Increasing income tax for highest earners by just 1p could raise £200m to boost incomes and tackle child poverty, think tank finds

Increasing income tax for highest earners by just 1p could raise £200m to boost incomes and tackle child poverty, think tank finds

For every 1p added to income tax paid by the highest earners in Scotland, the Scottish government could raise an additional £200 million per year - that’s according to analysis published today by Scotland’s leading think tank.

Ahead of the upcoming Scottish budget, IPPR Scotland has set out the progressive reforms to taxation that can be made to fund protections for the most vulnerable households in Scotland amid soaring inflation and forecasts that disposable income will fall to 2013 levels. Researchers at IPPR Scotland say that these reforms could also “lay the foundations” for a fairer future.

Today’s analysis shows that the Scottish government could raise more revenue through devolved tax powers, and effectively using funding from the UK government, in the upcoming Scottish budget. Apart from increasing income tax for the highest earners, other measures IPPR Scotland suggest could be taken include:

• Matching the UK government’s decision to reduce the threshold at which people have to pay the highest rate of tax to £125,140. If combined with freezing the higher rate thresholds, this would raise £380 million for Scotland by IPPR Scotland’s analysis. They state this could be reinvested into meeting ambitions around public services, tackling child poverty, and safeguarding households through the ongoing cost-of-living crisis. Going further, and lowering the top rate threshold to £100,000, could bring in an additional £70 million a year on top of this.

• Replacing council tax with a new system based on either property or land value. They say that a new system would be fairer as the current system of council tax is a regressive form of taxation which disproportionately is paid for by those with the least wealth. Previous analysis by IPPR Scotland has already shown that a new system based on either property or land tax value could raise an additional £350 million per year compared to the current system.

• Undertaking a root and branch review of the Scottish tax system. This would include further progressive reforms to income tax rates and thresholds, as well as consideration of new local taxes to tackle Scotland’s significant wealth inequality.

Taken together, these measures could help raise revenue to provide immediate support to vulnerable households struggling under the ongoing cost-of-living crisis, while laying the foundations for a Scotland where everyone is able to thrive and prosper, no matter what their background.

Dave Hawkey, senior research fellow at IPPR Scotland said:

“Progressive reforms to taxation in Scotland are a sensible, practical way for this government to ensure that its ambitious goals are met, to ensure everyone has the opportunity – no matter what their background – to prosper and thrive.

“Not only can the measures we’ve outlined help fund the Scottish government’s pledge to safeguard households struggling to make ends meet in the immediate term, but they can also help to meet their long-term ambitions around ending child poverty and taking the first steps towards its commitment to develop a Minimum Income Guarantee. These are the priorities that matter to the people of Scotland, and it is right that those with the broadest shoulders in Scotland contribute fairly.”