Income tax was devolved to the Scottish Parliament in 2016 and the Welsh Senedd in 2019. In this box we evaluated our March 2022 forecasts for 2022-23, and how they compared to the eventual outturn data. We explained the drivers behind the differences between our inital forcasts and final outturn behind the 2.4 per cent surplus for Scotland and 1.0 per cent shortfall in Wales. This was a particularly difficult period to forecast given the economy was recovering from the unprecedented impact of the Covid-19 pandemic.
This box is based on OBR data from March 2025 .
Outturn data for 2022-23 was published in July 2024, so we can now evaluate our forecasts for Scottish income tax and the Welsh rates in that year. Doing so is important for transparency and helps us to understand and identify ways to improve our methodology and modelling. We have concluded from previous evaluations of devolved income taxes that they have generally improved with time as we incorporate more outturn data from across the UK’s three income tax systems, as well as the improved use of RTI data. Because of the lag in publishing income tax outturn data for Scotland and Wales, we can only analyse our devolved income tax forecasts well after the end of the year to which they relate.
Table A compares our March 2022 forecasts for Scottish income tax and the Welsh rates in 2022-23 to the eventual outturn. This was a particularly difficult period to forecast given the economy was recovering from the unprecedented impact of the pandemic. It shows that:
- Scottish income tax liabilities were £359 million (2.4 per cent) higher than forecast. Over 80 per cent of the overall difference is explained by economic determinants, which outperformed our forecast by £297 million. This reflects a stronger increase in UK-wide wages and salaries in 2022-23 than expected in the March 2022 forecast, which was a result of the higher-than-expected increase in inflation and nominal earnings. Fiscal modelling contributed £27 million, reflecting fiscal drag as a consequence of the unanticipated strength in earnings generating greater number of taxpayers in higher rate bands. Subsequently announced policies explain a further £35 million, a result of the cancellation of the Health and Social Care levy incorporated in our March 2022 forecast.
- Liabilities for the Welsh rates were only £27 million (1.0 per cent) lower than forecast. Economic determinants generated higher revenues than expected reflecting the stronger-than-expected nominal earnings growth outlined above. This was more than offset by the fiscal modelling difference which is due to 2021-22 outturn, used as the base year for the March 2022 forecast, being weaker-than-anticipated and the Welsh share of UK outturn being lower than expected, at 1.15 per cent rather than the 1.17 per cent forecast.
Table A: Scottish income tax and Welsh rates of income tax in 2022-23: March 2022 forecast versus outturn
This box was originally published in Economic and fiscal outlook – March 2025