29 August 2023
The Scottish Fiscal Commission has today published an evaluation of its December 2021 economy, devolved taxes and social security forecasts used to set the 2022-23 Scottish Budget. Since Scottish income tax outturn data is published later, the report evaluates the income tax forecast used in setting the earlier 2021-22 Scottish Budget.
The Forecast Evaluation Report assesses the accuracy of the Commission’s forecasts and highlights the reasons for any variation between forecast and outturn.
The December 2021 economy, devolved taxes and social security forecasts were published at a time of ongoing uncertainty due to the COVID-19 pandemic, though with rising numbers of eligible adults having received their booster or third vaccination doses. In common with other economic forecasts made at that time the Commission did not anticipate the Russian invasion of Ukraine, the subsequent energy price shock in early 2022 and the energy price cap. Despite these significant events, the Commission’s forecasts of economic growth proved reasonably accurate with Scottish GDP growing by 2.0 per cent in 2022-23, compared to a forecast of 2.2 per cent, a forecast error of minus 0.2 percentage points.
Land and Building Transaction Tax revenue of £848 million was £99 million higher than forecast in 2022-23, an error of 13 per cent. Residential properties saw faster price growth and there were a larger number of high value transactions than was forecast. Spending on devolved social security payments in 2022-23 was £4,193 million, £127 million or 3 percent higher than forecast when the Budget was set. This was a result of higher spending on disability payments and the Scottish Government announcing policies after the Budget.
The report also evaluates the Scottish income tax forecast the Commission made in January 2021 and which was used in setting the 2021-22 Scottish Budget. This was at a much earlier point during the pandemic: the furlough scheme was in operation; a national Scottish lockdown was in place; and COVID-19 vaccines were just starting to be rolled out.
Scottish income tax revenues were £1,461 million or 12 percent higher than forecast for the 2021-22 Scottish Budget. This difference was primarily because the economic recovery from the COVID-19 pandemic in 2021-22 was stronger than expected and higher inflation led to faster nominal earnings growth. Income tax revenues in the rest of the UK were also higher than forecast by the OBR, with the net effect being for a negative reconciliation of £390 million to be applied in the 2024-25 Scottish Budget.
ENDS
Notes for Editors
1.The Commission’s Forecast Evaluation Report is published elsewhere on our website. The report evaluates the Commission’s forecasts for 2022-23 for GDP, fully devolved taxes (Non-Domestic Rates, Land and Buildings Transaction Tax and Scottish Landfill Tax ) and social security against available outturn data. The report also evaluates the Commission’s forecasts of income tax revenues in 2021-22, as this data is only available with a one-year time lag.
2.Background information is also available including spreadsheets with data for all the report’s tables and charts. Annex A of the report discusses the effect of higher earners on income tax revenues and forecasts, particularly those that pay tax through Self-Assessment. Annex B of the report provides an update on the breakdown of the factors contributing to the income tax net position in Scotland.
3.The Commission has also published a paper exploring how changes to productivity growth would affect the projections made in its March 2023 Fiscal Sustainability Report. The paper responds to a request from the Scottish Parliament’s Finance and Public Administration Committee.
4,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.
5.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.