A discussion on the role of income tax

New approaches to taxation published.

Income tax in Scotland should protect low earners, be progressive, proportionate to the ability to the pay and support the economy, the First Minister has said.

The comments coincide with the publication of a discussion paper examining the role of income tax in Scotland’s budget.

The First Minister said that any new income tax policy must meet four key tests, as she called on all political parties to engage in an open debate about tax in Scotland.

Any changes must:

  • Maintain and promote the level of public services which the people of Scotland expect;
  • Ensure the lowest earning taxpayers don’t see their taxes increase;
  • Make the tax system more progressive and reduce inequality; and
  • Along with corresponding decisions on spending, support the economy.

The paper sets out the powers the Scottish Parliament has over income tax, the contribution income tax makes to the budget, who pays tax and the benefits of taxation for individuals and businesses.

The First Minister said:

“Scotland now has a greater measure of fiscal control than at any time since the start of devolution.

“By far the biggest fiscal lever we have is income tax - with 30% of Scotland’s budget now coming from income tax receipts. Of course, more than 60% of Scotland’s spending power is still dependent on decisions taken at Westminster.

“With that greater ability to levy tax comes a corresponding duty to do so responsibly and in a balanced way. My government will always do exactly that.

“But as the impact of austerity, Brexit and changing demographics bears down even harder, it is now time to ask ourselves some tough questions.

“None of us want to see our cherished public services increasingly constrained in what they can deliver.

“So with all the pressures we now face, we must consider if the time has come for those who earn the most to pay a modest amount more to enable us to do so.

“It is to help aid and inform that discussion that this consultation paper is being published today.

“Let me stress that these alternative approaches are not at this stage firm policy proposals - that will come in the budget. Nor do they form an exhaustive list. They simply illustrate some of the options open to us.

“As a Government, we will not propose alterations to income tax rates lightly.

“But after rigorous, careful and considered discussion, we will bring forward policy proposals that we consider to be in the interests of the country as a whole.”

Finance Secretary Derek Mackay has today written to all parties inviting them to begin cross party discussions and will host two stakeholder roundtables later this month with business organisations, trade unions, civic society and tax professionals.

Speaking as the paper was published Mr Mackay said:

“I have previously written to all the political parties in Holyrood, asking them to confirm their income tax policy so that they could be included in this discussion paper.

“I am seeking a well-informed and considered debate on the use of our powers, recognising that in a parliament of minorities common ground on tax must be found to secure a budget for Scotland.  We have therefore set out alternative approaches for discussion, that we believe could better meet the four tests we have established.

“We will engage in the discussions in an open-minded and constructive manner,  and as the paper makes clear, the Chancellor’s decisions on overall spending and tax policy for the rest of the UK are still critically important in determining Scottish Government funding, final decisions on tax and spend will be made in the proposed Scottish budget.”


The Role of Income Tax in Scotland’s Budget is published on our website.

It fulfils the commitment in the Programme for Government to publish a discussion paper on income tax.

Tax and spending decisions for 2018/19 will be published in the Draft Budget on 14th December 2017.

The UK Government will reduce Scotland’s discretionary budget by £2.9 billion in real terms between 2010-11 and 2019-20.

The Scottish Parliament has the power to set rates and bands for non-savings, non-dividend income tax only. Around 30% of Scotland’s budget comes from income tax receipts. Scotland’s overall tax as a proportion of GDP is below the OECD average.


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