Ministers urged to use tax ‘ambitiously’ ahead of Scottish Budget

Scottish ministers are being urged to use tax powers “ambitiously” – with more than 50 organisations backing a paper which says changes made to the system so far are “insufficient”.

An IPPR Scotland report, supported by organisations such as Oxfam, the Scottish Trades Union Congress, the Poverty Alliance and the Child Poverty Action Group, suggests a series of changes that could be brought in by the government which could raise some £1.5 billion.

With ministers having to meet legally binding targets on reducing both child poverty and climate damaging emissions, campaigners said the changes could provide “additional investment” for such “critical national priorities”.

With First Minister Humza Yousaf having already pledged to consider introducing a new income tax band for Scotland, the report set out how levying a 45p tax rate on incomes above £58,285 could raise up to £260 million in 2024-25.

In addition, £350 million more could be raised by replacing the existing council tax – which the report branded “badly outdated and in dire need of reform” – with a new property value tax set at 0.75% of a home’s value.

A local inheritance tax, charged on estates worth between £36,000 and £325,000 that are not currently liable for the charge, could net ministers a further £300 million.

The report – backed by 52 organisations also including the Scottish Women’s Budget Group, One Parent Families Scotland, Carers Trust Scotland and Christian Aid – went on to suggest £600 million more could be raised if the Scottish Government was to introduce a new payroll tax on low paying employers.

Produced ahead of December’s Scottish budget where Deputy First Minister and Finance Secretary Shona Robison will set out tax and spending plans for 2024-25, the paper insisted changes to taxation “must not be an insular or timid exercise”.

It stated: “We believe a renewed approach to tax is urgently needed, one that uses Scotland’s existing tax levers, such as the Scottish rate of income tax, more progressively while also using devolved powers to implement new and improved forms of local taxation that target under-taxed wealth, as well as business and polluters.

“Reform is badly overdue. We believe the scale of the challenge is such that it is now a necessity to build upon progressive, but insufficient, changes to taxation in Scotland to date.”

It comes as the Scottish Government has already made “significant, legal commitments” to cut the number of children in relative poverty to less than 10% by 2030, and to cut emissions by 75% by 2030 en route to achieving net zero by 2045.

In addition, the Government has put forward plans for a new National Care Service and for a “large scale expansion” of funded childcare.

The report said: “We believe these critical national priorities cannot be sacrificed due to a lack of funds and are therefore urging the Scottish Government to ambitiously use devolved tax powers to generate more revenue to help deliver them.”

Philip Whyte, director of IPPR Scotland, said while last week’s Programme for Government from the First Minister had made “important rhetorical commitments to tackle poverty and climate change”, only “limited policy commitments” had been made so far.

To deliver on its ambitions Mr Whyte said: “The Scottish Government must go further on tax – building on progressive, but insufficient, reforms to date.

“That means continuing to use existing levers to progressively raise money while also pursuing new levers and kickstarting long overdue reform – not least on local tax so we can target wealth where it’s captured most – property.”

Ruth Boyle, policy and campaigns manager at the Poverty Alliance, said: “A just and compassionate Scotland is one with strong, sustained social investment to end the injustice of poverty, and to make sure that everyone has the chance to develop their potential.

“We are one of the wealthiest countries in the world, and the Scottish Government can use progressive taxation to put that wealth to good use. People in poverty and struggling on low incomes can no longer wait.”

Meanwhile Jamie Livingstone, the head of Oxfam Scotland, stated: “The First Minister has been clear he wants to build a wellbeing economy, where poverty is tackled, inequality is narrowed and the climate emergency is addressed, but realising that ambition requires two things – cash and courage.

“The money and the ideas are there, all that’s needed now is the political bravery required to bring them together.

“The First Minister has said that ‘we need to be even bolder on taxation’ – now it’s time for him to put Scotland’s money where his mouth is.”

A Scottish Government spokesperson said: “The Scottish Government is proud to have the fairest and most progressive tax system in the UK.

“In 2023-24, the Scottish Government is expected to raise up to £1 billion more for public spending than if Scotland mirrored UK Government income tax policy.

“This progressive system has helped strengthen our social contract with every citizen in Scotland which goes significantly beyond provision in the rest of the UK – including free prescriptions, free access to higher education and the Scottish Child Payment that has helped lift an estimated 90,000 children in Scotland out of poverty.”