The Institute for Fiscal Studies has published a report The Scottish Government’s record on tax and benefit policies, concluding that the Scottish government’s tax and benefit policies have created a more progressive system in Scotland than for the rest of the UK – with the burden of taxes falling to a greater degree on high-income households, and with benefits more generous for those on low incomes.
The report notes that Scottish taxpayers earning £50,000 will pay around £1,500 more in income tax in 2021–22 than their counterparts in the rest of the UK. Cuts in income tax at the lower end are smaller, which is unsurprising given the effect of the personal allowance and reduced scope to raise revenue from lower incomes.
The IFS findings suggest that the Scottish government could have achieved its aims of creating a more progressive tax system if, rather than introducing a complex system with five income tax bands, it had instead created a new (and small) 0% band for the first tranche of taxable income, and applied the 21% intermediate rate immediately above that.
The report finds that key changes for lower-income households in Scotland have been achieved by increases in benefits including more generous housing benefit for those in social housing (with no ‘bedroom tax’) and extra payments for families with young children.
David Phillips, Associate Director at the IFS and co-author of the report, said:
‘The current Scottish government has called for the devolution of National Insurance, capital gains tax and the remainder of income tax. Doing this would mean Scottish income tax changes could apply to all income – reducing the scope for tax avoidance – and allow the Scottish government to address inefficient and unfair differences in how different types of income are currently taxed. Whether this opportunity would be grasped is another matter though: the current Scottish government has shied away from radical reform where powers are already devolved. The case for devolving VAT also appears much weaker given the administration and compliance issues involved.’
The report has been released in the run-up to the Scottish Parliamentary elections on 6 May 2021.
Example of basic income tax calculation for 2021–22: England vs Scotland
The Institute for Fiscal Studies has published a report The Scottish Government’s record on tax and benefit policies, concluding that the Scottish government’s tax and benefit policies have created a more progressive system in Scotland than for the rest of the UK – with the burden of taxes falling to a greater degree on high-income households, and with benefits more generous for those on low incomes.
The report notes that Scottish taxpayers earning £50,000 will pay around £1,500 more in income tax in 2021–22 than their counterparts in the rest of the UK. Cuts in income tax at the lower end are smaller, which is unsurprising given the effect of the personal allowance and reduced scope to raise revenue from lower incomes.
The IFS findings suggest that the Scottish government could have achieved its aims of creating a more progressive tax system if, rather than introducing a complex system with five income tax bands, it had instead created a new (and small) 0% band for the first tranche of taxable income, and applied the 21% intermediate rate immediately above that.
The report finds that key changes for lower-income households in Scotland have been achieved by increases in benefits including more generous housing benefit for those in social housing (with no ‘bedroom tax’) and extra payments for families with young children.
David Phillips, Associate Director at the IFS and co-author of the report, said:
‘The current Scottish government has called for the devolution of National Insurance, capital gains tax and the remainder of income tax. Doing this would mean Scottish income tax changes could apply to all income – reducing the scope for tax avoidance – and allow the Scottish government to address inefficient and unfair differences in how different types of income are currently taxed. Whether this opportunity would be grasped is another matter though: the current Scottish government has shied away from radical reform where powers are already devolved. The case for devolving VAT also appears much weaker given the administration and compliance issues involved.’
The report has been released in the run-up to the Scottish Parliamentary elections on 6 May 2021.
Example of basic income tax calculation for 2021–22: England vs Scotland
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