LONDON: A think-tank warned the next Scottish Government faces the massive funding gap by 2020. But the Institute for Public Policy Research (IPPR) said pay packet raids alone will not reduce public spending cuts.
MSPs are due to get control of around £15billion of tax revenues and £2.7billion of social security payments under the Scotland Bill. But spending in reserved benefits for Scots households is set to fall by £600million per year until 2020/21, according to the IPPR.
UK Government tax cuts will see receipts drop by £300million. At the same time Scotland’s grant from the Treasury will reduce by £1.2billion per year over the same period because of the funding deal to gain extra powers.
Both Labour and the Lib Dems have already called for Holyrood to use its interim powers to hike income tax by 1p to offset cuts.
The Nationalists are yet to spell out their plans for when the Parliament gains control of the levy.
But they are expected to back the return of a 50p top rate. Only the Tories have pledged that Scots’ overall tax bill should not be higher than in other parts of the UK. The party’s finance spokesman Murdo Fraser said: “Whilst some will be tempted to raise taxes to fill the gap, we need to be aware of the impact of higher taxes in economic growth and the tax base. We need to work smarter to get a bigger bang for our buck in the public sector, rather than defaulting to ever increasing taxation on families.”
Workers currently start paying 40p tax when they earn £42,385. This is due to rise to £43,000 from April.
The Conservatives have pledged to raise it to £50,000 by 2020 but Chancellor George Osborne is thought to be preparing to “accelerate progress” in next week’s Budget. The IPPR said this would cost £300million in Scotland per year whereas freezing the higher rate threshold at its 2017/18 level would raise £300million per year by 2020.
Increasing council tax by inflation or earnings would raise an extra £100million and £200million per year, respectively. Reversing cuts to universal credit work and the freeze on working-age benefits would set taxpayers back £400million. And hiking disability benefits in line with earnings rather than inflation would cost £100million a year.
IPPR Scotland director Russell Gunson said the next parliament “faces very significant decisions” and called on all parties to spell out how they’ll meet the funding gap ahead of May’s election.
Labour public services spokeswoman Jackie Baillie said: “Labour would not pass on Osborne’s tax cut to the top 15 per cent of earners. The question now is whether the SNP would do the same. Do they want to cut taxes for higher earners or protect public services?”
SNP MSP Kenneth Gibson said it would oppose any cuts for the wealthy by Mr Osborne. “Labour’s comments on tax are remarkable given that they have failed to set out how they will reform local taxation to make it fairer and given that they plan to use the existing income tax powers to shift the burden of austerity on to the backs of everyone earning over £11,000,” he added.
