Scottish Government plans to reduce income tax for low earners will not lead to less people in poverty, a thinktank has claimed
Proposed tax cuts for low earners will have no effect on poverty levels in Scotland, research has shown.
The Scottish Government unveiled plans to reform income tax last December - with some high earners set to pay more than in other parts of the UK and low earners paying less.
However analysis published this week by the Institute for Public Policy Research (IPPR) thinktank has revealed the proposed income tax cuts on lower earnings will not be effective at supporting the poorest households in Scotland, and will fail to help the government to meet its new targets on reducing poverty.
It found that in isolation from the Scottish Government’s wider income tax proposals, a proposed starter rate of 19p would cost £50 million per year and have no effect on poverty. A more extensive 18p starter rate on earnings up to £19,000 per year would cost £300 million per year and may be counterproductive as it could result in more people falling below the poverty line.
Meanwhile, low income households in receipt of Universal Credit that would benefit from the starter rate could see their benefit entitlement drop by 63p for every £1 of benefit from the tax cut.
Russell Gunson, director of IPPR Scotland, said: "Now is the time for parties across the parliament to prioritise making this year's budget an anti-poverty budget, beginning the hard work of meeting Scotland’s strong targets on reducing poverty. These targets aim to see significant reductions in poverty by 2030 and were passed unanimously by all parties only a few months ago.
“The Scottish Government’s wider plans to increase income tax are necessary and welcome and will help to protect a range of public services from cuts for at least this year. However, the proposed tax cuts on lower earnings are poorly targeted and will have no impact on poverty rates.”
The research has suggested that ending a cap on benefits and the two-child limit on claims (otherwise known as the rape clause) would cost around £120 million per year, but bring 10,000 children and 5,000 adults out of relative poverty in Scotland.
A Scottish Government spokesman said: “Our income tax proposal is balanced: it makes the system fairer, more progressive and raises additional revenue to support our economy and public service.
“Our draft budget policy, when combined with the Personal Allowance, will protect the 70% of taxpayers who earn less than £33,000 a year and ensure they pay less tax next year for any given income.”
John Downie, director of public affairs at the Scottish Council for Voluntary Organisations (SCVO), called for a rounded approach to taxation in Scotland.
He said: “Income tax cuts for the low paid will not significantly reduce poverty in Scotland, given that large numbers of those in poverty in Scotland don’t pay income tax, in part because many are either unemployed or earn at levels low enough to fall under the threshold.
“As today’s research from IPPR shows, we need a rounded approach that considers both tax and benefits if Scotland really is to reduce poverty rates, and we believe that the Scottish Government must utilise the benefits system to really dig into poverty alleviation.”
