Will Brexit delay the draft Scottish Budget?
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment & ICAS Tax Community)
14 August 2018
Justine takes a look at a letter from the chairman of the Office for Budget Responsibility (OBR) to the Chairman of the Treasury Select Committee and considers what might happen to timing of the draft Scottish Budget this year as a result of Brexit negotiations.
Background
The Budget process in Scotland is hostage to the UK Budget in that it cannot be finalized until the UK Budget has been released. The Treasury operates within various confidentiality restrictions and purdah so that other government departments do not know in advance of the UK Budget what is likely to be announced. The Scottish Government may be equally in the dark and not knowing whether, or to what extent, UK measures will be directly relevant in Scotland or may be indirectly relevant through the Barnett formula and associated block grant adjustments.
Scottish Draft Budget 2018
Amongst other measures, it is crucial that the Scottish Government makes provision for Scottish Income Tax rates and bands by way of a ‘Scottish Rate Resolution’ and that this is voted in before the start of the new tax year in accordance with the provisions of section 80C of the Scotland Act 1998 (as amended by the Scotland Act 2016). The Scottish Parliament Standing Orders require this motion for the rate resolution to be moved before the commencement of stage 3 proceedings of the associated Budget Bill. So, enough time needs to be allocated to draft all the Scottish Budget proposals and factor in time for the Scottish Parliament to vote in the measures. Voting is a three-stage process, so cannot be done overnight.
The Scottish Government, therefore, remains poised and committed to deliver its draft Scottish Budget within three weeks of the date of the UK Budget.
UK Budget 2018
In his letter to Nicky Morgan, Chairman of the Treasury Select Committee, Robert Chote of the OBR explained that the OBR would wish to include the conclusions reached in the Brexit agreement in its Economic and Fiscal Outlook (EFO) forecast for 2018, but that a ten week period is normally allowed between the OBR being given notice of the date for the Budget and its production of the EFO.
Nonetheless, assuming the final exit agreement is not published until the conclusion of the European Council meeting on 18-19 October, Robert Chote stated that he still thinks it will be possible to produce an EFO including Brexit measures by the first week in December if cross-department resources could be pooled to assist the process. Robert Chote was keen to emphasize that he could not predict how detailed the forecasts pertaining to Brexit would be and that the methodologies would be provisional in this regard.
Implications for Scottish Budget
If the UK Budget is not delivered until early December, it may be January 2019 before the draft Scottish Budget can be delivered due to the Christmas recess. Derek Mackay and the Tax Directorate at the Scottish Government will have their work cut out for them. This is far from an ideal situation for everyone. Hopefully once Brexit is out of the way, the UK and Scottish Governments can pave the way together for a more stable Budget timetable.
The ICAS stance
One thing ICAS is certain of in relation to devolved taxes and revenue-raising in Scotland is that there needs to be strong relations between the Scottish Government and HM Treasury to make the budget process as smooth as possible for both governments. It is not in anyone’s interests to be springing surprises. Scotland now has a dedicated Minister in the form of Kate Forbes MSP, whom our Tax Director Charlotte Barbour met with recently together with LSS and CIOT representatives when the need for close liaison was discussed.
Public Finance Minister @KateForbesMSP held introductory meetings with key representatives of ICAS, Chartered Institute of Taxation & the Law Society of Scotland to discuss on-going engagement on tax issues. @BrodiesTaxTeam @CIOTNews @ICASaccounting pic.twitter.com/G6SzcXUWrK
— scotgoveconomy (@scotgoveconomy) July 10, 2018