New Scottish Income Tax Comes Into Effect - But Is It Enough?

Changes to the Scottish rate of income tax have come into effect today, but there just how effective will these changes be in raising the money for extra public spending?

Most Scottish taxpayers will see no changes to their tax bills, or at the most a gain of £20 yearly, but those at the top end could see a tax increase of up to £2000. This is predicted to raise somewhere between £240 and £267 million pounds in revenue, after behavioural changes are taken into account. Thomas Pope and Tom Waters at the Institute for Fiscal Studies insist that this a ‘small tweak’ to the system and the long term consequences of the move will be limited, in part because wealthier individuals may choose to incorporate their earnings and so pay taxes on dividends rather than income taxes, which would then go to the exchequer rather than the Scottish government.

Fundamentally, the problem faced by the Scottish Government is that most of the capital needed to end austerity is wrapped up in wealth and assets (particularly property), not income. Some estimates claim that the Scottish housing market has increased in value by £100 billion in the last decade alone. A wealth tax as suggested by Richard Leonard, or a revamped property tax at the local level could increase spending significantly. But a move in Holyrood by the Greens, and backed by Scottish Labour, to replace Council Tax was defeated by the SNP and Tories. Without the political will to go after wealth, tinkering with income tax bands will only mitigate austerity rather than end it.

Scottish Labour has been highly critical of what they see as the lack of ambition in the tax reforms, which they claim will be mostly eliminated thanks to the rising cost of rent and other essentials.

Commenting on the SNP's tax changes coming in to effect, Scottish Labour's finance spokesperson James Kelly MSP said:

“These tax changes represent nothing but a missed opportunity caused by SNP complacency.

“SNP Finance Secretary Derek Mackay has done nothing but tinker around the edges, passing Tory austerity on to the people of Scotland.

"This week we are seeing the impact of this austerity - rising class sizes, an overstretched NHS and frontline services slashed. Derek Mackay's supposed tax cut will be completely wiped out by the rising cost of living.

“Rather than asking the richest to pay their fair share, the SNP has cut council budgets and failed to deliver a proper pay rise for public sector workers.

“Scottish Labour would use the tax powers to make the richest pay their fair share, end austerity and deliver real change.”

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