The Scottish Fiscal Commission has today published its evaluation of the accuracy of its forecasts which are used to set the Scottish Budget. Devolved taxes and social security benefits make up a higher proportion of the Scottish Budget than ever before, so the accuracy of those forecasts matters.
The Commission’s annual Forecast Evaluation Report shows that its forecasts of new benefits and taxes devolved to Scotland became more accurate as more and better data sources became available.
Last July, HMRC published Scottish outturn income tax data for the first time. Compared against these data the Commission reported a forecast error in its May 2018 income tax forecast for 2016-17 of around £550 million or 5.1 percent. By using this new data source in our latest forecast the Commission’s forecast error for 2017-18 has reduced to around £90 million or 0.8 percent.
The Commission’s social security forecasts for last year demonstrate a different challenge in forecasting new benefits. Almost all of the £113 million overestimate of spending on Carer’s Allowance sprang from the actual start date being later than anticipated.
In another instance, the Commission underestimated spending on the new Pregnancy and Baby Grant by £2.5 million or 59 percent because of an unanticipated surge of initial applications. The first data on claims for this grant, combined with a better appreciation of the Scottish Government’s approach to launching new benefits, led the Commission to increase its forecasts of spending in May.
The Commission’s forecasts have a real impact on the Scottish budget. Commission chair Dame Susan Rice explained:
“More accurate forecasts reduce uncertainty in the budget and help the Scottish Government to plan its finances.
“Because having good data is so vital to producing good forecasts, the Scottish Fiscal Commission works closely with every organisation that prepares Scottish economic, tax and benefit statistics.”
Today the Commission also publishes its annual statement of data needs, reporting on the developments made in the last year, and setting out its requests for additional data. These will further improve the accuracy on which the Scottish Budget is based.
The forecast evaluation report also analyses the reasons for the £204 million negative income tax reconciliation in next year’s Scottish Budget. The Commission explains that this is because Scottish earnings grew more slowly than originally forecast, and the rest of UK earnings grew faster than the Office of Budget Responsibility had forecast for 2017-18.
Note to Editors:
1. The Commission’s Forecast Evaluation Report 2018-19 is now published on its website. Background information is also available including spreadsheets with data for all the report’s tables and charts.
3. The Scottish Fiscal Commission is the independent fiscal institution for Scotland, established by the Scottish Fiscal Commission (2016) Act. The Commission’s statutory duty is to provide the independent and official forecasts of Scottish GDP, devolved tax receipts and devolved social security expenditure for the Scottish Government to use in its budget and financial planning. The forecasts will also assist Parliament’s scrutiny of the Scottish Budget and Budget Bill.
4. The Commission’s analysis represents the collective view of the Scottish Fiscal Commission, comprising the Commissioners: Professor Francis Breedon, Professor Alasdair Smith, Professor David Ulph, and the Chair, Dame Susan Rice