Policy paper

Welsh Income Tax outturn reconciliation for 2023-24

Published 21 August 2025

This statement, jointly agreed by HM Treasury and the Welsh Government, shows both governments’ continued ambition to ensure full transparency in, and to improve wider understanding of, the Welsh Government’s Fiscal Framework and specifically the reconciliation process. This statement provides an explanation of how the Income Tax reconciliation process for 2023-24 affects the Welsh Government’s budget in 2026-27.

Reconciliation for 2023-24 Income Tax

On 10 July 2025, HMRC published Income Tax outturn statistics for the tax year 2023-24^{[footnote 1]}.

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

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

The Welsh Government’s Fiscal Framework sets out that the Block Grant Adjustments are calculated on a ‘by band’ basis (for each of the basic, higher, and additional rates). The table below summarises the total impact of the reconciliation, while a more detailed presentation of the figures with a breakdown ‘by band’ can be found in the background section.

This reconciliation also takes account of the revised mid-year population estimates published by the ONS on 30 July 2025.

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 Welsh Budget so this will increase the Block Grant Adjustment (and by implication reduce the Welsh Government’s block grant) by £49m in 2026-27.

• Welsh Rates of Income Tax: The outturn is higher than was forecast at the time of the 2023-24 Welsh Budget so this will increase Welsh Government self-funding by £173 million in 2026-27.

The net reconciliation effect is a £124m increase in the Welsh Government’s funding for 2026-27.

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

2023-24 Income Tax (£m)	Revenues	Block Grant Adjustment	Net Budget Position
Forecasts as of Welsh Government Budget 2023-24	2,795	-2,733	+63
Outturn	2,968	-2,782	+187
Change/reconciliation	173	-49	+124

Note – numbers may not sum due to rounding.

Background

Following the Wales Act 2017, additional tax powers were devolved to the Welsh Government. In April 2019, the UK rates of Income Tax on non-savings non-dividend (NSND) income were each reduced by 10 pence in the pound for Welsh residents. The Welsh Government gained the power to set a Welsh rate in each band in Wales. To date, the Welsh Government has set those rates at 10 pence in the pound. HMRC is responsible for the collection of all Income Tax, including the Welsh rates.

The Welsh 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 Welsh Government. These Block Grant Adjustments are deductions for tax powers. Alongside this, the Welsh Government retains all revenues from devolved taxes, has a Welsh Reserve and has capital and resource borrowing powers with agreed limits.

The Welsh Government has resource borrowing powers it can use to cover forecast errors in relation to devolved tax receipts and corresponding Block Grant Adjustments, with an annual limit of £200m.

The revenues from the Welsh rates and the associated Block Grant Adjustments used in Welsh Government budgets are based on forecasts produced by the Office for Budget Responsibility. These are both fixed in advance of the year in question.

As set out in the Welsh 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 adjustments to account for forecast error through a reconciliation process. Any adjustments required are then applied to the Welsh Government’s funding for the following financial year.

Under this process, a reconciliation for 2023-24 Welsh Rates of Income Tax will be applied to the 2026-27 Welsh Budget. The reconciliation covers both Welsh Rates of Income Tax revenues and the Block Grant Adjustment.

Table – detailed breakdown of Welsh Government’s Income Tax outturn reconciliation

Block Grant Adjustment

£m	Basic	Higher	Additional	Total
Forecast	-2,392	-269	-72	-2,733
Outturn	-2,384	-324	-74	-2,782
Reconciliation	8	-55	-2	-49

Revenues

£m	Basic	Higher	Additional	Total
Forecast	2,375	350	71	2,795
Outturn	2,506	373	89	2,968
Reconciliation	131	23	19	173

Net funding

£m	Basic	Higher	Additional	Total
Forecast	-17	80	-1	63
Outturn	122	49	15	187
Reconciliation	139	-32	17	124

Note – numbers may not sum due to rounding.

1. Welsh Income Tax Outturn Statistics: 2023 to 2024 - GOV.UK ↩