Explainers
Glossary
We do our best to use plain English throughout our website and publications, but sometimes we have to use more technical terms. We explain these terms in this glossary. We also provide a separate list of abbreviations used in our publications.
Accounting basis:
Also called basis of accounting; it is the time when a financial transaction is recorded. Cash basis and the accrual basis are the two primary methods of recording transactions in accounting.
Accrual basis:
A method of recording revenues as occurring when the liability arises. The tax receipt is recorded when, for example, a transaction took place or income was earned, rather than when the cash was paid. It is possible that the two events coincide.
Assessor:
An independent public official who determines the rateable value of all properties entered on the valuation roll, along with other functions. Assessors work under an umbrella body called the Scottish Assessors Association.
Assigned Taxes:
Taxes with revenue allocated into the Scottish budget, while control over changing the tax is not devolved to the Scottish Government.
Barnett funding:
Funding for the Scottish Budget, calculated when the UK Government allocates funding in the rest of the UK in devolved areas, for example health.
Baseline:
The scenario for the relevant tax or social security payment where there is assumed to be no policy change. The baseline is used to create the pre-measures forecast.
Behavioural effects:
How individuals or organisations respond to a change in policy, which may increase or reduce the cost base.
Block Grant Adjustment:
Adjustments to the Scottish Budget to reflect the devolution of tax and social security.
Block Grant funding:
Funding for the Scottish Budget, calculated based on UK Government funding. This funding can be split into Barnett funding and non-Barnett funding.
Buoyancy:
Changes in the tax base for non-domestic rates, excluding revaluation appeals. Buoyancy is measured as the annual growth in rateable value corrected for any losses as a result of revaluation appeals. It reflects both the physical growth in the tax base and also administrative effects present in the data such as the resolution of running roll appeals.
Calendar year basis:
Refers to a full year period running from January 1 to December 31.
Capital spending:
Spending on assets that have a durable life of over a year. Examples of capital spending include investing in schools, roads or hospitals.
Caseload:
The number of individuals in receipt of, or expected to receive, payments for a given social security payment.
Cash basis:
A method of recording revenues as occurring when the cash is paid. The tax receipt is recorded when the tax is paid, not when the transaction occurred.
Consequentials:
Changes to Block Grant funding during the year generated by changes to UK Government funding allocations.
Consumer Price Index:
In the UK, it is a statistic produced by the ONS that tracks the price of a basket of goods over time. It informs people of how much the prices of goods and services have risen over a twelve month period. It is one of the key variables that the Bank of England target when setting interest rates.
Cost base:
The population, money or transactions that will be affected by proposed changes to policy.
Deflator:
A measure of the average level of prices. For example, the household consumption deflator measures the average level of prices that households face when making their purchases, the investment deflator is the average level of prices of capital goods and so on. The average is calculated from a representative ‘shopping basket’ of goods and/or services. The basket can change from year to year with people’s consumption and investment patterns.
Devolved social security:
Financial or other assistance to or in respect of an individual where there is an entitlement to a devolved social security payment. This includes the payment devolved under the Scotland Act 2016, the Scottish Welfare Fund and Employability Services.
Devolved taxes:
Taxes for which control has been transferred to a devolved administration such as the Scottish Parliament. The Scotland Act 2012 gave Scottish Ministers new powers to administer some taxes such as the Land and Buildings Transaction Tax (LBTT) and the Scottish Landfill Tax (SLfT).
Disposable income:
Total personal or household income once direct personal taxes are subtracted.
Distribution:
A listing or function showing how often all the possible values (or intervals) of the data occur.
Drawdowns:
Declines in the amount of money in reserve for the Scottish Government to allocate in their budgets.
Economic determinants:
These are factors that capture developments in the Scottish economy that may have a direct effect on our tax and social security forecasts, for example inflation or gross domestic product (GDP).
Economic inactivity:
Individuals who are neither in employment or unemployment. Includes individuals who are studying, sick, looking after family or home, and retired.
Effective Tax Rate:
The average rate at which a transaction, individual or corporation is taxed. Effective tax rates are especially relevant when working with progressive taxes, as different level of expenditure, income or benefit will be taxed at different rates.
Eligibility:
In the context of social security we use eligibility to refer to the number of people, or proportion of a population, who meet the criteria to receive a particular payment.
Employment:
An individual is in employment if they have a job, including those in self-employment. The employment level counts the number of individuals in employment. Individuals with multiple jobs are still only counted as in employment once.
Equilibrium:
Used in our forecasting process to describe a state where variables have returned to long-run trend values and the output gap has closed. We do not strictly define a state of general equilibrium in the economy.
Exempt businesses:
Businesses who supply VAT exempt goods and services. They do not charge VAT but they are liable for the VAT incurred on their purchases relating to these goods and services.
Exempt goods or services:
Goods or services that are not liable for VAT. Businesses that supply exempt goods and services do not charge VAT on them and cannot claim back the VAT paid on related purchases. Exempt supplies include insurance; finance; some supplies from doctors and dentists; and some types of education and training.
Financial year basis:
In our forecasts and documents this is the 12 month period running from April in one year to March in the next. Other companies, institutions and individuals may use different definitions of a financial year.
Fiscal drag:
Many taxes are progressive, with higher tax rates being applied as you move up through the tax base, for example on higher incomes or larger transactions above certain thresholds. Fiscal drag refers to the general increase in revenues over time that comes from the tax base growing relative to tax thresholds and higher tax rates being applied.
Fiscal event:
A time when the Cabinet Secretary for Finance and the Economy presents to Parliament the Scottish Government’s Budget statement or Medium Term Financial Strategy. At a fiscal event, the Cabinet Secretary outlines the state of the Scottish economy and the Government’s proposals for changes to fiscal policy.
Fiscal forecasts:
Forecasts of revenue from taxes and spending on social security.
Fiscal framework:
The 2016 Agreement between the Scottish and UK governments that sets the fiscal rules, funding and borrowing powers available to the Scottish Government.
Forecast:
A considered prediction of an expected outcome. May be based on quantitative modelling and analysis, broader market intelligence and judgement.
Forecast error:
The difference between a forecast and the actual value, for example, the difference between the tax revenues forecast to be raised and the tax revenues actually raised.
Forecast horizon:
The period of time over which a forecast is created. The Commission produces forecasts for the next five financial years.
Forecast sensitivity analysis:
The analysis of changes in forecasting assumptions to understand the effect of a set of independent variables on some dependent variable under certain specific conditions. This differs from scenario analysis, which is used to understand the full range of outcomes in the context of decision-making.
Forestalling:
A particular kind of behavioural effect where individuals shift activity over time in response to a change in policy.
GDP Deflator:
A measure of the average level of prices. For example, the household consumption deflator measures the average level of prices that households face when making their purchases, the investment deflator is the average level of prices of capital goods and so on. The average is calculated from a representative ‘shopping basket’ of goods and/or services. The basket can change from year to year with people’s consumption and investment patterns.
Government services liable for VAT:
A limited number of government activities where central government bodies are unable to recover VAT paid. These include some public administration and defence services; compulsory social security services; education; human health activities; residential care activities; and social work services without accommodation.
Gross Domestic Product:
The total monetary value of all final goods and services produced within the territory of a country over a particular period of time.
Growth:
Generally expressed as a percentage rate, the change in the value of a variable over time. If a variable declines in value over time, this may be referred to as negative growth.
In-year Block Grant Adjustment:
The Block Grant Adjustment which has been updated for new OBR forecasts produced in the Autumn Budget.
In-year forecast:
A forecast for the current financial year. An in-year forecast may use data available for the current year. It is commonly used as a baseline for subsequent forecasts.
In-year reconciliation:
The difference between the BGA used in the budget and the in-year BGA for devolved taxes and social security.
Indicative reconciliation:
An estimate of the size of a reconciliation produced before the final outturn numbers are known.
Inflation:
An increase in the general price level of goods and services. When there is inflation in an economy, the value of money decreases because a given amount will buy fewer goods and services than before.
Labour force:
The number of people who are either employed or are actively looking for work. This is often referred to as economic activity.
Labour force participation rate:
The number of people who are either employed or are actively looking for work as a proportion of the working age population. This is often referred as economic activity.
Long term:
A period where variables have returned to their trends or equilibrium has been achieved. In some cases, the long-term trend levels of a variable may not be achieved within our forecast horizon.
Macroeconomic forecast:
A general term referring to forecasts of a range of aggregate economic variables, for example Gross Domestic Product, inflation or employment.
Marginal tax rate:
The rate of tax paid on each additional pound earned by a taxpayer. In some contexts the marginal rate may take account of reductions in means-tested benefits as well as direct taxes.
Materiality threshold:
Materiality refers to relative significance of fiscal effects of policy changes compared to the overall size of devolved taxes and social security payments. The materiality threshold is a set amount below which the fiscal effect of a policy change is deemed small enough that a policy costing is not required.
Net Block Grant:
The block grant funding given to the Scottish Government after any fiscal framework adjustments.
Net present value:
The value added by a project from comparing the difference between the present value of cash inflows and the present value of cash outflows over a period of time. The present value of an outflow or inflow is calculated by using a discount rate to allow for the idea that, for example, £100 in twelve months’ time is not worth as much as £100 now. This is used in the context of assessing the profitability of a project.
Nominal value:
Refers to economic variables that are not adjusted to control for inflation. This is often referred to as the cash value, and reflects the actual amount of money paid for a good or service.
Non-domestic property:
Properties such as shops, offices, warehouses and factories and any other property not classed as a domestic property. For the purposes of non-domestic rates, the Assessors determine the classification of properties as domestic and non-domestic.
Non-profit institutions serving households:
Non-profit institutions which are not mainly financed and controlled by government and which provide goods or services to households for free or at prices that are not economically significant. Examples include churches and religious societies, sports and other clubs, trade unions and political parties.
Non-residential (commercial) Property:
Any property that is not residential property.
Non-savings non-dividend income tax receipts:
Tax receipts proceeding from employment income, profits from self-employment, pension income and rental profits.
Onshore GDP:
A shorthand for referring to Scotland’s Gross Domestic Product (GDP) excluding the value of oil, gas and other hydrocarbons produced in the Scottish sector of the UK continental shelf as defined in the Scottish Fiscal Commission Act 2016. This is on the same basis as the headline GDP figures published by the Scottish Government.
Output gap:
The difference between measured Gross Domestic Product and our estimates of potential output.
Outturn data:
The actual amount of taxes collected, or the amount of expenditure incurred in a given period, as opposed to was expected or forecast.
Per capita variable:
A variable that is measured per head. This is calculated by dividing the aggregate value of a variable in an area at a specific time, by the total population in that area at that specific time.
Personal Allowance:
The level of income that can be earned by a taxpayer that is not subject to tax.
Policy change:
Any change to aspects of an existing devolved tax or social security policy.
Policy costing:
An estimate of the change in revenue or spending resulting from a change in an existing Scottish Government fiscal policy or introduction of a new policy.
Policy measures:
These are a set of proposed actions introduced to implement a tax or social security spending policy.
Policy recostings:
Re-estimation of the effects of policy changes resulting from availability of new data or better understanding of the implementation of the policy changes.
Post-measures forecast:
Final forecast including costings of policy measures.
Potential Output:
The maximum amount of goods and services the economy can sustainably produce without creating excessive price pressures.
Poundage:
The rate of tax applied to the rateable value of non-domestic property to calculate non-domestic rates liability, before any adjustments for reliefs or the Large Business Supplement are made. In England and Wales the poundage is usually called the multiplier.
Pre-measures forecast:
Estimates of tax revenues and social security spending in a scenario where aspects of existing policy may change without the Scottish Government making explicit changes to the policy. For example inflation may alter policy thresholds, tax rates or social security payment rates.
Productivity:
An amount of output for a given amount of input. In the economic forecasts productivity is defined as Gross Domestic Product (output) divided by total hours worked (input).
Progressive tax:
A tax in which the tax rate increases as the taxable amount increases. For example, a tax system where those with higher income or wealth pay higher effective tax rates or in which property transactions with higher values incur a higher rate of tax.
Projection:
A simple estimate of the future value of a variable, often based on simple methods. May be a starting point or part of the process of creating a forecast.
Rateable value:
The legally-defined valuation of a non-domestic property which is determined by independent Scottish Assessors. It can broadly be thought of as being based on the open market rental value of the property.
Ratepayer:
Anyone who is liable for rates on a non-domestic property. Ratepayers include businesses, public sector, and the third sector.
Real value:
The value of an economic variable that has been adjusted for inflation.
Reconciliation:
Adjustments made to the Scottish Budget to account for changes in tax revenues, social security spending or Block Grant Adjustments.
Reduced rated goods or services:
Goods and services which are liable for VAT at the reduced rate of five per cent. This applies to some goods and services such as domestic heating fuel and children’s car seats.
Residential property:
A building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for use as a dwelling; land that forms part of a garden or grounds of a building suitable for use as a dwelling. This includes any buildings or structures on such land; or an interest in or right over land that exists for the benefit of any of the above.
Resource spending:
Spending on the day-to-day running costs of government programmes and administration.
Revaluation:
The rateable values of non-domestic properties are revalued by Scottish Assessors on a regular basis, with these revaluations typically taking place on a 5-year cycle. The most recent revaluation took effect from April 2017.
Risk:
A state where an outcome is unknown, but it is possible to quantify the probabilities of different outcomes based on either historical evidence or logic. For example, a coin toss.
Running roll appeals:
Appeals lodged by the owner/occupier of non-domestic property when they believe there is justification to have their rateable value changed on the grounds of either error, new interest, or as a result of a material change of circumstances.
Secondary legislation:
Also known as subordinate legislation – made by executive bodies or individuals, for example Ministers, under powers granted to them by primary legislation (Acts). Much of the detail of an Act (for example concerning timing, or implementation of the mechanism for updating) is often left to subordinate legislation.
Short term:
Rather than a fixed period of time, the short-term is where there continues to be a state of disequilibrium or variables are away from their trends. In the context of the Commissions forecasts, the short-term usually refers to approximately the first year of the forecasts.
Slab system:
A tax regime where a single tax rate is paid on the entire taxable amount. For example, the Additional Dwelling Supplement is charged at 3% of the total value of the property.
Slice system:
A tax regime where successive sections of the taxable amount are taxed at increasing rates. For example, income tax or Land and Buildings Transaction Tax.
Standard rate equivalent (SRE) expenditure:
The equivalent amount of expenditure that would be liable for VAT at the standard rate of 20 per cent, inclusive of the amount of VAT. For example, if we have £300 of expenditure before VAT, with £100 at standard rate (20 per cent), £100 at reduced rate (five per cent) and £100 at zero rate, then the VAT inclusive amounts are £120, £105 and £100, respectively, with a total of £25 being VAT. The equivalent amount of expenditure at the standard rate that would be required to raise £25 VAT is £125. Hence, the standard rated equivalent expenditure (inclusive of VAT) is £125 + £25 = £150.
Standard rated goods or services:
Goods and services which are liable for VAT at the standard rate of 20 per cent. This applies to the sale of most goods and services in the UK.
Standard rated share:
Standard rated equivalent expenditure as a proportion of total expenditure (see also standard rated equivalent expenditure).
State aid:
Forms of assistance, including financial assistance from a public body, or publicly-funded body, which has the potential to distort competition and affect trade between member states of the European Union. To meet EU requirements assistance given under several tax reliefs are capped at State aid de minimis (meaning a maximum of €200,000 can be awarded over a rolling three year period).
Static costing:
An estimate of the increase or reduction in revenues or spending after changes to fiscal policy without taking into account potential behavioural effects.
Supplementary costing:
An estimate of the effects of a new policy when Scottish Government introduces legislation to Parliament affecting taxes or social security payments in our remit and which we have not previously costed at a fiscal event.
Take-up rate:
The proportion of people eligible for a social security payment, who apply for and successfully receive the payment. Take-up rates also apply to the proportion of people eligible for a tax relief who apply for and successfully receive the relief.
Tax bracket or band:
The successive sections into which a tax regime is divided.
Tax Motivated Incorporations:
Individuals who work for themselves may be self-employed or have the option to ‘incorporate’ and manage their business as directors of a limited company. For individuals who choose to incorporate, this changes their tax liabilities from NSND income tax to corporation tax and dividends, which may offer a tax advantage. Tax Motivated Incorporation refers to individuals who could have been an employee or self-employed, but incorporate specifically for tax purposes.
Tax rate:
The percentage or ratio at which an individual or business is taxed.
Taxable income elasticity:
The proportional change in taxable income resulting from a proportional change in the ‘net of tax’ income.
Tone date:
The assessment of all rateable value carried out by Scottish Assessors is undertaken with reference to a single date to ensure fairness. For the 2017 revaluation this date was 1 April 2015.
Uncertainty:
A state where an outcome is unknown and, unlike risk, it is not possible to formally quantify the probabilities of different outcomes.
Underspends:
Subject to some restrictions, the Scottish Government is permitted to deposit underspends in the Scotland Reserve for spending in future years.
Unemployment:
The official definition of unemployment, which is used in unemployment statistics, is those individuals who are not currently in employment but are actively looking for work and are available to start work in the next two weeks.
Uprating:
Increasing of social security payments or tax bands to account for inflation, usually by using the Consumer Price Index (CPI).
Valuation roll:
A public document maintained by the Scottish Assessors containing details on the rateable value of all non-domestic property in Scotland except for properties exempt from paying non-domestic rates.
Value Added:
The amount by which the value of a commodity is increased at each stage of its production, exclusive of costs at a specific stage.
Variable:
A set of observations of economic or fiscal factors that may vary in value, for example GDP or tax revenues. Generally used to refer to a set of values being used in a model or forecast, for example, employment is used as a variable in the economic forecasts.
VAT base:
The total amount of expenditure that is liable for VAT.
VAT total theoretical liability:
The theoretical amount of VAT that would be collected from the tax base if there was no fraud, avoidance, or losses due to error or non-compliance. It is calculated by applying the relevant VAT rates to detailed breakdowns of expenditure liable for VAT.
Wage stickiness:
Refers to the resistance of wages to adjust in response to changes in the economy. For example, it may take time for an increase in inflation that increases prices across the economy to be reflected in wages, and wages may not ever fully adjust to the change in inflation.
Zero rated goods or services:
Goods and services which are liable for VAT but the VAT rate is zero per cent. Zero rated items include most food. Businesses that sell zero rated goods and services can generally reclaim VAT on purchases that relate to those sales. This is in contrast to exempt goods and services, where VAT cannot normally be reclaimed on the related purchases.
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