What might slower economic growth in Scotland mean for Scotland's income tax revenues?

Income tax revenues now account for over 40% of the Scottish resource budget. Under Scotland's Fiscal Framework, the Scottish budget benefits from growth in income tax revenues per capita if they grow faster than the growth in equivalent revenues in the rest of the UK (rUK). Since the beginning of 2015, Scotland's Gross Domestic Product (GDP) per capita has grown significantly slower than the UK's, raising concerns that if this trend continues it may lead to relatively slower growth in the Scottish income tax base and a weaker outlook for the Scottish budget. This paper considers the relationship between GDP per capita and income tax revenues. It argues that, whilst there is a reasonably strong relationship between growth in GDP per capita and tax revenues in the longer-term, the relationship is likely to be significantly weaker in the short-term. Empirically, it finds that whilst Scottish and UK GDP per capita has broadly grown at similar rates between 1999 and 2015, growth in income tax revenues per capita have at times diverged. The paper concludes by considering whether Scotland’s recent slower growth in GDP per capita is likely to continue over the next few years, and, if it does, what this might mean for Scotland's income tax revenues

A primer on the Scottish Parliament's new fiscal powers : what are they, how will they work, and what are the challenges?

This article provides an overview of Scotland’s new Fiscal Framework. The Fiscal Framework sets out how the new powers devolved to the Scottish Parliament in the Scotland Acts 2012 and 2016 will be made operational. It provides a brief overview of the history of fiscal devolution to Scotland since the establishment of the Scottish Parliament in 1999. From relying on a Block Grant from Westminster to fund virtually all its expenditure, the Scottish Parliament now has a range of revenue raising powers including substantial flexibility to vary income tax rates and thresholds; moreover the Scottish budget will in future be much more closely linked to the performance of the Scottish economy. In addition, the Scottish Parliament will gain a range of powers in relation to social security. The mechanisms and method(s) for adjusting Scotland’s Block Grant – Block Grant Adjustments (BGA’s) – the forecasting role of the new Scottish Fiscal Commission and Scotland’s new capital borrowing, resource and cash management powers are all outlined. . Finally, the implications for Scotland’s budget process and what the new arrangements could mean for the Scottish Government’s ability to impact on Scotland’s econom

In Scotland, public appetite for further fiscal decentralisation is fuelled by greater levels of trust in Holyrood than in Westminster

Popular pressure for further fiscal devolution from Westminster to Holyrood is less a matter of wanting to pursue a different policy agenda, says David Eiser, and more a matter of who the electorate trusts

Wealth Taxes and Devolution

This paper poses the question: if the UK were to introduce a net wealth tax, to what extent would there be a case for that tax, or elements of that tax, to be devolved to the UK’s three devolved legislatures? The notion of a tax being devolved in this sense can include anything on the spectrum from full devolution, through some form of tax sharing arrangement where devolved government can vary specific aspects of the tax within their territories, to revenue assignment. To analyse this question, the paper draws on economic theory, the practical experience of recent tax devolution in the UK, and lessons from other countries that operate a wealth tax at devolved level

Social mobility and the intergenerational transfer of advantage in labour and housing markets in Scotland : some preliminary analyses

This paper presents new data on social mobility in Scotland. It examines the extent to which individuals’ occupation as adults is correlated with the occupation of their parents. It considers the extent to which growing up in a workless household influences the likelihood of being employed as an adult. And it examines how the occupational class of one’s parents influences the probability of being a homeowner, after controlling for individual characteristics (educational qualifications, health). The paper finds evidence that parental labour market status plays a significant role in influencing labour and housing market outcomes in Scotland, and that this intergenerational effect is at least as strong in Scotland as it is in the UK as a whole

The outlook for the Scottish budget in 2020 and beyond

The outlook for the Scottish budget in 2020/21 has changed substantially since it was published in March. Higher spending and lower revenues will largely be offset by increased grant from the UK Government. The pandemic also accentuates the scale of several fiscal risks that the Scottish budget was already exposed to, leading to calls for the Scottish Government to have access to additional fiscal flexibilities to manage these risks. The Covid-19 health crisis and its aftermath poses a range of substantial fiscal challenges for the Scottish budget in 2021/22 and beyond. But the outlook for the Scottish budget is extremely uncertain beyond 2020/21, creating challenges for the Scottish parties as they begin preparing their manifestos for next May’s Holyrood elections. This paper assesses the risks to the Scottish budget this year; appraises the scope for additional budget flexibilities to manage these risks; and considers the longer term outlook for the budget in the next parliament, both in terms of the key fiscal issues to be addressed and the likely level of resources available

Regional economics and constitutional change in the UK

The UK, traditionally one of the more fiscally centralised of OECD countries, is currently in the midst of an extensive programme of tax decentralisation. This is most evident in Scotland. Ten years ago the Scottish Government was almost wholly reliant on a block grant from the UK Government to fund its spending, and debate was focussed on how the determination of this grant should be reformed. Today the Scottish Government has far greater fiscal autonomy. Income tax was almost fully devolved to the Scottish Parliament in April 2017, and around half of VAT revenues will be assigned to Scotland by 2020. As a result, the devolved Scottish budget will in future be linked much more closely to Scotland’s economy, and Scottish politicians will be able to deviate from UK policy on the setting of income tax and various smaller taxes. The objective of this PhD is to examine the economic and political motivations for and implications of greater fiscal decentralisation, with a particular focus on the Scottish case. Its key over-arching questions include: • Which fiscal powers are more and less suitable for decentralisation, and what might constraints might a devolved government face in exercising devolved tax powers? • To what extent are the objectives of fiscal decentralisation compatible with the goal of inter-regional equity in public good provision? • To what extent is fiscal decentralisation likely to enhance the incentives faced by politicians in a devolved parliament to pursue particular types of policy? And to what extent does the answer to this question depend upon the way in which supporting fiscal institutions, notably including the design of block grant arrangements, influence this? • What factors determine regional economic performance, and to what extent can devolved governments be held accountable for (or face the budgetary consequences of) those trends? • To what extent might fiscal decentralisation assuage or accentuate demands for Scottish independence? This PhD consists of four academic papers covering aspects of regional economics and constitutional change in the UK, with a particular focus on Scotland. Each of the four papers is preceded by an abstract. An introductory chapter provides theoretical and policy context within which the four papers are situated. A concluding section to the PhD is provided in Chapter 6. The four papers cover the following topics: • Paper 1 (Chapter 2) was published in the immediate aftermath of the Scottish independence referendum of 2014, and considers the issues and constraints involved in devolving further fiscal powers to the Scottish Parliament. • Paper 2 (Chapter 3) considers the scope for replacing the Barnett Formula (used to allocate funding to the Scottish Government) with a form of spending-needs assessment, based on a comparative analysis of formulae used within England and Scotland to allocate health funding to territorial health boards. • Paper 3 (Chapter 4) examines how regional labour markets in the UK responded to the 2008/9 recession and its aftermath, and considers which factors may have influenced regional resilience to the recession. • Paper 4 (Chapter 5) examines the factors that determine differential growth in regional income tax revenues, and considers the extent to which it is reasonable to hold devolved governments wholly to account for differential economic performance. • Chapter 6 concludes

Addressing inequality in Scotland: what can be done?

Inequality is now an issue of global interest. It is widely believed that inequality is increasing and that it is both a bad thing in itself and presents an obstacle to economic growth. This topic also played a key role in the election campaign. The Scottish Government has argued that additional fiscal powers will present it with the opportunity to slow down, or perhaps reverse, recent trends in inequality. This lecture explored the potential for the Scottish Government to influence patterns of inequality in Scotland, drawing on the worldwide debates on this issue. It presented new evidence on trends in inequality in Scotland and also place Scotland’s policy options within the context of the differing approaches to dealing with inequality that are emerging

Scotland's Fiscal Future in the UK

This paper looks in detail at the proposals for further fiscal devolution to the Scottish Parliament following the No vote in September’s independence referendum. The proposals vary significantly in terms of the taxes proposed for devolution and the balance between welfare spending devolution and maintenance of UK-wide social welfare union, but all envisage Scotland evolving into a semi-autonomous state within a more federal UK. Drawing on theories of fiscal federalism and empirical evidence from comparator countries, the paper considers the economic and constitutional constraints (including strategic tax competition, block grant allocation, and institutional factors) that may influence how effectively the Scottish Parliament will be able to exercise devolved tax powers. The paper considers the extent to which the models of fiscal autonomy proposed will mitigate future secession demands

Inequality in Scotland: trends, drivers, and implications for the independence debate

What is the level of income inequality in Scotland? How does income inequality in Scotland compare to the rest of the UK, and to other OECD countries? How has income inequality in Scotland changed over time? What has caused inequality to change, and how effective is the tax and benefit system at mitigating inequality? This paper seeks to answer these questions, and draw messages for the Scottish independence debate.  Key points  1. By international standards, the inequality of gross earned income (measured before the effects of taxes and benefits) in Scotland is relatively high. Inequality is much higher in Scotland than in the Nordic countries, although there is some evidence that inequality in the Nordic countries has increased slightly more rapidly than in Scotland since the mid-1990s.  2. Since the mid-1990s there has been relatively little increase in inequality in Scotland across most of the distribution.  3. However, inequality at the extreme ends of the distribution has increased in the last decade. The incomes of the top 1-2% of earners have increased compared to the average. At the same time, those in the bottom 5-10% of the earnings distribution have fallen further behind the average.  4. Much of the increase in inequality has been driven by increased variability in working time. This is particularly the case in lower-paying occupations, where there has been a significant increase in part-time working. Although this has increased inequality, the welfare implications are unclear because some workers may prefer shorter hours.  5. The Scottish labour market became increasingly polarised between 2001 and 2010. This means there while the share of higher paying and lower paying jobs increased, the share of middle-wage jobs fell, contributing to inequality growth.  6. There has been virtually no increase in net income inequality in Scotland (after taxes and benefits are taken into account) since 1997. Increased government transfers, particularly to families with children and the elderly, have offset the small increases in earned income inequality that occurred