Short term fiscal boost but longer-term challenges

The Scottish Fiscal Commission has today published a report looking back at the accuracy of its forecasts and two reports looking forward to its work on fiscal sustainability.

Forecast evaluation

Scottish income tax revenues for 2020-21 were £417 million lower than forecast when the Scottish Budget was set in February 2020, before COVID-19 was declared a global pandemic, an error of 3.4 per cent. However, income tax revenues in the rest of the UK were also lower than forecast by the OBR, so the net effect will be a positive reconciliation of £50 million, applied to the 2023‑24 Scottish Budget.

When the 2021-22 Budget was set, revenue from Land and Buildings Transaction Tax was forecast at £586 million. With record revenues of £807 million the forecast error was £221 million or 38 per cent. House prices grew faster than expected and the share of residential properties paying the top two tax bands increased. Devolved social security payments in 2021-22 were £136 million or 4 per cent higher than when the Budget was set. Both these outturn figures are included in the final position for the 2021-22 Budget.

Fiscal sustainability

Ahead of its first Fiscal Sustainability Report to be published in March 2023 the Commission has now published projections of the Scottish population up to 2072 and shows how changes in the population could affect future economic growth.

Overall Scotland’s population is projected to fall by nearly 900,000, a drop of 16 per cent, between 2022 and 2072. This more than reverses the 400,000 increase over the last 20 years. In addition, Scotland’s population aged between 16 and 64 accounts for 64 per cent per cent of the population in 2022 but is expected to account for only 56 per cent in 2072.

The Commission’s illustrative projections of future economic growth show that these demographic trends lead to Scottish GDP growing on average 0.5 percentage points slower than UK GDP each year over the next 50 years. Growth in GDP per head is on average 0.2 percentage points slower than the UK.

The Commission’s Chair Professor Graeme Roy said:

“While Scotland is no different from most high-income economies in facing demographic pressures, those facing Scotland are particularly acute.

“Our fiscal sustainability report next year will explore how these will affect the Scottish Budget in the future. Politicians and those delivering public services will need to consider how to respond to these future fiscal pressures.”

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Notes to Editors

1.The demographic projections for Scotland and the UK reported here have been produced by the Scottish Fiscal Commission and in common with the approach adopted by the OBR. They include some recent data updates and are based upon the ONS/NRS principal population projections with an alternative assumption for migration from the EU. The UK population as a whole is projected to fall by 1.3 million, a drop of 2 per cent, between 2022 and 2072. This compares to an increase of 8.8 million from 1997 to 2020. 

2.The Commission’s reports Approach to projecting fiscal sustainability: Consultation and Trends in Scotland’s population and implications for the economy and income tax are now published on its website. 

3.The Commission’s Forecast Evaluation Report is also published on its website. The report evaluates the Commission’s forecasts for 2021-22 for social security, the fully devolved taxes (Land and Buildings Transaction Tax, Scottish Landfill Tax and Non-Domestic Rates) and GDP against available outturn data. The report also evaluates the Commission’s forecasts of income tax revenues in 2020-21, as these data are only available with a one-year time lag. Background information is also available including spreadsheets with data for all the report’s tables and charts. 

4.The Commission’s biennial Statement of Data Needs has also been published. The report sets out the developments and improvements in the availability of data and information since its last Statement in September 2020, and highlights the areas where further improvements in data are required to support production of the Commission’s forecasts. The report focuses on social security, where improvements in data are required to assist forecasting future spending on the new Scottish social security payments. Limited access to data may result in larger forecast errors and have implications on the budget allocation for social security spending. 

5.The Scottish Fiscal Commission is the independent fiscal institution for Scotland, established by the Scottish Fiscal Commission (2016) Act. Our statutory duty is to provide the independent and official forecasts of Scottish GDP, devolved tax revenue and devolved social security spending for the Scottish Government to use in its budget and financial planning. The Commission’s forecasts also assist the Scottish Parliament’s scrutiny of the Budget and Budget Bill. 

6.Our publications represent the collective view of the Scottish Fiscal Commission, comprising the Commissioners: Professor Francis Breedon, Dr Domenico Lombardi, Professor David Ulph, and the Chair, Professor Graeme Roy.

30.8.2022

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