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Report Questions Scottish Tax Solution To Inequality

By Amanda Banks, Tax-News.com, London

23 January 2014


New research suggests that the Scottish Government's promise to reduce inequality will require "a major policy change," rather than simply exercising extra fiscal powers.

According to a report by Stirling University academics David Comerford and David Eiser, tax-raising powers relating to council tax and the new devolved Scottish rate of income tax are relatively ineffective at tackling inequality because they cannot target specific income groups, but even full fiscal autonomy in an independent Scotland would have only a small impact on inequality.

The authors explain that when compared with Nordic countries, Scotland has a gap of 4.7 points on the GINI Coefficient, which is the recognized measurement of income distribution. However, adding GBP0.01 the upper rate of income tax would close this gap by just 1 percent (equivalent to less than a 0.05 reduction in the GINI coefficient gap), while lowering the Additional Rate tax threshold from GBP150,000 per annum to GBP100,000 would reduce the gap by only 1.6 percent.

Further, the authors warn, policy changes in an independent Scotland could trigger migration due to Scotland's high degree of integration with the rest of the UK. A GBP0.01 increase in the basic rate of income tax could see revenue fall from GBP320m to GBP210m, while a GBP0.01 rise in the upper rate could see revenue slashed from GBP40m to GBP2m.

The report, entitled Constitutional Change and Inequality in Scotland, is based on a new model of the Scottish economy focused on taxes and spending among Scottish households. It was funded by the Economic and Social Research Council as part of an ESRC project called Future of the UK and Scotland.

TAGS: tax | economics | fiscal policy | United Kingdom | tax rates | individual income tax

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