on SFC forecasts of total NSND income tax receipts in Scotland under UKG income tax policy in 2016-17. [6] Initially this will be forecast and then reconciled against outturn data once this is available.
LBTT 468 This is based on HMRC statistics of revenues in Scotland in 2014-15. [7] There is a reduction of £20 million to account for the forestalling effects associated with residential SDLT receipts in 2014-15.
SLfT 149 This is based on an average of the GERS [8] and HMRC methodologies for apportioning UK Landfill Tax revenues to Scotland, and applied to UK receipts in 2014-15.

Indexation mechanism

An indexation mechanism is applied to each initial baseline adjustment.

Over the period to 2021-22 the block grant adjustments ( BGA) for tax are indexed using the Comparable Model ( CM) and the results adjusted to achieve the outcome delivered by Indexed Per Capita ( IPC). The methodology for calculating the BGAs is set out in the technical annex to the Fiscal Framework. [9]

Table 2.12 below sets out up to 2021-22:

  • the BGAs, or forecast BGAs, for each tax using CM and IPC mechanisms;
  • the SFC forecasts of revenues from each tax; and
  • the net impact on the Scottish budget (differences between the SFC forecasts of revenue and IPC block grant adjustments).

Table 2.12: Block Grant Adjustments (£ million)

Block Grant Adjustments 2016-17 2017-18* 2018-19 2019-20 2020-21 2021-22
NSND income tax Block grant adjustment ( IPC) n/a 11,523 11,749 12,056 12,477 12,936
Block grant adjustment ( CM) n/a 11,552 11,807 12,144 12,596 13,087
SFC forecast n/a 11,584 12,115 12,582 13,084 13,662
Net impact against IPC n/a 61 366 526 607 726
LBTT Block grant adjustment ( IPC) 534 591 600 622 650 682
Block grant adjustment ( CM) 537 595 606 630 659 693
SFC forecast 483 557 588 628 668 707
Net impact against IPC (51) (34) (12) 6 18 25
SLfT Block grant adjustment ( IPC) 131 104 94 86 79 75
Block grant adjustment ( CM) 131 105 96 88 81 78
SFC forecast 148 137 106 88 90 82
Net impact against IPC 17 33 12 2 11 7
Total Tax** Block grant adjustment ( IPC) 665 12,218 12,443 12,764 13,206 13,693
Block grant adjustment ( CM) 668 12,252 12,509 12,862 13,336 13,858
SFC forecast 631 12,278 12,809 13,298 13,842 14,451
Net impact against IPC (34) 60 366 534 636 758

*Figures for 2017-18 are based on the latest forecasts from the SFC and OBR to inform the BGAs, and from the SFC for the forecasts. For the BGA and forecasts for 2017-18 used at the time of the 2017-18 Budget Bill, please refer to Table 1.01.
**This total does not include the non-tax BGAs (fines, forfeitures, fixed penalties, and proceeds of crime). For the total BGA including tax and non-tax elements, please refer to Table 1.01.

There are a number of elements that explain net gains or losses for the Scottish Budget of Scottish tax revenues against the BGAs, including different tax policies set by the Scottish and UK Governments, different economic conditions, and different forecast methodologies used by the SFC and the Office for Budget Responsibility.

In-Year Updates

The BGAs for LBTT and SLfT are updated during the financial year, to reflect the latest forecasts of corresponding tax receipts in the rest of the UK. The combined BGAs for LBTT and SLfT for 2017-18 have increased from £664 million to £695 million. This update will apply to the Scottish Government’s 2017-18 budget.

Reconciliation

The forecasts for both Scottish tax revenues and the BGA are based on the latest available information at the time of the Draft Budget. Once the outturn data are available for the Scottish tax revenues and the BGA, a reconciliation will be carried out, as per the timetable set out in the Fiscal Framework. For Scottish income tax, outturn data are likely to be available 15 months after the end of the financial year, and for LBTT and SLfT data are available six months after the end of the financial year.

The combined BGAs for LBTT and SLfT for 2016-17 have increased from £600 million to £665 million, following the publication of outturn data for corresponding RUK receipts. This update will apply to the Scottish Government’s 2017-18 budget.


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