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.
Read the letter from Kenneth Gibson, the Convener of the Scottish Parliament Finance Committee, to Robert Chote on the implementation of the Scotland Act 2012 and Robert Chote’s response.
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
- some social security benefits, carer’s allowance has already been devolved and several other benefits that support people who are disabled or in ill-health are scheduled to be devolved though full Scottish administration is not expected to be completed until 2024.
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 Government’s fiscal framework (2023 update)
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. Previously we had agreed shared principles with the SFC. In January 2019 the SFC and OBR signed a Memorandum of Understanding to formalise how the two organisations work together.
In December 2018 we produced a joint letter with the SFC in response to questions asked by the Scottish Parliament’s finance committee of differences between our respective forecasts.
Devolved tax and spending forecast
In accordance with the Command Paper published alongside the Scotland Bill 2012, we were requested to publish forecasts of Scottish income tax, stamp duty land tax, landfill tax and aggregates levy receipts.
Following the passing of the Scotland Act 2016 we began to include forecasts for Scottish air passenger duty, Scottish VAT assignment, and aspects of Scottish social security.
We publish these forecasts twice each year alongside our Economic and fiscal outlook (EFO).
Evidence to the Scottish Parliament
Robert Chote’s opening remarks to the Scottish Parliament Finance Committee – January 2016
Evidence on the UK spending review and latest Scottish taxes forecast – January 2016
Evidence on the Scottish Fiscal Commission Bill – November 2015
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