Policy paper

Scottish Rates of Income Tax outturn reconciliation for 2023-24

Published 21 August 2025

This statement, jointly agreed by HM Treasury and the Scottish Government, shows both governments’ continued ambition to ensure full transparency in, and to improve wider understanding of, the Scottish Government’s Fiscal Framework and specifically the reconciliation process. This is in line with recommendations by stakeholders, including those given by the Scottish Parliament’s previous Finance and Constitution Committee. Please see the Committee’s Pre-Budget Scrutiny Report 2020-21 for further details^{[footnote 1]}.

Reconciliation for 2023-24 Income Tax

On 10th July 2025, HMRC published Income Tax outturn statistics for the tax year 2023-24.

The publication provides the figures for both Scottish Income Tax revenues, and the equivalent Income Tax revenues for the rest of UK that are used to calculate the Scottish Government’s Income Tax Block Grant Adjustment (BGA), as set out in the Fiscal Framework agreed between the Scottish and UK Government. This allows the Income Tax reconciliation applying to the 2026-27 Scottish Government budget to be calculated. The reconciliation is a normal part of operating the Fiscal Framework and ensures the Scottish Government’s funding is based on actual Income Tax revenues, rather than forecasts.

The BGA is indexed according to the percentage change in Income Tax revenues in England and Northern Ireland (ENI), weighted by the relative population growth between Scotland and ENI. The calculation doesn’t include Wales, where income tax is devolved. The relative population growth rate was confirmed when the National Records of Scotland (NRS) published their mid-year population estimates for Scotland on 14 August, following the Office for National Statistics (ONS) mid-year population estimates for England and Wales on 30 July.

Calculating the reconciliation requires comparing the forecast and outturn figures for Scottish Income Tax revenues and for the Block Grant Adjustment for the year 2023-24. The difference between the forecasts and the outturn is applied to the Scottish Government’s Budget and funding in 2026-27. Further background is set out below, after the calculations.

The two reconciliation components will have the following effects, as summarised in the table below:

• Block Grant Adjustment: The outturn is higher than was forecast at the time of the 2023-24 Scottish Budget so this will increase the Block Grant Adjustment (and by implication reduce the Scottish Government’s block grant) by £877 million in 2026-27.

• Scottish Income Tax Revenue: The outturn is higher than was forecast at the time of the 2023-24 Scottish Budget so this will increase Scottish Government self-funding by £1,283 million in 2026-27.

The net reconciliation effect is a £406 million increase in the Scottish Government’s funding for 2026-27.

Reconciliation for 2023-24 Income Tax which will impact the 2026-27 Budget

2023-24 Income Tax (£m)	Revenues	Block Grant Adjustment	Net Budget Position
Forecasts as of Scottish Government	15,810	-15,485	325
Outturn	17,093	-16,362	730
Change/reconciliation	1,283	-877	406

Note – numbers may not sum due to rounding.

Background

The Scotland Act 2016 devolved additional tax powers to the Scottish Government. In April 2017, the Scottish Government gained the power to set the rates and bands for non-savings and non-dividends (NSND) Income Tax in Scotland. HMRC is responsible for the collection of Scottish Income Tax.

The Scottish Government is partly funded by the UK Government block grant, and partly self-funded through raising revenue from devolved taxes and borrowing.

The block grant is determined by the longstanding Barnett formula.

The block grant is now adjusted to reflect the impact of the transfer of greater fiscal powers to the Scottish Government. These Block Grant Adjustments are deductions for tax powers and additions for social security benefits. Alongside this, the Scottish Government retains all revenues from devolved taxes, has a Scotland Reserve and has capital and resource borrowing powers with agreed limits.

For resource borrowing, the Scottish Government has the power to borrow up to £600 million for resource annually within a statutory overall limit for resource borrowing of £1.75 billion, with both limits in 2023-24 prices (meaning these limits will be uprated annually from 2024-25 using the Office for Budget Responsibility’s (OBR) GDP deflator forecast at the time of the Scottish Government draft budget). Resource borrowing can only be used for the following reasons:

• for in-year cash management

• for forecast error in relation to devolved and assigned taxes and demand-led welfare expenditure arising from forecasts of Scottish receipts/expenditure and corresponding UK forecasts for the Block Grant Adjustments

Initially, the Scottish Government’s Income Tax revenues are forecast by the Scottish Fiscal Commission (SFC) and the Income Tax Block Grant Adjustment is based on Office for Budget Responsibility (OBR) Income Tax forecasts for the rest of the UK. Once the forecast revenue is determined and the corresponding Block Grant Adjustment is made, there are no changes in the Scottish Government’s funding until outturn data are available.

As set out in the Scottish Government’s Fiscal Framework, Income Tax outturn published in HMRC’s Annual Report and Accounts, which is normally published around 16 months after the end of the financial year, will then be used to determine the Scottish Government’s funding for the following financial year through a reconciliation process.

The ONS published their mid-year 2024 population estimates for England and Wales on July 30, followed by NRS publishing equivalent estimates for Scotland on 14 August. These publications included a back-revision to the 2023-24 estimates which were used to calculate this reconciliation.

Following the arrangements agreed in the Scottish Government’s Fiscal Framework agreement, a reconciliation for 2023-24 Scottish Income Tax will be applied to the 2026-27 Scottish Budget, which factors in the 2023-24 Income Tax outturn data and the updated population estimates. The reconciliation covers both Scottish Income Tax revenues and the Block Grant Adjustment.

1. See Pre-Budget Scrutiny Report 2020-21 for further details. ↩