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IPPR Scotland: Fresh figures reveal how much tax parties' plans will raise

IPPR Scotland, Scotland’s independent cross-party thinktank, publishes new analysis of political parties' income tax plans as they stand.

Parties’ proposals raise between zero and £1.2bn per year, in real terms, by 2020/21.

Raising the personal allowance in 2020/21 from £12,500 to £12,750 would cost around £130m per year, in real terms. The SNP have proposed raising the personal allowance in Scotland to £12,750, if the UK Government have not already done so by the end of the next Scottish Parliament.

In advance of May's Scottish Parliament elections, IPPR Scotland - Scotland's leading progressive think tank - is publishing new analysis of the political parties' income tax plans.

The research looks at how much revenue each income tax proposal so far would raise per year in real terms in 2020/21, the last year of the next Scottish Parliament. The analysis also looks at which households in Scotland would win and lose, and by how much, across the income spectrum.

The modelling is based on IPPR Scotland’s assumptions about each of the parties' plans, based on the public statements each party has made to date; parties’ plans will not be finally confirmed until manifestos are published.

IPPR Scotland finds that the parties' tax plans, based on our assumptions, would raise the following levels of revenue above what would be raised if they simply followed UK tax plans, assuming the UK Government raises the higher rate tax threshold to £50,000 by 2020/21 as planned:

  • The SNP's plans would raise £300m per year, in real terms in 2020/21.
  • Scottish Labour proposals would raise between £1.1bn and £1.2bn per year in real terms in 2020/21. The lower figure shows the scenario if no additional revenue is raised from Scottish Labour plans to increase the additional rate of tax to 50%.
  • Scottish Liberal Democrats pledges would raise £750m per year, in real terms in 2020/21.
  • Scottish Greens' policies would raise between £600m and £950m per year in real terms in 2020/21. The lower figure shows the scenario if no additional revenue is raised from Scottish Greens plans to increase the additional rate of tax to 60%.
  • Scottish Conservatives plan to match UK tax policy and therefore raise no additional revenue.

Table 1- Revenue raised by parties’ proposals based on IPPR Scotland assumptions (against a baseline of a rest of UK £50k higher rate threshold)

 

Revenue raised (£m) per year, by 2020/21 (real terms)

UK CON 50K HRT

0

SNP

300

SLD

750

SGRN

600 - 950

SLAB

1,100 - 1,200

* We have used Scottish Government analysis to calculate a range for overall revenue raised by additional rate tax increases, ranging from 0% to 100% of potential revenue -http://www.gov.scot/Resource/0049/00497818.pdf

** Rounded to nearest £50m

The research is a 'static' analysis taking no account of potential behavioural change. We have therefore provided a range of potential revenue for those parties proposing an increase in the tax rate for the highest earners through the additional rate, using Scottish Government analysis of additional rate-payers’ potential behaviour. This allows us to see what revenue would be raised from proposals if an increase in the additional rate of tax saw no increase in revenue (due to behavioural change such as earners choosing to be paid in dividends, working less or moving residency to other parts of the UK) and what revenue would be raised if no behaviour change took place and additional rate changes thus raised the maximum revenue possible.

In March, IPPR Scotland calculated the next Scottish Government will face a £2bn annual spending gap by 2020.

IPPR Scotland also conducted a distributional analysis of the tax plans, assuming no income was raised by increasing the additional rate of tax. This is to control for any changes in behaviour among the highest earners in Scotland in response to an additional rate tax increase (as we assume is being proposed by Scottish Greens, Scottish Labour and by the Scottish Liberal Democrats). Under this scenario, the tax plans would see the richest households in Scotland see tax bills increase by up to £1970 per year (see notes for analysis including additional rate changes).

Figure 1 – distributional analysis of party income tax plans (not including income from additional rate changes) compared to £45k higher rate threshold set by the UK Government for 2017/18

Finally, IPPR Scotland modelled an increase in the personal allowance in Scotland, in 2020/21, from £12,500 to £12,750, finding it would cost an estimated £130m per year in real terms in 2020/21. Given the personal allowance is reserved to Westminster this would be achieved through Holyrood setting a 0% tax rate for earnings between £12,500 and £12,750. The SNP has proposed to increase the personal allowance in Scotland to £12,750 if the UK Government has not already done so, by the end of the next Scottish Parliament.

Russell Gunson, Director of IPPR Scotland said:

"The election campaign so far has been dominated by what the parties are planning to do with the Scottish Parliament's new tax powers. Our analysis is the first time we've been able to show how much each of the parties are seeking to raise in additional tax revenue.

"With billions of pounds of spending cuts and benefits coming to Scotland over the next few years, the balance of tax rises and spending cuts proposed by the parties needs to be front and centre of the plans they will take to the country to vote on next month.

"Ahead of manifestos being published over the course of this month, the parties need to be clear with voters as to how much, if any, tax they hope to raise - and what scale of public spending cuts and reform of our public services they're proposing."

Contact:

Russell Gunson, Director, IPPR Scotland, r.gunson@ippr.org 07766 904 332

Ash Singleton, External Affairs Manager, IPPR Scotland, a.singleton@ippr.org 07887 422 789

Notes to editors:

IPPR Scotland will undertake further analysis of the spending gap facing the next Scottish Parliament following the publication of all the parties' manifestos.

Scottish Government analysis has considered potential behavioural change of additional rate tax payers http://www.gov.scot/Resource/0049/00497818.pdf. We have used this to calculate a range for revenue from additional rate tax increases between 0% (if no additional revenue was raised from increasing the additional rate of tax in Scotland) to 100%.

We have assumed the following for political party tax plans. These are IPPR Scotland assumptions based on parties’ public statements. Income tax plans will be confirmed by parties in manifestos over the coming weeks in advance of May’s Scottish Parliament elections:

  • SNP – set higher rate threshold at £43k plus CPI inflation over time.
  • Scottish Labour – an increase in the basic rate and higher rate tax rate by 1p, and an increase in the additional rate to 50p. Freeze the higher rate threshold in cash terms over time.
  • Scottish Conservatives – match UK Government income tax plans.
  • Scottish Liberal Democrats – increase the basic, higher and additional rates by 1p and set the higher rate threshold at £43k plus CPI inflation over time.
  • Scottish Greens – a tax rate at 18p on earnings up to £19k (above the personal allowance), a rate of 22p for earnings over £19k up to the higher rate threshold, a 43p higher rate, and an additional rate of 60p. The higher rate threshold set at £43k plus CPI inflation over time.

We have compared the parties’ tax plans against two baselines, one which outlines the current UK ‘costed’ proposals for a £45k higher rate threshold in the rest of the UK, increasing with CPI inflation. We have used this for distributional analysis, so that we can show the distributional effects of increasing the higher rate threshold to £50k in Scotland. The second baseline outlines proposals against UK Government plans to increase the higher rate threshold in the rest of the UK to £50k by 2020/21. We have used this for revenue analysis to show how much revenue could be raised in Scotland by the parties’ tax plans, if the UK Government goes ahead with plans to increase the higher rate threshold in the rest of the UK to £50k by 2020/21.

Table 2 - Distributional results excluding additional rate revenue (Annual, household level, (£, 16/17 prices))

 

UK_CON 50K HRT

SNP

LD

LAB

GRN

1st (poorest)

0

0

0

0

0

2nd

0

0

-20

-20

20

3rd

0

0

-30

-40

20

4th

0

0

-60

-80

30

5th

10

-10

-100

-140

20

6th

20

-20

-140

-190

20

7th

30

-30

-210

-300

-20

8th

70

-60

-340

-530

-150

9th

150

-120

-520

-900

-370

10th (richest)

390

-310

-1120

-1970

-1630

* rounded to nearest £10

Figure 1 – distributional analysis of party income tax plans (not including income from additional rate changes) compared to £45k higher rate threshold set by the UK Government for 2017/18

Table 3 - Distributional results including additional rate revenue (Annual, household level, (£, 16/17 prices)) and including a £12,750 personal allowance for SNP

 

UK_CON 50K HRT

SNP

LD

LAB

GRN

1st (poorest)

0

0

0

0

0

2nd

0

10

-20

-20

20

3rd

0

20

-30

-40

20

4th

0

30

-60

-80

30

5th

10

30

-100

-140

20

6th

20

40

-140

-190

20

7th

30

40

-210

-300

-20

8th

70

20

-340

-530

-150

9th

150

-30

-520

-900

-370

10th (richest)

390

-200

-1300

-2850

-4270

* rounded to nearest £10

Our distributional analysis on the effect of respective additional rate proposals was conducted using a different model from the Scottish Government revenue estimates, and therefore results for the effect on households may not reflect precisely the same amounts of aggregate revenue estimated for the additional rate by the Scottish Government, which are included in figures in Table 1 above.

Figure 2 – distributional analysis of party income tax plans (including income from additional rate changes and SNP £12,750 personal allowance) compared to £45k higher rate threshold and £12,500 personal allowance set by the UK Government for 2017/18

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