On 12th December, the Scottish Government will publish its draft Budget for 2019/20, setting out their plans for devolved taxes and spending in devolved policy areas for the coming year. The draft Budget will face parliamentary scrutiny over the coming months before being finalised, potentially with amendments, before the end of February 2019. Given the current make-up of the Scottish Parliament, and there being a minority SNP government, the Scottish government will need one or more opposition parties to back their plans.

2019/20 will be the third financial year in which income tax powers for rates and bands on earnings are fully devolved to Holyrood. Given last year’s budget introduced an overhaul of Scotland’s income tax structure, we are unlikely to see radical proposals to change Scotland’s income tax rates and the number of bands– at least not from the Scottish government itself.

However, the thresholds at which different tax rates apply could be an important policy decision for parties across the Scottish parliament, that could have considerable impact on Scotland’s public finances. This is particularly relevant for the higher rate tax threshold (HRTT), at which income tax payers start to pay the higher rate of tax on earnings.

In a previous briefing we considered the impact of matching the UK government’s planned changes to the higher rate threshold, which will see the higher rate apply on earnings over £50,000 from 2019/20. Meanwhile, in this blog, we consider the impact of freezing the HRTT in cash terms, compared to the default option of raising the threshold with inflation.

Usually, income tax thresholds increase each year with inflation. That’s the baseline assumption made by the Scottish Fiscal Commission in projecting Scotland’s devolved tax revenue over the coming years. However, if all income tax bands were to rise with inflation in 2019/20, higher earners (those earning just under £45k a year) could see a cash-terms tax-cut to the tune of £421.70, when compared with what they paid in 2018/19. Lower earners would still see a smaller tax cut (in cash-terms) worth up to £139.50 over the year. The lowest earners, who do not pay income tax, would receive nothing.

We wanted to consider an income tax option that would limit cash-terms tax cuts for the highest earners to no more than those seen by lower earners. As table 1 below shows, a freeze to the higher rate tax threshold in Scotland would see all tax-payers see a cash-terms cut in their income tax bill in 2019/20 compared to 2018/19 – made up from increases to the UK personal allowance, and the basic and intermediate threshold in Scotland. However, the highest earners gain no more than lower earning tax payers.

Table 1 - Cash-terms tax cuts in Scotland for selected earnings, 2019/20 vs. 2018/19 (annual)


Baseline scenario: Increase higher rate tax threshold with inflation

IPPR alternative scenario: Freeze higher rate tax threshold in cash-terms










£14,942.20 (Minimum Wage)


















We also found that freezing the higher rate tax threshold in cash-terms for the next three years in Scotland could raise up to £210m per year by 2021/22 - as shown in table 2 below. The policy would also take the top 20% of income tax payers in Scotland into the higher rate band, generating enough additional public funds to provide an additional 1.6% of spending for non-protected departmental budgets in Scotland (those outside of health, police and social security).

Table 2 - Change in income tax revenue from freezing Scotland’s higher rate tax threshold, £ million (real terms, 2018-19 prices)

Cash-terms freeze of higher rate tax threshold in Scotland















Total (cumulative)



Source: IPPR Scotland tax-benefit model.

Note: Tax revenue changes are measured against the baseline of increasing thresholds with inflation.

If invested into social security spending in Scotland, this additional revenue could help to reduce child poverty in Scotland. As table 3 shows below, a cash-terms freeze of the HRTT in Scotland for the next three years could raise enough funding to afford to effectively remove the benefit cap, end the 2-child limit, and to top-up the child element of universal credit by £20 a month in Scotland, taking 40,000 children out of relative poverty by 2021/22. This could be delivered by top-ups to the Universal Credit in Scotland, or by taking equivalent action through a stand-alone Scotland payment.

Table 3 - Social security spending from freezing the higher rate tax threshold in Scotland (2021-22 projections, cash-terms)

£20 top-up to UC Child Element, no two-child limit, no benefit cap

Income tax revenue change


Benefit cost


Child poverty reduction


Source: IPPR Scotland tax-benefit model.

Note: Relative child poverty is against a UK poverty line of 60% median income, after housing costs. Costings assume a full roll-out of UC equivalent and full take-up. Latest figures, for 2014-17, show there are an estimated 230,000 children in relative poverty in Scotland (Scottish Government, 2018).

If the higher rate tax threshold in Scotland were to be frozen in cash-terms, all income taxpayers in Scotland would still receive a tax cut in cash terms of up to £139.50 in 2019/20 (resulting from planned changes to personal allowance, and from increases to Scotland’s other tax band thresholds, as per table 1 above), and the bottom 56% of taxpayers in Scotland would still pay less tax than in the rest of the UK.

Ahead of what is expected to be a tough Scottish budget, IPPR Scotland is calling on the Scottish government and Scottish parliament to consider freezing the tax band for higher earners over the coming years, to provide additional tax revenue that could be spent on Scottish government priorities like ending public spending cuts or reducing relative child poverty.

Rachel Statham is Economic Analyst at IPPR Scotland. She tweets @rachelstatham_

Russell Gunson is Director of IPPR Scotland. He tweets @russellgunson.


This marks the second briefing in an analysis series looking at the Scottish government draft budget which has been supported by the Scottish Trade Union Congress, STUC, as well as the Child Poverty Action Group Scotland and One Parent Families Scotland.

Methodological notes

All income tax revenue figures have been adjusted to factor-out dividend income, which is not devolved to Scotland. These adjustments are made using UK-wide data on the proportion of income tax revenue from dividend income as no equivalent data is available for Scotland.

Static numbers for income tax revenue have been adjusted to factor-out dividend income given this is not devolved to Scotland. Adjustments are made on the basis of UK-wide income tax revenues from dividends income.

Dynamic figures are adjusted for forecast behaviour change, according to Scottish Fiscal Commission forecasts. Behaviour change projections are particularly uncertain and should be treated cautiously.

Revenue-raised for tax options is in comparison to the baseline scenario which assumes thresholds rise with inflation.

The Personal Allowance is reserved and so applies across the UK in these calculations.

Income tax revenue has been rounded to the nearest 10 million so columns may not sum.

Real-terms figures use the latest UK Budget 2018 GDP deflators to adjust for inflation.

Child poverty figures have been rounded to the nearest 5000.

Relative child poverty is against a UK poverty line of 60% median income, after housing costs.

Costings assume a full roll-out of UC equivalent and full take-up.