Scotland “running to stand still” on income tax

Rachel Statham

In a report published today, supported by the Scottish Policy Foundation, researchers at Scotland’s progressive think-tank found that, if tax projections are correct, Scotland will lose just under £1.8bn between 2019/20 and 2023/24 through weaker growth in income tax revenues per head than in the rest of the UK.

Meanwhile, additional funds from Scotland’s income tax rises will be fully lost by weaker income tax growth per head compared to rest of UK. Despite £360m of income tax rises in 2019/20, increased income tax growth in the rest of the UK means the Scottish government’s budget will be £5m worse off.

IPPR Scotland has called for urgent action to refocus Scotland’s economic strategy on its lower-paid sectors.

The think tank has called for:

• Wage growth of 1 per cent above projections for each of the next three years could lead to £750m more tax revenue by 2022/23, almost twice the amount raised by a 1 per cent tax rise.
• Boosting productivity growth by 3 per cent in Scotland’s lower-wage sectors could be worth £1.5bn in increased GDP and over £160m per year in additional tax revenues, benefiting the poorest households the most and increasing employment over the long-term.
• Boosting productivity in Scotland’s retail and wholesale sector could also see a £600m increase in GDP and tens of millions of pounds in additional tax revenue, also benefiting the poorest households the most and increasing employment over the long-term.

To achieve this, IPPR Scotland has set out a seven point action plan:

• Create new sector-based social partnership bodies, bringing workers, employers and government together to shape a fairer economy.
• Ensure Scotland’s national and local tax policy promotes increased productivity growth.
• Pilot assigning increases in tax revenue to regional and local bodies within Scotland.
• Increase investment in in-work learning for lower-paid workers in Scotland.
• Refocus economic strategy on the ‘everyday economy’.
• Establish of a new Committee on the Future Inclusive Economy (CoFIE) for Scotland.
• Include an explicit focus on driving productivity in the everyday economy in the Scottish National Investment Bank (SNIB)’s ‘mission’.

Rachel Statham, Economic Analyst at IPPR Scotland, said: “On income tax, Scotland is running to stand still. Despite welcome income tax rises in Scotland in recent years we’re due to be worse off because of weaker income growth in Scotland compared to the rest of the UK.

“Our analysis shows that efforts to make our economy fairer will also deliver stronger economic performance in Scotland. Boosting the performance of lower-paid sectors by raising productivity could lead to a win-win-win – reducing inequality by tackling low pay, increasing tax revenues and strengthening the whole economy. This is the prize the Scottish government’s inclusive growth agenda could hold, but we need to give it teeth through bold policy action.

“We need ambitious words on inclusive growth to be matched by equally ambitious action. That way we can deliver pay rises for the lowest earners, increase tax revenue for public services, and deliver a stronger and fairer economy across Scotland.”