Scottish Income Tax: distributional analysis 2023-24

A note on the distributional impact of the Scottish Government’s Income Tax policy for 2023 to 2024.

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. Data is only available with a significant lag so 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.

The household level analysis in this report uses UKMOD, an open-access microsimulation model developed by Institute for Social and Economic Research (ISER) at the University of Essex. The model applies tax and benefit rules to a set of individual and household-level data, allowing the user to simulate and compare alternative scenarios.

The input data in UKMOD is derived from DWP’s Family Resources Survey (FRS). The analysis in this report uses the latest three years of FRS data, namely 2016-17, 2017-18, and 2018-19. To pool the data, the grossing weights used to scale the FRS sample to the whole population are divided by the number of data years, in this case three. The model uprates income components and other monetary variables from each year of data to the year of analysis using a range of sources, including historical data and forecasts by the Office for Budget Responsibility (OBR), but no adjustments are made for demographic change.

2. Tax parameters

The analysis compares tax liabilities across the different income deciles under the 2023-24 policy proposal, as set out in the Scottish Budget, and a hypothetical scenario where the Personal Allowance is frozen at £12,570 and all thresholds are uprated with CPI inflation (10.1%). These tax parameters are summarised in Table A.1. The Scottish Fiscal Commission (SFC) used a different counterfactual scenario for their official budget forecasts and policy costings.

Table A.1: Tax parameters
2023-24 Policy Counterfactual Scenario 2023-24
Band Rate Band Rate
£12,571 - £14,732 19% £12,571 - £14,951 19%
£14,733 - £25,688 20% £14,952 - £27,013 20%
£25,689 - £43,662 21% £27,014 - £48,072 21%
£43,663 - £125,140 42% £48,073 - £150,000 41%
Above £125,140 47% Above £150,000 46%



Back to top