Legislation and background
The Scotland Act 2012
The Scotland Act 2012 gave new powers to the Scottish Parliament relating to taxation and borrowing. The Command Paper: Strengthening Scotland’s Future – published alongside the Scotland Bill in 2010 – set out our role in providing forecasts of Scottish income tax, landfill tax, stamp duty land tax (SDLT) and aggregates levy receipts.
In April 2015, SDLT and landfill tax were fully devolved to the Scottish Parliament, which replaced them with the land and buildings transaction tax (LBTT) and the Scottish landfill tax (SLfT). April 2016 saw the introduction of the Scottish rate of income tax (SRIT). This replaced a 10p reduction from each rate of UK income tax, with rates set annually by the Scottish Parliament. The UK Government has legislated to devolve the aggregates levy to the Scottish Parliament, to come into effect after resolution of legal challenges affecting the levy.
The Scotland Act 2016
The Scotland Act 2016 implemented the recommendations of the 2014 Smith Commission. These included the devolution of:
- more flexible powers over non-savings non-dividend income tax than those in the 2012 Act, with effect from April 2017. The Scottish Parliament set rates and thresholds for this for the first time in February 2017 (see Chapter 2);
- air passenger duty, this was due to be devolved in April 2018 and replaced with an ‘air departure tax’ but the precise timing of devolution is now on hold;
- the assignment of a share of UK VAT receipts to begin in 2019-20;
- aggregates levy, although the timing remains uncertain and subject to the conclusion of ongoing legal challenges; and
- some social security benefits, again the timing of devolution is uncertain and we current only forecast the carer’s allowance at a devolved level.
The Act gave the Scottish Government increased borrowing powers. It also set out the OBR’s right to information from the Scottish authorities in order to carry out our statutory duties.
Scottish Government fiscal framework
In February 2016 the Scottish and UK Governments agreed the Scottish Government’s fiscal framework. This establishes a mechanism for adjusting the Scottish Government’s block grant to reflect the further devolution of tax and spending powers. It will be in place until 2021 when it is due to be reviewed by the two governments. The Scottish Government’s block grant will continue to be determined via the ‘Barnett’ formula, but then adjusted as set out in the fiscal framework. The OBR has no direct involvement in block grant decisions or adjustments.
Scottish Fiscal Commission
The Scottish Parliament’s Scottish Fiscal Commission Act 2016 established the Scottish Fiscal Commission (SFC). The SFC was initially established in June 2014 to scrutinise the Scottish Government’s forecasts of LBTT, Scottish landfill tax and non-domestic rates collected by Scottish local authorities. Since April 2017 the SFC has had a statutory remit to prepare independent forecasts for the Scottish economy, the Scottish Government’s tax revenues and devolved social security spending. The SFC produced their first forecast in December 2017.
We work closely with the SFC to ensure that we can bring all relevant information to bear in producing our Scottish tax forecasts and have published the principles we use to guide engagement between our two organisations.
Evidence to the Scottish Parliament