Scottish Income Tax: distributional analysis 2022-2023

A note on the distributional impact of the Scottish Government’s Income Tax policy for 2022-2023

Annex A: Methodology

1. Underlying dataset and projections

The starting point for the distributional analysis is HMRC’s Survey of Personal Incomes (SPI). The SPI comprises a detailed sample of over 40,000 anonymised Scottish tax records, which are weighted to be representative of all Scottish taxpayers. For each record, there is detailed information on sources and level of income, age group, gender and a range of other relevant variables. The latest available data is for the financial year 2019-20.

The SPI data is then rolled forward, using assumptions about future growth in earnings and the number of taxpayers, to provide forecasts of the Scottish Income Tax base in future years. These assumptions are consistent with the economic forecasts published by the Scottish Fiscal Commission (SFC) alongside the Budget.

2. Tax parameters

The analysis compares tax liabilities across the different income deciles under the 2022-23 policy proposal, as set out in the Scottish Budget, and a hypothetical scenario where the Personal Allowance and the 2016-17 bands would have increased with CPI inflation, as per default uprating which is enshrined in UK legislation. These tax parameters are summarised in Table A.1. It is important to note that this is not the same as comparing Scottish Government policy against UK Government policy in 2022-23 as both the Personal Allowance and the UK Higher Rate threshold have increased by more than inflation over this period.

Table A.1: Tax parameters
2022-23 Policy Counterfactual Scenario 2022-23
Band Rate Band Rate
Over £12,570 - £14,732 19% Over £12,400 - £47,970 20%
Over £14,732 - £25,688 20%
Over £25,688 - £43,662 21%
Over £43,662 - £150,000 41% Over £47,970 - £150,000 40%
Above £150,000 46% Above £150,000 45%



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