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Under the fiscal framework agreed between the UK and Scottish governments in 2016, the Scottish Government鈥檚 funding is initially based on forecasts of income tax and updated once actual income tax revenues are available.

In short, actual income tax data for 2018-19 replaces forecasts of Scottish Government income tax (made by the Scottish Fiscal Commission) and forecasts of the associated block grant adjustment (based on forecasts of UK government income tax made by the Office of Budget Responsibility).

This reconciliation process for 2018-19 can now be undertaken as HMRC have published 2018-19 income tax outturn data today:

• Scottish income tax is lower than forecast at the time of the 2018-19 Scottish Budget so this will reduce Scottish Government self-funding by 拢621 million in 2021-22
• The associated block grant adjustment is also lower than forecast at the time of the 2018-19 Scottish Budget so this will increase the Scottish Government鈥檚 block grant funding by 拢312 million in 2021-22
• The net effect is a 拢309 million reduction in the Scottish Government鈥檚 overall funding for 2021-22. The Scottish Government has agreed tools to manage this type of forecast error, including powers to borrow up to 拢300 million of resource funding each year (within a 拢1.75 billion cap) and the ability to operate a 拢700 million Reserve.