The Scottish Parliament Information Centre (SPICe) has published a new analysis using UKMOD, the free tax-benefit calculator for the UK and its constituent nations developed by CeMPA, showing the impact for Scottish tax-payers of changes in the UK tax rates. Nicola Hudson, Senior Analyst in the Financial Scrutiny Unit at SPICe, shows how the UK government’s income tax decisions has implications for the Scottish budget as a result of the operation of the Fiscal Framework:

“Under the terms of this framework, when income tax decisions were devolved to Scotland, the Scottish budget was adjusted downwards to reflect the income tax revenues that would have been generated in Scotland under the income tax policy of the rest of the UK (rUK). This is known as the income tax ‘block grant adjustment’ (BGA). This BGA is calculated each year to (broadly) reflect the tax that would have been raised in Scotland under UK tax policy. So, if the UK government changes its income tax policy in a way that results in lower income tax revenues, this means a smaller income tax BGA for Scotland.”

The reduction in the basic income tax rate from 20% to 19%, for instance, would have resulted in an additional £340 million for the Scottish Government budget in 2023-24 compared to previous plans, and an additional £30 million in 2024-25. Nicola Hudson also computed the difference in the tax burden under the Scottish and UK tax rules, should the “reduced mini-budget” (that is, after the U-turn on the 45% tax rate) have gone ahead, showing that under the current tax schedule Scottish tax-payers would have paid £1.2 billion more in income tax, in 2023-24. Read the full analysis here.