WIREDGOV

IPPR Scotland has analysed the impact of current proposed income tax cuts on the lowest earners in Scotland.

• Social security spending, not tax cuts for lowest earnings, could be key to reducing poverty rates in Scotland
• Funding local authorities in the final Scottish Government Budget to effectively end ‘Rape Clause’ and Benefit Cap in Scotland could help poorest households
• Politicians across the parliament urged to focus on additional anti-poverty measures between now and the final Budget

Analysis has found that the proposed income tax cuts on lower earnings, through a new Starter Rate, will not be effective at supporting the poorest households in Scotland, and will not help the Scottish Government to meet its new targets on reducing poverty.

It finds that in isolation from the Scottish Government’s wider income tax proposals, the Starter Rate of 19p would cost £50m per year and would have no effect on poverty. A more extensive 18p Starter Rate on earnings up to £19,000 per year would cost £300m per year and may be counterproductive, making it harder for the Scottish Government to meet its poverty targets*.

Meanwhile, for those low income households in receipt of Universal Credit that would benefit from the Starter Rate, their benefit entitlement could drop by 63p for every £1 of benefit from the tax cut.

The independent think-tank has set out that a more effective targeted policy for the poorest households would be to invest further in social security, to recompense families affected by the ‘Rape Clause’ and Benefit Cap, through local authority budgets and powers.

IPPR Scotland modelled the cost and effects of ending the Benefit Cap and the Two-child Limit (otherwise known as the “Rape Clause”) in Scotland. The analysis found this would cost around £120m per year, bringing 10,000 children and 5,000 adults out of poverty in Scotland. Effectively ending the Benefit Cap and Rape Clause could be possible through local authority powers and budgets.

IPPR Scotland found that:

• The proposed 19p Starter Rate would cost £50m and have no effect on poverty rates in Scotland.
• A more extensive 18p Starter Rate on earnings up to £19,000 would cost £300m per year. It could decrease poverty in static terms but increase relative poverty, increasing the poverty line.
• Ending the Benefit Cap and Two-child Limit (otherwise known as the ’Rape Clause‘) would cost around £120m per year and bring 10,000 children and 5,000 adults out of relative poverty in Scotland.
• This could be effectively achieved this coming year by providing local authorities with further funding to recompense households effected by the Benefit Cap and Rape Clause, having a potential triple impact:
• Protecting local authority budgets in real-terms
• Bringing 10,000 children and 5,000 adults out of poverty, through effectively ending the Benefit Cap and Two-child limit
• Reducing some pressure on other local authority and voluntary sector budgets and services

Russell Gunson, Director of IPPR Scotland, said:

"Now is the time for parties across the parliament to prioritise making this year's budget an anti-poverty budget, beginning the hard work of meeting Scotland’s strong targets on reducing poverty. These targets aim to see significant reductions in poverty by 2030 and were passed unanimously by all parties only a few months ago.

“The Scottish Government’s wider plans to increase income tax are necessary and welcome and will help to protect a range of public services from cuts for at least this year. However, the proposed tax cuts on lower earnings are poorly targeted and will have no impact on poverty rates.

“If further funding is found between now and the end of the budget process, we should look to what can be done to improve social security in Scotland. Effectively ending the Rape Clause and the Benefit Cap in Scotland could be possible using local authority powers and budgets, bringing 15,000 people out of poverty at a cost of £120m a year.

“These proposals could protect local authority budgets from proposed cuts, reverse some of the injustices of the UK benefits system, bring 15,000 people out of poverty in Scotland and, in doing so, reduce pressure on local services.”

Contacts

• Rosie Corrigan, 07585 772 633, r.corrigan@ippr.org
• Russell Gunson, 07766 904 332, r.gunson@ippr.org

Notes

*The 18p starter rate would increase median income, therefore raising the poverty line, bringing greater number of people beneath the poverty line.

IPPR Scotland is IPPR’s dedicated think-tank for Scotland. We are cross-party, progressive, and neutral on the question of Scotland’s independence. IPPR Scotland is dedicated to supporting and improving public policy in Scotland, working tirelessly to achieve a progressive Scotland. For more information, visit: https://www.ippr.org/scotland

The draft Scottish Government budget for 2017/18 outlines real-terms cuts to local government revenue budgets (funding for day-to-day spending). Taking the local authority General Revenue Grant and income from Business Rates (set by the Scottish Government), local authorities will face a real-terms cut of £183.7m in 2018/19. Including special grants from the Scottish Government to local authorities (including for childcare and early years, teacher numbers and tackling the attainment gap) local authority budgets for day-to-day spending are due to drop by £135.2m in real-terms 2018/19.

Providing further funding for local authorities discretionary funds or Welfare Funds could reverse some of the injustices of the UK benefits reforms. The Scottish Government did this to end the Bedroom Tax in Scotland. It would cost £120m per year to effectively end the Rape Clause and Benefits Cap in Scotland and could be done in the same way, recompensing families effected through local authority budgets.

The Child Poverty (Scotland) Act 2017 was passed unanimously by the Scottish Parliament in November 2017. It sets out four statutory targets for reducing child poverty in Scotland by 2030:

• Less than 10% of children living in households that are in relative poverty
• Less than 5% of children living in households that are in absolute poverty
• Less than 5% of children living in households that combine low income and material deprivation
• Less than 5% of children living in households that are persistent poverty