Scottish income tax takings ‘will offset UK Government reduction in budget’

- Advertisement -

Income tax plans in the Scottish budget will raise an estimated £182 million above UK Government deductions for devolved tax powers, independent analysis has found.

A senior analyst at the Scottish Parliament Information Centre (SPICe) said extra tax revenues should be enough to offset the UK Government reduction to the Scottish budget to account for devolved tax-raising powers, known as the block grant adjustment.

The Scottish Government’s draft budget, published on Wednesday, states the planned income tax changes – including freezing the higher rate tax threshold instead of increasing it to £50,000 to match the rest of the UK in April – will raise £500 million more than changing to match the UK’s income tax policy.

SPICe senior analyst Nicola Hudson said: “The extra tax revenues should be enough to offset the reduction in the Scottish budget – the block grant adjustment – that results from the devolution of tax-raising powers.

“However, the budget document shows that estimated income tax revenues in 2019-20 will only exceed the block grant adjustment by £182 million, considerably less than the £500 million that the Scottish Government say its policy will generate relative to the UK Government tax policy.”

She said this reflects different policy choices since the partial devolution of income tax powers in 2017-18 as well as differences in forecasts made by the Scottish Fiscal Commission and the Office of Budget Responsibility, which will be reconciled when the amount of tax raised is known.

She said it also reflects different rates of tax revenue growth per head between Scotland and elsewhere in the UK, which she warned could be a “more persistent issue”.

Ms Hudson highlighted the fiscal framework determining the calculation of the block grant adjustment protects Scotland against revenue reductions resulting from slower population growth but not against a fall in taxpayers, wage slowdowns or a change in the taxpayer mix, such as lower numbers of higher rate taxpayers.

She said: “If these types of changes hit Scotland harder than the rest of the UK, then it will be harder for the Scottish Government to generate the tax revenues that it needs to offset the block grant adjustment.”

The analysis also found all workers earning up to £124,375 will pay less tax in 2019-20 than this financial year but for the majority only £10 of the benefit comes from Scottish Government decisions with the remaining £120-£130 a result of the UK Government’s change to the personal allowance.

Those earning under £27,000 will pay around £20 per year less than elsewhere in the UK but those earning above this will pay more, a difference of more than £1,500 a year for people earning more than £50,000.

Callum McCaig, special adviser to the First Minister, tweeted in response to the analysis: “Income tax policy is raising £182 million over the block grant adjustment.

“If we were to replicate UK tax policy it would be £318m less than it, so replicating UK income tax in Scotland would cost £500m.”

- Advertisement -
- Advertisement -
- Advertisement -

Latest Stories

- Advertisement -

UK News

- Advertisement -
- Advertisement -

Read the latest free supplements

Read the Town Crier, Le Rocher and a whole host of other subjects like mortgage advice, business, cycling, travel and property.