How to pay for a Minimum Income Guarantee

Understanding the revenue-raising context for a MIG in Scotland

Scotland’s current fiscal landscape

The Scottish Government receives or collects fiscal revenue from three primary sources: devolved Scottish taxes; funding from the UK Government through the Block Grant; and borrowing (which is limited by the Fiscal Framework agreement between the UK and Scottish governments).

The Block Grant is the most significant of the three sources of fiscal revenue, with Scotland receiving £47.6bn in funding from this source in 2025-26.^[20] In contrast, £24.6bn is forecast to be raised from devolved taxes in 2025-26.^[21] Of these, by far the biggest revenue source is the Scottish Income Tax which is forecast to raise £20.5bn in 2025-26, comprising 83% of the total revenue from devolved taxes.^[22]

Devolved taxes

As of 2025, the devolved taxes the Scottish Government has control over come with different levels of control.

Taxes that Scotland has full powers over include:

• the Land and Buildings Transaction Tax (which replaced UK Stamp Duty Land Tax);^[23]
• the Scottish Landfill Tax (which replaced UK Landfill Tax);^[24]
• council tax;^[25] and
• non-domestic rates.^[26]

For these taxes, the Scottish Government can introduce legislation setting rates, thresholds and exemptions for approval by the Scottish Parliament. The level of Council Tax in each local authority area, however, is set by the relevant council. They do so by setting the rate of Council Tax for Band D properties which is the basis for the levels of all other bands.

The Scotland Act 2016 fully devolved powers for Scottish Aggregates Tax (to replace the Aggregates Levy),^[27] Air Departure Tax (to replace Air Passenger Duty),^[28] and legislated for VAT assignment for Scotland.^[29] Scottish Aggregates Tax is due to come into force in April 2026, but Air Department Tax and VAT assignment are yet to be implemented as of 2025.

In addition to these taxes, the Scottish Government has partial powers for Scottish Income Tax. These powers allow the Scottish Parliament to set rates, thresholds and create new tax bands for non-savings and non-dividend income only. They allow for Scotland to neither change exemptions for income tax (including the personal allowance) nor to change the tax regime for income from savings and dividends. Unlike the fully devolved national taxes, Scottish Income Tax is administered and collected by HM Revenue and Customs (HMRC) and not Revenue Scotland.

This diversity of revenue sources means that taxes paid in Scotland are collected by both Revenue Scotland and HMRC depending on the tax, as well as by local authorities which collect local taxes (see chapter 3 for more details).

Block Grant

The UK Government provides funding to the Scottish Government through the Block Grant to spend on devolved areas of responsibility. This includes education, health and social care, policing, transport and some forms of social security. The Block Grant has two parts:

1. Barnett funding is the largest component and is set annually before the start of each financial year (although this amount can change in-year in response to changes in UK Government spending). Using the Barnett formula, which was first introduced in 1978, this part of the Block Grant is based on the most recent UK Government spending allocations.

2. Non-Barnett funding is a set amount agreed between the UK Government and the Scottish Government in the Spending Review.

Block Grant Adjustments (BGAs) are then applied to amend the amount of funding available for the Scottish budget. These BGAs either remove Barnett funding to reflect revenue that Scotland can now keep or they add funding because Scotland now has greater devolved responsibilities for social security payments.

The Scottish Fiscal Commission forecasts that the 2025-26 BGA for Scottish Income Tax will be £19.6bn lower compared to Scottish revenue raised of £20.5bn, leaving a net positive position of £838m.^[30] For those taxes that the Scottish Government has full control over, a net positive position between the Scottish revenue raised and BGA for Land and Buildings Transaction Tax (LBTT) is also forecast, whereas there is a net negative position forecast for Scottish Landfill Tax.

A staged approach to raising revenue to support a MIG

The Expert Group has mapped a potentially staged approach to implementing a MIG scheme in Scotland. This would gradually roll out the policy, taking into account feasibility to implement such a scheme in the short term, and increasing the support and scope of the scheme over time into the longer term.

We have also taken a staged approach to considering how additional tax revenue could be raised in Scotland, with three options presented below. These consider both the Scottish Government’s existing powers to raise additional revenue and possible medium to long term options.

Stage 1: Initial steps within existing powers

As of 2025, Scotland has a range of devolved taxes that raise revenue and could be reformed to raise even more. These taxes are outlined above.

In the Expert Group’s roadmap, initial steps would focus upon building the ‘guarantee’ element of the MIG. For those people who need it, this MIG would be a safety net to increase financial security and reduce poverty. The Expert Group requested we consider how to raise between £300m and £1bn per year. This would require changing the rates, thresholds and exemptions for the devolved taxes listed above.

Analysis by Landman Economics for the Scottish Trade Union Confederation (STUC) has suggested around £1.1bn could be raised in the short term by increasing the rates on the taxes the Scottish Government currently has control over.^[31] A number of these proposed reforms, such as the introduction of a 45% Scottish Income Tax Band and an increase in the Additional Dwelling Supplement (ADS), have been implemented by the Scottish Government.

Stage 2: The maximum possible within existing powers

In addition to the existing devolved taxes, the Scottish Government has the powers to create two types of new taxes.

Firstly, the Scottish Government has powers to create new local taxes. This power has been used, for example, to introduce legislation that provides local authorities with the power to set a visitor levy locally.^[32] Edinburgh City Council is the first local authority to introduce a levy in Scotland, with this scheme due to start in July 2026.^[33] The Scottish Government will also consult in 2025 on giving local councils the powers to introduce a local cruise ship levy.^[34]

Local taxes are typically used to fund local authority expenditure, and are usually collected by local councils. A national body, such as Revenue Scotland, could collect local taxes depending upon the design of the tax. The Scottish Government has set out that any new local tax or levy would ‘need to go through a thorough due diligence review by the Scottish Government, including the feasibility of administration and collection arrangements’, as well as ‘the needs and expectations of businesses and the broader economy’.^[35]

Secondly, the Scottish Government can also ask the UK Government for new, national devolved taxes, subject to certain criteria. Chief among these criteria is making sure the proposed tax would not impose a disproportionately negative impact on UK macroeconomic policy or impede the single UK market.^[36] The proposed introduction of a new Scottish Building Safety Levy to provide funding for remediating buildings fitted with unsafe cladding is an example of the Scottish Government using this power.^[37]

The next steps in the Expert Group’s roadmap are likely to focus on strengthening the guarantee element of a MIG while still using existing powers. For this intermediate stage of a MIG, the Expert Group requested that we consider how to raise between £1bn and £2.5bn per year. This would require the Scottish Government to create new local taxes or ask the UK Government to agree to new national devolved taxes.

Stage 3: Expanded powers

To change or implement other types of taxes would require further devolution of tax powers to the Scottish Government. This would not be a straightforward process, and would require the UK Parliament to either amend the Scotland Act 1998 or, depending on the context, executively devolve power to the Scottish Government over specific taxes. Under this option, the Scottish Government could obtain both fuller devolved control of UK-wide taxes and be able to introduce Scotland only taxes that are not implemented in the rest of the UK, such as an online sales tax, a frequent flyer levy or wealth taxes.^[38]

The Expert Group has indicated that this stage of the MIG roadmap would require significant, or full, control being granted to the Scottish Government over social security, labour market policy and essential services and costs, meaning that the Scottish Government would be better able to set policy around the three key areas of a MIG.

The Expert Group has requested that at this stage we consider how to raise between £2.5bn per year at the lower end and £10bn per year at the upper limit. This is dependent upon the scale of implementing a ‘full’ MIG. To raise revenue in Stage 3, the Scottish Government would need to have significant, or full, control over most revenue-raising areas in order to ensure fiscal sustainability.

Analysis by Landman Economics for the STUC has suggested £2.6bn could be raised in the long term through reforms such as replacing council tax with a proportional property tax; introducing an annual wealth tax; a land value tax on commercial property; scrapping the Small Business Bonus Scheme relief applied to non-domestic rates; and introducing a series of smaller indirect taxes.^[39]

UK and Scottish tax policy in international context

If the Scottish Government were to accept the Expert Group’s recommendations, funding the MIG would require an increase in Scotland’s tax take across the short, medium and longer term fiscal forecast. The Office for Budget Responsibility (OBR)’s October 2024 Economic and Fiscal Outlook shows that the UK (including Scotland) already has a tax take that has been rising since 2020 and is forecast to reach a ‘historic high’ of 38% of Gross Domestic Product (GDP) in the late 2020s.^[40] The OBR outlines that this increase will be driven, in part, by policy decisions announced in the 2024 UK Budget, most notably the increase in employer NICs, changes to Capital Gains Tax and frozen income tax thresholds. Earnings growth and rising equity and property prices will also play a role in boosting personal and capital tax receipts.^[41]

However, by international standards the UK’s tax burden has been categorised by some researchers as relatively ‘unremarkable’ when compared internationally.^[42] According to the OECD’s latest annual revenue statistics report, the UK’s tax-to-GDP ratio was 35.3% in 2023.^[43] Although above the OECD average of 33.9%, the UK ranks 18^th out of 38 OECD countries in terms of the tax-to-GDP ratio. As a result, the UK could be categorised as having a fairly average tax burden by international standards.

Similarly, when compared to other advanced economy averages, the UK tax burden is considerably lower. The OBR reported that the UK tax burden was 1.9% lower than the 37.2% tax-to-GDP average in G7 nations, and 4.2% lower than the 39.5% tax-to-GDP average of the ‘EU 14’.^[44] Indeed, the OBR has also noted that even with a rising tax burden, the UK’s tax take in 2029-30 would rise to approximately 37.7% of GDP, taking it broadly in line with the current G7 average.^[45]

In previous research for the Expert Group, we explored the eight European countries that all have MIG-type schemes: Belgium, France, Italy, Malta, the Netherlands, Poland, Spain and Sweden.^[46] By analysing the last five years of data when these eight MIG-type schemes have co-existed, we find that all of these countries’ tax-to-GDP ratios have been consistently above both the OECD average and the UK. This analysis is presented in Table 1. In particular, France has regularly had the highest tax-to-GDP ratio in the OECD.^[47]

Although this is only a small sample of countries with a MIG-type scheme, it is notable that those we previously assessed as having successful and functioning MIG-type schemes, with different purposes and objectives, also have high tax-to-GDP ratios above the OECD average. These high tax levels will, in part, be to fund MIG-type schemes.

Source: OECD Revenue Statistics 2024.^[48]

As a result, there is a large number of countries, many of them with advanced economies, that raise considerably more in tax than the UK and, in part, do so to pay for MIG-type policies. While each country’s exact tax system will be different, a number of common characteristics amongst those with a high tax burden can be outlined.

Institute for Fiscal Studies (IFS) research has noted three key differences between the UK and countries with a higher tax burden:^[49]

• The biggest difference between the UK and higher tax take countries is the greater revenue raised through social security contributions on employees and, most notably, employers. As such, the UK Government’s announcement of a rise in employers’ National Insurance contributions from April 2025 is not necessarily out of step with international levels. However, caution should be noted here around the purpose of social security contributions in Europe compared to the UK, where the relationship between contribution and entitlement remains stronger than in the UK.
• Countries that raise more revenue from personal taxes often do so in a less progressive way than the UK. This often means that median earners pay higher rates of personal tax or social security contributions than in the UK, and thresholds are often lower. However, this does not mean that the UK’s tax and benefit system as a whole is necessarily more progressive than other countries.

How to pay for a Minimum Income Guarantee

• The standard VAT rate in the UK is below the European average, and the UK has a narrower VAT base (because it applies zero rates more widely) than most other OECD countries.

In addition, a number of other important differences can be observed:

• Compared to the OECD average, the UK has higher property taxes but it taxes corporate income, gains and profits less;^[50]
• The UK raises remarkably little from local government taxation which reflects the more centralised nature of the UK compared to other European countries where municipal government plays a greater economic and social role, including through the raising of tax revenue;^[51] and
• High tax levels are not incompatible with high levels of economic growth, productivity and better living standards. Institute for Public Policy Research (IPPR) analysis of OECD data has noted that higher disposable incomes than the UK are observed in countries such as Denmark, Germany and France where tax-to-GDP levels are already above the UK’s projected tax burden for 2029-30.^[52] In addition, countries with higher tax levels largely do so to support public services and increase public investment, which has positive spillover impacts on economic growth, productivity and living standards.

However, it is important to note that international comparison does not set a prescription for the future of Scotland’s tax policy. There are many historical, political and cultural reasons why countries raise different amounts of tax and from different individuals (such as economic structure, scope and delivery of public services and social security, and the desire for redistribution). The above overview serves to illustrate what is possible within different types of taxation, and at levels currently above those in Scotland or the wider UK.