The Scottish Government has been told it must implement a number of fair tax changes at the next budget.
Fair tax changes in Scotland could boost spending on key national priorities by hundreds of millions per year, campaigners have said.
Charities and other groups are calling on the First Minister to “put Scotland’s money where his mouth is” by beginning to deliver his commitment to explore “bolder” income and wealth tax reforms and to do so ahead of the next Scottish Budget.
In a new briefing, The case for fair tax reform in Scotland, published today, IPPR Scotland, Oxfam Scotland, the Poverty Alliance, CPAG in Scotland, the Scottish Women’s Budget Group, One Parent Families Scotland and the Wellbeing Economy Alliance Scotland lay out a series of progressive options to reform the Scottish tax system using devolved powers.
The briefing urges the First Minister to use Scotland’s existing tax levers, such as the Scottish Rate of Income Tax, more progressively in the Scottish Budget for 2024-25.
It also calls on Humza Yousaf to kickstart long overdue tax reform and highlights a series of options that should be considered with modelling suggesting that each of them could raise hundreds of millions of pounds annually in extra revenue.
The briefing, which is backed by 52 organisations in total, says the extra revenue could fund public services while boosting progress towards the Scottish Government’s legally binding targets to reduce child poverty and climate emissions, and accelerate commitments to boost spending on care and childcare, tackle gender inequality and realise human rights.
Jamie Livingstone, head of Oxfam Scotland, added: “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.”
Campaigners are calling on the First Minister to use devolved powers to implement new and improved forms of local taxation to target under-taxed wealth and change behaviours by incentivising fairer business practices and carbon emission reduction.
While some of the options would take time to implement – and behaviour change may somewhat diminish the revenues – modelling by IPPR Scotland estimates that up to £260million more could be raised in 2024-25 by introducing an additional 45 per cent rate on earnings above £58,285 – earnings that would put someone in the 90th percentile for full-time gross earnings in Scotland.
The think-tank also said £350m more could be raised by replacing the existing Council Tax with a new percentage of value tax set at 0.75% of a home’s value.
A further £300m more could be raised through a local inheritance tax charged on estates worth between £36,000 and £325,000 that do not pay UK-wide inheritance tax, as well as £600m more could be raised by a new local payroll tax on low pay employers.
The organisations say the increased revenues generated by these, or other fair tax reforms, should be invested in accelerating the transition to a wellbeing economy and should sit alongside incentives, regulation and wider activities to stimulate green and socially just economic activity.
Philip Whyte, director of IPPR Scotland, said: “Last week’s Programme for Government left us in a holding pattern – important rhetorical commitments to tackle poverty and climate change but with limited policy commitments to get us there. These vital priorities cannot be sacrificed due to a lack of funds – so all eyes now turn to the Budget and ensuring we see much needed and sustained spending commitments.
“To deliver that, 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.”
Campaigners say that despite the increasingly challenging fiscal context facing the Scottish Government, action to tackle the country’s stubbornly high poverty rate, growing and damaging wealth inequality and repeated failure to meet its own emissions reduction targets cannot wait: making bold, progressive action on tax a political imperative.
While many crucial tax powers are reserved to Westminster, the briefing outlines a range of actions the Scottish Government, working with local authorities, could take to fairly raise more money while protecting the pockets of the poorest households.
Though much of the additional revenue would be raised and spent locally, this would free up Scottish Government funds for delivering key national priorities.
Campaigners are calling on the First Minister to introduce a new and additional Income Tax band between the current Higher and Top rates in the upcoming Budget for 2024-25, and fundamentally reform the devolved tax system within this parliament, starting by launching a national consultation before the 2024-25 draft Budget;
The groups also called for the launch of a cross-party process to replace the current Council Tax before the end of this parliament in 2026, ending the long and damaging impasse, and with legislation for a new system in place before the end of this Parliament. The Scottish Government must also assess options for targeting under-taxed wealth, including considering a new percentage of value property tax, and measures to tax other forms of wealth, pursue opportunities to introduce new taxes that incentivise more businesses in Scotland towards pro-social behaviour change, such as offering fair and flexible working, including to those with caring responsibilities, and explore options to raise additional money for climate action by making polluters pay for their damage and incentivising emissions reductions in line with meeting the legal targets as a minimum.
While the campaigners have welcomed the creation of the Scottish Government’s new Tax Advisory Group they say that these options should now be considered by the group through national engagement and consultation.
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.”