Scotland business

Scottish income tax £941m short of forecast

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The amount of income tax revenue raised by the Scottish government in 2017/18 went up by 1.8% but was still £941m short of original forecasts.

The HMRC figures are the first time revenue from Scottish taxpayers has been calculated since the new devolved powers over income tax began in 2017.

Under the new fiscal framework, £737m will be offset by a recalculation of the Barnett formula but the Scottish government will see a £204m reduction in expected funds next year.

Scotland's Finance Secretary Derek Mackay said he was creating a more progressive tax system.

He said stronger growth for Scotland could have a positive impact on this risk-sharing "reconciliation" in future years.

New tax system

In April 2017, the Scottish government started using new powers to set the rates and bands for income tax in Scotland.

This meant it would be partly funded through devolved taxes and borrowing.

A new system was devised that would amend the longstanding Barnett Formula for calculating the block grant to reduce it by the money raised from devolved taxes. However, there was a "reconciliation" which would limit the amount of funding Scotland could lose as a result of the new system.

In his blog last month, BBC Scotland's Economy Editor Douglas Fraser said that because the system was brand new the forecasts for income tax revenue were derived from a "best guess".

He said: "Because tax has not been handled this way before, and because there hasn't been this differential within the UK, quite a lot of it is informed guesswork. And small assumptions can make a big difference when the total adds up to more than £11bn."

Scotland's finance secretary said Scottish income tax revenue increased by £197m between 2016/17 and 2017/18 to £10.9bn.

The forecast set out in the draft budget for 2017/18 had been £11.8bn.

Mr Mackay said the data for 2018/19, which will not be published until next year, showed stronger growth for Scotland than the rest of the UK and could have a positive impact on the size of next year's reconciliation.

He said his tax changes had increased the number of Higher and Additional Rate taxpayers in Scotland, making the system more progressive.

"I remain of the view that it would be beneficial for the people of Scotland if we had full control all aspects of the income tax system," he said.

Scottish Secretary David Mundell said the new devolved tax powers had made the Scottish government more responsible for raising the money it spends.

"There are now serious consequences if they fail to grow the economy and increase tax receipts," he said.

Scottish Labour finance spokesman James Kelly said the shortfall of £204m in the Scottish budget would mean cuts to public services.

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