Dear Tom

As you are aware, the Office for Statistics Regulation was contacted about the use of HMRC statistics on Scottish Income tax receipts in 2017-18 in an article by Liz Truss MP, in the Scottish Daily Mail on 19 July. This article followed the publication of income tax reconciliations for Scotland, which were published by HMRC for the first time on 18 July.

The basis of the article was HM Treasury’s press release “Scottish Income tax shortfall offset by UK funding”1. The press release states that “Scotland’s economy grew more slowly than the rest of the UK, hitting tax receipts and leaving the Scottish Government with a shortfall in funding”.

While it is correct that Scotland’s economy grew more slowly than the rest of the UK it is incorrect to suggest this is the primary reason for reduced Scottish income tax revenues and therefore the main reason for the adjustment to the block grant funded by UK Government. The main causes are the availability of more accurate figures on the income tax base in Scotland and divergences in the forecasted income tax revenues between the Rest of the UK and those for Scotland.

While the joint fiscal framework is a relatively complex, multi-stage process of transfers and balancing, the principal reasons for changes to Scottish income tax revenues and Block Grant Adjustment revisions after reconciliations are amenable to clear and unambiguous explanation. We recommend that future HM Treasury press statements based on these statistics provide better explanations of the causes of changes to the Scottish income tax revenues and the associated Block Grant Adjustment. This will reduce the risk that users draw misleading conclusions from the statistics and the statements that draw on them.

We recognise that this is the first time that HMRC has published these statistics and been subject to associated media scrutiny. While it is likely future reconciliations will not be as large, we consider that to fully inform the public it would be helpful to present this framework in line with our Code of Practice for Statistics, considering how the statistics can be best presented in a clear and unambiguous way.

I am copying this letter to Sean Whellams, Head of Profession for Statistics at HMRC, and Alyson Stafford, Director General at the Scottish Exchequer.

Yours sincerely

Mary Gregory Deputy Director for Regulation

Also see: Sir David Norgrove to Derek Mackay MSP letter

https://www.statisticsauthority.gov.uk/correspondence/scotlands-block-grant-adjustment/