Scottish income tax raises £941m less than expected

Written by Ailean Beaton on 18 July 2019 in News

New figures from HMRC show that the Scottish Government raised almost £1bn less than expected in the first year of newly devolved tax powers

Image credit: HMRC

The Scottish Government raised almost £1bn less than expected in the first year of newly devolved tax powers, new figures from HMRC have revealed.

The figures show that in 2017-18 Scotland raised a total of £10.9bn from devolved income tax - £941m less than forecast by the Scottish Fiscal Commission.

This means the UK Government will have to add an additional £737m to the block grant in order to help cover the shortfall, as per the 2016 Fiscal Framework agreement between the two governments.

This means the UK Government will have to add an additional £737m to the block grant in order to help cover the shortfall, as per the 2016 Fiscal Framework agreement between the two governments.

The remaining £204m gap could now be covered by Scottish Government borrowing or by spending from reserve.

HMRC reported that Scotland’s slower economic growth compared with the rest of the UK hit tax receipts, leading to this shortfall.

In 2017 Finance Secretary Derek Mackay announced two new income tax bands, leading to divergence between Scottish tax rates and the rest of the UK, with higher earners in Scotland paying more in tax.

Chief Secretary to the Treasury Liz Truss said: “The 2016 Scotland Act was a major new act of devolution that helps make the Scottish Parliament one of the most powerful devolved parliaments in the world.

“This helps to realise all the benefits of the Union as it provides Scottish ministers with substantial powers over taxes and spending for Scotland while still being supported by the broad shoulders of the UK.

“But with those new powers, Scottish ministers should take responsibility and focus on the decisions necessary to get Scotland’s economy growing faster to avoid shortfalls in tax receipts.”

Responding to the HMRC figures, Finance secretary Derek Mackay said: “We now know the reconciliation amount that will apply to the coming budget, but the 2018-19 reconciliation will only be confirmed with the outturn figures published next year.

“However, the PAYE receipts data published today shows stronger growth for Scotland than the rest of the UK for 2018-19, which could have a positive impact on the size of next year’s reconciliation.

“Whilst these figures show our reserves and borrowing capacity are sufficient to manage the 2017-18 reconciliation, I will make a decision as part of the budget and spending review process on how to manage any reconciliation in a fiscally responsible way that supports our vital public services.

“However, the volatility the current system places on Scotland’s spending means the Fiscal Framework review must consider the current limits on the use of the reserve and borrowing powers which are clearly not fit for purpose.

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