Scottish Income Tax Forecast Evaluation

The Scottish Fiscal Commission reported today that income tax revenue grew more slowly between 2016-17 and 2018-19 than it forecast when the 2018-19 Scottish Budget was set. At the same time, revenue growth in the rest of the UK was faster than forecast by the OBR. 
Income tax funding in the 2018-19 Scottish Budget was based both on the Commission’s forecasts of Scottish income tax revenue, and the Treasury’s Block Grant Adjustment (BGA), which is based on the OBR’s forecasts of income tax revenue in the rest of the UK.
With the publication of outturn data, final values for 2018-19 Scottish income tax revenues and the income tax BGA are available. Differences in funding between the original forecasts and outturn will be corrected through a funding adjustment called a reconciliation, reducing the Scottish Budget next year by £309 million.
The Commission’s income tax forecast produced in February 2018 was £621 million higher than the amount actually raised. The Commission estimates that £538 million of this forecast error was because no Scottish income tax outturn data were available at the time the forecast was made. After adjusting for the lack of outturn data, the Commission’s forecast error is £83 million or 0.7 percent of income tax revenue. Applying a similar adjustment to the error in the forecast of the Block Grant Adjustment (BGA) means that this accounts for £207 million of the reconciliation. 
1. This report appears as a supporting document to our full assessment of our February 2018 Budget setting forecast. The Commission’s Chair wrote to the Convenor of the Parliament’s Finance and Constitution Committee on 23 September with our initial assessment when the income tax outturn data for 2018-19 was published.
2. Income tax outturn data is normally published by HMRC in July. This year HMRC delayed publication until 23 September because of pressures relating to COVID.
3. We have also published an occasional paper on income tax and the income distribution
4. The Commission’s next set of forecasts are due to be published alongside the Scottish Budget. The date for the Budget has yet to be set by the Scottish Government.