Scottish Government
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Centre for Public Policy for Regions (CPPR) report

In response to a recent report from the Centre for Public Policy for Regions (CPPR) on changes to Non-Domestic Rate Income (NDRI), the Scottish Government has provided further analysis.

This supplements the advice offered to the Parliament's Finance Committee recently on initial assessment of the Scottish Government's budget.

The key points are:

The numbers claimed in the analysis are incorrect. The figures quoted in the CPPR report for NDRI taken from the Scottish Spending Review 2011 document include grants of £9 million per annum over which Ministers have no control (Annually Managed Expenditure). The actual NDRI figures are therefore £9 million lower than stated by CPPR and should read £2,170.5/2,263/2,435/2,664 million.

Also the 2011-12 NDRI estimates of £2,170.5 million was the original plan figure in the Draft Budget 2011-12 document (i.e. this time last year). This figure was revised up to £2,182 million in the subsequent Budget Bill and Local Government Finance Settlement. These revised figures are in the public domain.

Although the CPPR report acknowledges that changes in the poundage are normally linked to Retail Price Index (RPI), it quotes both GDP and RPI increases and fails to recognise that the English poundage is driven by the RPI figure from the September preceding the start of the following financial year.

The CPPR analysis should therefore have been based on an RPI estimate of 5.2 per cent in place of the Office of Budget Responsibility (OBR) 2012-13 estimate of 3.4 per cent. The same point applies for later years and has a knock on impact for the inflation assumptions.

This means that the correct inflation assumptions are as stated in the Spending Review (£115/193/277 million).

The CPPR report makes no allowance for growth in later years compared to the 2011-12 estimate or the effects of losses from appeals to the 2010 Revaluation which depress the income in the first years of the Spending Review period (i.e. years three and four of the Revaluation period).

The CPPR's claims on economic growth are therefore overstated because of the different calculations noted above.

The CPPR report simply confuses two different things - a policy shift to increase/decrease taxation and the general rise in taxation receipts that can be expected to emerge from higher inflation and economic growth regardless of any policy shift.

Only a small proportion of the £493 million is due to any increase in rate charges resulting from Empty Property Relief or the Public Health levy. The rest is simply the result of an annual inflationary decrease to the value of the pound and economic growth.

Without any change in policy direction tax revenues will therefore naturally rise. For example, despite UK income tax rates being expected to remain unchanged over the next three years, the OBR still expects revenue to rise by 21 per cent or £34.5 billion between 2011/12 and 2014/15.

There is no uplift to rates (beyond the two set out above) and therefore changes to NDRI will not suppress GDP, employment, investment and exports as the report implies.

To make comparisons with the modelling on corporation tax which assesses the impact of a shift in policy is misleading.

A Scottish Government spokesperson said:

"The Scottish Government has written today to the Finance Committee with an analysis showing how its Budget supports growth, creates jobs and maintains the most generous package of reliefs available to business anywhere in the UK, worth on average more than £500 million per annum over the 2010-15 revaluation cycle.

"The CPPR's paper appears to confuse two different things - a policy shift to increase/decrease taxation and the general rise in taxation receipts that can be expected to emerge from higher inflation and economic growth regardless of any policy shift. As there is no uplift to rates (beyond the Empty Property Relief and the Public Health Levy), it will not suppress GDP, employment, investment and exports as the report implies."

 

 

 

 

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