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Tax rise plan 'could reduce cuts impact by a third' Tax rise plan 'could reduce cuts impact by a third'
(about 1 hour later)
Opposition party plans to raise income tax rates at Holyrood could reduce the impact of spending cuts by about a third, according to new analysis.Opposition party plans to raise income tax rates at Holyrood could reduce the impact of spending cuts by about a third, according to new analysis.
The Resolution Foundation also say Scottish Labour plans would weigh three times more heavily on higher- than middle-earners.The Resolution Foundation also say Scottish Labour plans would weigh three times more heavily on higher- than middle-earners.
They could even boost the income of those living on the least money, depending how rebates were paid.They could even boost the income of those living on the least money, depending how rebates were paid.
The Scottish government has rejected calls for rates to increase by 1p.The Scottish government has rejected calls for rates to increase by 1p.
Scottish Labour and the Liberal Democrats say that the new power at Holyrood to vary income tax rates should be used to protect public services.Scottish Labour and the Liberal Democrats say that the new power at Holyrood to vary income tax rates should be used to protect public services.
Progressive planProgressive plan
It has been hotly debated this week. SNP ministers argue that Labour's plans would hit workers of modest means. Conservatives say there should be no increase in the tax burden.It has been hotly debated this week. SNP ministers argue that Labour's plans would hit workers of modest means. Conservatives say there should be no increase in the tax burden.
The Resolution Foundation, a think tank specialising in income and tax, has confirmed Scottish Labour claims that its plan would be progressive. The Resolution Foundation, a think tank specialising in income and tax, whose executive is former Tory minister David Willetts, has confirmed Scottish Labour claims that its plan would be progressive.
Its analysis, written by Torsten Bell, a former director of policy for the Labour Party who also worked in the Treasury, points to the highest 10th of earners paying an extra 1.3% of their income, or at least £1,000. Its analysis, from Torsten Bell, a former director of policy for the Labour Party who also worked in the Treasury, points to the highest 10th of earners paying an extra 1.3% of their income, or at least £1,000.
Middle-earning households would see take-home pay reduced by just under £100. That is 0.4% of their income.Middle-earning households would see take-home pay reduced by just under £100. That is 0.4% of their income.
Labour plans a rebate of £100 for those earning under £20,000.Labour plans a rebate of £100 for those earning under £20,000.
The Foundation says this is a blunt way of compensating lower earners, and could be unfair to single income households.The Foundation says this is a blunt way of compensating lower earners, and could be unfair to single income households.
A two-income household could get twice the rebate. On that basis, they say 60% of the rebate bill would go to the higher-earning half of households.A two-income household could get twice the rebate. On that basis, they say 60% of the rebate bill would go to the higher-earning half of households.
Because the lowest-paid 10th of households pay little income tax anyway - with the threshold for income tax soon to rise to £11,000 - a rebate would leave them better off.Because the lowest-paid 10th of households pay little income tax anyway - with the threshold for income tax soon to rise to £11,000 - a rebate would leave them better off.
However, the rebate plan is not clear, and partly depends on whether it would be taxable.However, the rebate plan is not clear, and partly depends on whether it would be taxable.
The analysis suggests that the tax rise is not enough to counter spending cuts being passed on from Whitehall.The analysis suggests that the tax rise is not enough to counter spending cuts being passed on from Whitehall.
In real terms, it would reduce the day-to-day spending cuts the Scottish government faces by a third - that is, a third of the planned 5% cut between now and 2019-20.In real terms, it would reduce the day-to-day spending cuts the Scottish government faces by a third - that is, a third of the planned 5% cut between now and 2019-20.
Cutting spendingCutting spending
The report authors say the policy's success would also depend on how those extra funds are spent. Money could be deployed to support high or low income groups most.The report authors say the policy's success would also depend on how those extra funds are spent. Money could be deployed to support high or low income groups most.
They warn that tax hikes in future years cannot all be loaded on to higher earners.They warn that tax hikes in future years cannot all be loaded on to higher earners.
Holyrood is on track to have the ability, from April 2017, to vary income tax rates differently across bands, whereas the reform being introduced this April requires the same level of increase or decrease.Holyrood is on track to have the ability, from April 2017, to vary income tax rates differently across bands, whereas the reform being introduced this April requires the same level of increase or decrease.
The SNP has signalled that it wants to use the tax powers to re-balance the system towards taxing higher earners at higher rates.The SNP has signalled that it wants to use the tax powers to re-balance the system towards taxing higher earners at higher rates.
However, the Resolution Foundation says: "It's difficult to raise significant sums through income tax without increasing the basic rate, as there simply aren't enough higher and top rate payers".However, the Resolution Foundation says: "It's difficult to raise significant sums through income tax without increasing the basic rate, as there simply aren't enough higher and top rate payers".
An additional complication it raises is that Whitehall reform to the benefits system - with the introduction of Universal Credit to replace six benefits currently paid out - will blunt the revenue-raising potential of a tax increase.An additional complication it raises is that Whitehall reform to the benefits system - with the introduction of Universal Credit to replace six benefits currently paid out - will blunt the revenue-raising potential of a tax increase.
Those receiving Universal Credit, which experts say could be as much as half of families, would get back 65% of any tax rise in benefit entitlement.Those receiving Universal Credit, which experts say could be as much as half of families, would get back 65% of any tax rise in benefit entitlement.
And as that would come from Westminster's budget, the "no detriment" principle (a decision by Holyrood cannot leave the rest of the UK worse off, or vice versa) the extra welfare bill might have to be paid to the Treasury.And as that would come from Westminster's budget, the "no detriment" principle (a decision by Holyrood cannot leave the rest of the UK worse off, or vice versa) the extra welfare bill might have to be paid to the Treasury.
The report concludes: "Advocates of Scottish Labour's plans to raise income tax and reduce spending cuts can correctly argue that the proposals would raise money and do it in a progressive way.The report concludes: "Advocates of Scottish Labour's plans to raise income tax and reduce spending cuts can correctly argue that the proposals would raise money and do it in a progressive way.
"But those opposed may argue that there are even more progressive ways to bring in revenue, that the plans will still take money from middle earners' pockets, or that cutting spending is the right thing to do in the first place.""But those opposed may argue that there are even more progressive ways to bring in revenue, that the plans will still take money from middle earners' pockets, or that cutting spending is the right thing to do in the first place."
What is the Scottish Rate of Income Tax?What is the Scottish Rate of Income Tax?