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Scottish Rate of Income Tax: maths vs rhetoric and looking ahead to the 2017 local elections

February 9, 2016

This piece on Sceptical Scot highlights that for  the lowest paid, a 1p increase in the SRIT would be more than cancelled out by the rise coming this April in the threshold at which tax becomes payable.  An increase in SRIT would be substantially mitigated for many more, so

compared to the current year anyone earning up to £19,000 would still see their tax bill fall with a 1p increase in the SRIT.  They would be more than compensated by the threshold change. Someone on £25,000 would pay £5 more a month than now: around median full-time earnings (about £27,000), a person would pay £7.50 more a month.  To be paying at least £5 a week more than now, you would have to be earning over £55,000. Those numbers exclude the tax cut foregone, but still put into perspective some of the more florid rhetoric about protecting the less well-paid.

The figurework behind these numbers is contained in this spreadsheet Threshholds Income tax 2016-17.

The piece adds that the repositioning of Labour and the Liberal Democrats on tax means that

it is impossible to imagine a safer context politically in which the SNP could propose using these powers, particularly once the cushioning effect of the threshold rise at lower incomes is thrown in. Indeed, this may be the easiest opportunity there will ever be to challenge the assumption that a race to the bottom on income tax is as inevitable as gravity.  The SNP might lose a few votes, but it’s  implausible that it would be on a scale which would cause them real damage.

One last point not made in the piece is that cutting council budgets now might be regarded as having medium-term advantages which outweigh the short-term pain, in relation to the 2017 local elections.  The majority of councils are not controlled by the SNP, so it will mostly be the party’s political opponents who will be making the cuts required this year.  Those areas such as Dundee and Perth and Kinross, which do have SNP-led councils, may be regarded as loyal enough not to be at serious risk.  If the party is banking on successfully shifting any responsibility for the cuts in the short-term up to Westminster or down to non-SNP councillors (there are already signs of this approach, for example in Glasgow), it may see these cuts as relatively low risk, while a  depressed local government funding baseline would be an advantage as it approaches the 2017-18 budget.  It would make a year-on-year increase in the amount given to local government immediately ahead of the 2017 elections much easier to achieve, either using new tax powers or shuffling money round from elsewhere.

The SG has used this “cut and restore” approach before  in other areas (for example, recently making much of its £125 increase in student grants this year, while ignoring the four-figure cuts imposed in 2013).  It’s possible that thinking on these lines provides some explanation for why imposing such a large budget hit on local government is seen as a lower political risk than increasing income tax for those in the top half of the earnings distribution, over and above the fact that local service cuts will  tend to be less visible, especially to the better off.

 

 

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