{"id":10212,"date":"2020-01-18T12:54:33","date_gmt":"2020-01-18T12:54:33","guid":{"rendered":"https:\/\/sceptical.scot\/staging\/?p=10212"},"modified":"2026-04-18T19:34:31","modified_gmt":"2026-04-18T19:34:31","slug":"cui-bono-carlaws-tax-cuts","status":"publish","type":"post","link":"https:\/\/sceptical.scot\/staging\/2020\/01\/cui-bono-carlaws-tax-cuts\/","title":{"rendered":"Cui bono? Carlaw’s tax cuts"},"content":{"rendered":"\n

Earlier this week, Scottish Conservatives leadership candidate Jackson Carlaw committed to close the income tax gap between Scotland and rUK for those earning between \u00a327,000 and \u00a345,000.<\/strong><\/p>\n

The majority of individuals with income in this range (those with incomes less than \u00a343,430) currently face annual income tax liabilities of up to \u00a3150 higher than equivalent counterparts in rUK. But this difference increases rapidly beyond \u00a343,430, reaching \u00a3500 at incomes of \u00a345,000 (Chart 1).<\/p>\n

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How might Jackson Carlaw\u2019s commitment be implemented in practice?<\/p>\n

The obvious way would be to cancel the Intermediate Rate of tax in Scotland (which levies a 21% marginal rate of tax on Scottish taxpayers with income between \u00a325,000 and \u00a343,430 as opposed to the 20% rate prevailing in rUK)\u00a0and<\/em>\u00a0to increase the Higher Rate threshold from \u00a343,430 to \u00a345,000.<\/p>\n

(We are not aware of any detailed proposal in relation to income tax rates and bands. But this would seem the most logical way of implementing Jackson Carlaw\u2019s objectives as set out in his speech. It is therefore the policy we model here.)<\/p>\n

If this policy was implemented in 2020\/21 it would reduce the government\u2019s income tax revenues by around \u00a3270 million (Mr. Carlaw will not be in a position to implement the policy until 2022\/23 at the earliest, but we examine the implications in 2020\/21 for illustration).<\/p>\n

This is a \u2018static\u2019 costing. It could be argued that a tax cut might induce some increase in labour supply which may mean that the policy ultimately costs somewhat less than this. However, the scale of the tax changes being proposed would suggest that the behavioural impact would be relatively small, so that the ultimate policy cost would only fall by \u00a320 million or so from the \u00a3270 million static cost.<\/p>\n

One of the reasons why the policy appears perhaps surprisingly expensive is that the elimination of the intermediate rate and increase in higher rate threshold would also apply to taxpayers with incomes above \u00a345,000 (Chart 2).<\/p>\n

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What then would be the distributional implications of the policy across households?<\/p>\n

Chart 3 shows how the policy would affect average household incomes at each decile of the distribution. The policy predominantly benefits households in the upper two deciles (i.e. upper fifth) of the distribution.<\/p>\n

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This result might be seen as puzzling, given the stated aim of the policy to help \u2018middle earners\u2019.<\/p>\n