Fiscal Policy - Fraser of Allander Institute Blog

Scottish child poverty targets

Tomorrow, new statistics on poverty and income inequality will be published. All indications are that levels of poverty and inequality are on the rise in the UK over the longer term, and Scotland is no different.

These statistics matter for a variety of reasons, not least because back in 2017, Holyrood voted to put into law a target to reduce relative child poverty in Scotland.

Publication will no doubt be overshadowed by the ongoing Brexit debate. But it’s important not to lose sight of the domestic policy agenda.

Too often the debate over poverty collapses down to a simple discussion about the level of re-distribution in the tax and benefit system.

But in reality, if Scotland is to meet its poverty targets then it’ll require a much more fundamental look at the Scottish economy and how it functions. For instance, we have record people in employment in Scotland, but rising poverty.

Ultimately, tackling poverty isn’t just a moral or societal problem, but also an economic problem that requires a system-wide look at how jobs are created, levels of investment in the economy, productivity growth and wage growth.

Spring Statement 2019: route-map to an unlikely destination?

Shorn of major policy announcements, the Spring Statement is an opportunity for the Office for Budget Responsibility (OBR) to update its economic and fiscal forecasts, and for the Chancellor to announce policy reviews on everything from minimum wages to biodiversity.

So how have the forecasts changed since October 2018?Continue reading

The emerging outlook for Scottish income tax revenues

How have Scotland’s revenues from income tax been performing since income tax powers were transferred to the Scottish Parliament in April 2017?

This is clearly an important question to ask. The Scottish budget in any year is determined in part by the rate of growth of Scottish income tax revenues per capita since 2016/17 compared to the growth of equivalent income tax revenues per capita in the rest of the UK (rUK).

We are nearly at the end of the second year of Scottish income tax devolution. But official income tax revenue outturn figures for 2017/18 will not be published until this summer, whilst outturn figures for 2018/19 will not be available until summer 2020.

Whilst income tax revenue data is not yet available, HMRC has published some information on the number of taxpayers who pay tax through Pay as you Earn (PAYE), and the average income of those PAYE income taxpayers, in 2017/18 and the first two quarters of 2018/19.Continue reading

Taxing contradictions: is Scotland the fairest taxed part of the UK?

Delivering his Draft Budget in December, Derek MacKay argued that Scotland was the ‘fairest taxed part of the UK’. As the dust settles on the 2019/20 Scottish Budget, it’s a good time to reflect on the Scottish Government’s approach to taxation, and to examine that claim.

Devolved tax policy in Scotland and the claim to fairness

Looking across each of the taxes controlled by Holyrood, the common thread underpinning policy decisions is the Scottish Government’s desire to make two claims.

First, that Scottish tax policy is more progressive than the equivalent policy in other parts of the UK. Second, that those with the lowest incomes, or living in the lowest value properties, pay relatively less tax in Scotland than they would do in rUK.Continue reading

Budget 2019/20 – preliminary analysis

Derek MacKay’s third budget of this parliamentary session was doomed to be overshadowed by events at Westminster.

With many people’s attention only partially focussed on events at Holyrood, much Scottish budget commentary will not get beyond an analysis of income tax differentials. Whilst MacKay had heavily hinted in recent weeks that he would not follow the UKG policy to substantially increase the higher rate, he surprised many by freezing the threshold in cash terms. Scottish taxpayers will start paying 41% higher rate at income above £43,430, whilst counterparts in rUK will continue to pay basic rate of 20% up to an income of £50,000.

The Scottish income tax policy is estimated to raise Scottish Government revenues by just over half a £billion compared to what it would raise if it followed rUK tax policy, although the difference in tax liability for individuals is now quite marked, particularly for those with incomes around £50,000.Continue reading