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Finance Committee consultation on new Scottish income tax powers: what would 1p buy?

June 6, 2015

Common Space  has usefully drawn attention to a new consultation by the Scottish Parliament’s Finance Committee, which is seeking views on whether the Parliament should use the new raising powers due to come into effect in April 2016 and, if so, for what purpose.

The Committee’s call for evidence says:

It is expected that the Scottish Government will propose its initial SRIT [Scottish Rate of Income Tax] when it publishes its draft budget for 2016-17 in the Autumn. The Committee would, therefore, welcome views on:
  • What should the rate be for SRIT and why;

  • If SRIT should be above 10% how should the additional funding be allocated;

  • If SRIT should be below 10% how should the reduction be funded from existing expenditure;

  • Has the introduction of SRIT been sufficiently well publicised to employers and tax payers.

 

The deadline for response is 28 August.

The call for evidence does not – a little unhelpfully – give any idea what the income generated or lost by using the new powers to vary income tax rates in Scotland.  However, Figure 1 on page 10 here appears to suggest that a 1p increase in the rate would raise around £0.5bn.  To put that in context, that would be five times Scotland’s total spending on all forms of higher education student grant.

Substantial improvements could be made in the support for low income young students, mature students could be brought back within the main grant scheme and the relatively low living cost support for those just over £34,000 a year who are away from home could be fixed without increasing that group’s debt, for less than £250 million, that is less than a 0.5p increase in the income tax rate.  The tightly cost-controlled cash-only bursary regime for students in FE costs around £100m: it could be moved onto something more like that for HE, with students guaranteed funding, and there would still be change from an extra penny on the tax rate.

It is of course unlikely that this sort of spending (unlike 100% free tuition) would be regarded as more important than schools, hospitals, childcare or  other areas of public spending.  It is also far from clear that the Scottish Government is likely to propose the use of this new power in its 2016-17 budget and what its opponents will say if it does.

But for the next three months, the rest of us get to have a say.  This consultation has been reported in the press but has been less publicised than the in-year cut of £177m which has just been made to the Scottish budget – but it is potentially at least as important.

 

Footnote

The Parliament’s research arm, SPICe, has produced this useful briefing note: Figure 3 confirms that 1p ought to raise around £0.5bn.

 

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