Being the greatest fan of the Government’s rate resolution and attempting to demolish it altogether, as Rhoda Grant has done, are both extreme positions, and neither is genuinely honest. There have been very important progressive changes to devolved income tax, but we could and should go further.
We are all aware that the Scotland Act 2016 was drafted so incompetently that, if the Scottish Parliament does not pass a rate resolution, the result will be nothing less than a catastrophe for public services. On that basis, the Greens will abstain, as we did last year, which will allow the rate resolution to pass, but not without comment.
My comments will be based on the recent paper from the Fraser of Allander institute on the impact of the Scottish Government’s tax changes on household incomes. The paper integrates what we know about income tax changes that have been made by UK and Scottish Governments with what we know about what is happening through other fiscal measures, such as those relating to local taxation and social security.
The paper shows clearly that the UK changes to the personal allowance—with the notion of constantly increasing the personal allowance—are deeply regressive steps. The income of the five deciles of the population with the highest income is boosted by a larger percentage than is the case for the lowest-income deciles. The Resolution Foundation has shown that three quarters of the cost to the Exchequer of the increase to the personal allowance goes to the highest-income half of all households. A third goes to the richest 20 per cent but, of course, the poorest in our society gain nothing at all—not a single penny—from the increase in the personal allowance, because their incomes are already below the threshold.
In the 2016 election, the Greens alone proposed moving to the five-band system—a progressive tax change—and I am pleased that the Scottish Government decided to change its position. I welcome it when the Government breaks a bad promise, and maybe that is what it did. The Greens’ position in 2016 has, broadly speaking, been implemented, and that is the single element that makes the overall income tax changes progressive. The change saves relatively little for low-income households, but it means that high-income households pay more. The effect of the changes to rates and bands combined with the changes to the personal allowance has been that we have overcome the injustice that would have resulted from the UK Government changes, with a greater benefit flowing to the wealthy than to the rest of the population.
We have to look at how the system integrates with local taxation changes. Again, if there had been only the above-inflation increase, that would have hit the lowest-income households in Scotland the hardest, but there were also changes to bands E to H. The overall result of combining those effects is that everyone pays a little more council tax, but high-income households tend to pay more.
The combined effect of the income tax changes and the local council tax changes is that high-income households pay more on average and low-income households are protected. Some are better off, but the first five or six income deciles are protected from the overall effects of the tax changes. The single biggest element that achieves that progressive effect is the move to a five-band system of income tax in Scotland.
I do not think that that change is enough to alleviate poverty and inequality. Unlike some, I say that redistributing wealth should be one of our objectives when we set taxation and other policies in our economy. Income tax on its own will probably never be a powerful tool for improving the financial situation of the lowest-income households, because those households already pay very little income tax. If we want to go further and to achieve more, we have to look at, for example, council tax reform.
I encourage all political parties—including the SNP—to show greater imagination, creativity, and boldness in the council tax talks than we have seen today, because unless we redress the fundamentally regressive aspect of council tax in our tax system, whatever income tax policy we pass during our annual rate resolution debates will be only mitigation.
Once we have looked at income tax and council tax, we need to think about how they integrate with benefits through social security and other services. We see a positive impact from changes that have already been made and there will be more to come with the Scottish child payment—which is yet to come into force—which will help more. However, as we discussed at portfolio question time a few minutes ago, it is still linked to UK benefits and their persistent problems of administration and low take-up. As such, all political parties in this chamber have a responsibility not only to say whether we would go further as we pass a rate resolution today but, as we develop manifestos over the coming year, to put forward more policies that will cut housing and public transport costs, and that will create more benefits for people who are at the lower end of the income scale. No income tax rate resolution on its own will be able to achieve that. If we want genuine redistribution, we need all those levers to be used to maximum effect.