Benefits and tax credits

Abstract

Strictly speaking, the comparator has switched to England and Northern Ireland, following the devolution of tax powers to Wales in 2018-19 (Stamp Duty Land Tax and landfill tax) and 2020-21 (income tax). We use the term rUK throughout for ease of reference. Key findings1. Scottish Government policy measures -which include reducing the higher rate threshold, moving to a five-band system of income tax, and increasing the higher and top rates of tax -have raised significant amounts of revenue relative to if it had followed UK government tax policy that applies in rUK. The SFC estimates that, before accounting for any behavioural responses, these changes boosted revenues by £385 million in 2018-19 and will boost revenues by £852 million in the current financial year, 2022-23.2. However, slow growth in Scotland's underlying tax base compared with rUK has exerted downwards pressure on Scottish income tax revenues, despite these reforms to Scottish income tax policy. In 2018-19, revenues from income tax were only £127 million higher than the BGA subtracted from Scotland's block grant funding to account for tax devolution (which is updated each year in line with growth in revenues in rUK), and in the current financial year, 2022-23, revenues are forecast to be £107 million lower than the BGA. In other words, slow growth in the underlying tax base is forecast to more than offset the additional revenues from Scotland's higher tax rates this year.3. Relatively slow employment growth in Scotland, compared with rUK, has been one factor behind this poor net tax position. Scotland's population is ageing more rapidly than the population of rUK, and there have been falls in economic participation rates within age groups. For adults aged 35-49, the labour force participation rate in 2014-15 was comparable in Scotland to that in the UK as a whole (86.8% versus 86.9%), but

Changing labour market and income inequalities in Europe and North America: a parallel project to the IFS Deaton Review of Inequalities in the 21stcentury

“…This project has benefited substantially from the evidence provided in the IFS Deaton Review, particularly taking inspiration from key relevant chapters of the IFS Deaton Review such as Bourquin, Brewer and Wernham (2022) on trends in income inequalities, Andrew et al. (2021) on men and women in the labour force, Dustmann, Kastis and Preston (2022) on immigration, Kiernan, Crossman and Phimister (2022) on families, Giupponi and Machin (2022) on labour markets and Hoynes, Joyce and Waters (2023) on benefits. Along with Blundell et al.…”