IPPR Scotland: The '£2 billion question' facing Scotland

8 Mar 2016 02:04 PM
Scotland faces a £2 billion spending challenge, report finds

A new IPPR Scotland report, New powers, new Scotland?, has analysed how new Scottish Parliament tax and benefit powers could be used following the recent fiscal framework agreement between the UK and Scottish governments, and the forthcoming passage of the Scotland Bill.

Ahead of May’s Scottish Parliament elections, the analysis looks at how much revenue using the powers would be raised/lost, and who would win and lose on the income spectrum, looking at the new options available to the Scottish Parliament and the challenges it faces.

The thinktank’s analysis sets out six challenges for the next Scottish Parliament (see below) finding the next Scottish Parliament is facing a '£2b question':

It also shows that the next Scottish Parliament will face the challenge of how, if at all, to reshape the income tax system in Scotland, how to ensure earnings grow at least in line with the rest of the UK, and how to boost Scotland's working age population over the short and long-term.

The report finds that the new powers will see Scotland receive almost half of its budget from devolved tax revenues. The report outlines some of the flexibility offered by the full devolution of income tax on earnings (above the personal allowance) including the effects of varying the higher rate and basic rate only and the effects of varying the current income tax thresholds (as now afforded under new powers). It also considers some options offered by the devolution of a number of disability benefits, and the ability to top-up existing benefits.

On tax the report concludes:

On benefits the report concludes:

Russell Gunson, Director of IPPR Scotland, said:

“Our analysis shows that Scotland is facing a ‘£2b question’. With public spending cuts, benefits cuts and proposed tax cuts in the rest of the UK, the scale of the decisions facing the next Scottish Parliament are very significant.

“Ahead of May’s elections all the political parties need to be clear how they will meet this funding gap, what balance of tax rises or spending cuts they will look to make, and the reforms they consider necessary to services in Scotland.

“The scale of the challenge means tax rises alone are very unlikely to make spending and benefits cuts go away entirely, but they can certainly make a contribution. Our report shows the new powers open up some possibilities on reforming tax and benefits that weren’t there before.

“To avoid this next parliament being just about mitigating austerity and managing decline, we must explore all the options available. We need to use the next few months ahead of the election, and the first few years of the next parliament, to open up a substantial debate with the people of Scotland on how to reshape our tax system, new approaches to benefits, and to look at reform of how our services are funded and delivered in Scotland.”


Russell Gunson – r.gunson@ippr.org 07766 904 332
Ash Singleton – a.singleton@ippr.org 07887 422 789

Notes to Editors

IPPR Scotland is a new, non-partisan think-tank working on public policy in, and for, Scotland.

Copies of the report are available from: http://www.ippr.org/publications/new-powers-new-scotland

IPPR Scotland will conduct and publish research, hold events and engage in widespread dialogue on the issues that really matter for Scotland’s social, economic and political future. In all its work, it will be guided by the goals of social justice, democracy and sustainability.

Its programme of research will take shape in the coming months, but early reports will focus on the Scottish labour market, the country’s future skills needs and the tax and spending choices available to the Scottish Government.

IPPR Scotland’s first director is Russell Gunson. Russell previously worked for NUS Scotland for six years, joining as Head of Policy and Public Affairs before taking up post as NUS Scotland Director in 2014. Prior to working for NUS Scotland, Russell worked in parliament, government the voluntary sector and the private sector. Russell is also a Commissioner on the Commission on Widening Access, an independent commission Chaired by Dame Ruth Silver and announced by Nicola Sturgeon, Scotland’s First Minster, late last year. http://www.ippr.org/news-and-media/press-releases/leading-think-tank-ippr-appoints-first-scotland-director

Modelling for the IPPR's tax-benefit calculations were also used in our recent report on the impact of George Osborne's budget and his choices in next months' spending review. See 'The chancellor’s choices: How to make the spending review as progressive as possible while still delivering a surplus' http://www.ippr.org/publications/the-chancellors-choices

The IPPR’s tax-benefit calculations include the following measures announced at the Summer 2015 budget:

- Cuts to the income disregard in tax credits and the work allowances in Universal Credit
- Freezing working-age benefits for four years from April 2016
- Removing entitlement to the family element for new claims or new families entitled to UC or tax credits from April 2017; and
- Limiting support from Child Tax Credit or the child element of UC to two children for new claims or births from April 2017
- The introduction of a National Living Wage, expected to rise to £9 an hour by 2020
- A rise in both the personal allowance and the higher rate threshold of income tax

We assess the combined impact of these measures (before housing costs) on Scottish households in 2020, with our figures deflated to 2015/16 prices. The model looks solely at the initial impact of the summer budget announcements, before considering any change in household’s behaviour (such as the National Living Wage as an incentive for individuals to move into work).