Will Scots face £1,000 in extra taxes under Independence?
27th Nov 2013
"Scots face £1,000 annual tax rise if they vote 'yes', warns Treasury"
The debate over Scottish independence was never going to be an easy one to navigate. Already both sides of what's turning out to be a prolonged marital dispute seem to be contradicting each other's claims.
Yesterday the Scottish government set out a 649 page blueprint for independence in the event of a 'yes' vote next year. The Treasury hit back, apparently citing its own analysis showing that Scots will be £1,000 worse off in tax payments should the split happen.
Show your evidence
Normally, Full Fact would check out the Treasury's figure and analyse its assumptions, to make the claim clearer. Except this time there's nothing to check. The Treasury hasn't so much as published a statement explaining how the numbers come about, and after we asked them when this would happen, they advised us to check again "next week".
It isn't the first time the Treasury has been lax at backing up its numbers in public. In April it claimed that 9 out of 10 working households across the country will be better off thanks to its spring reforms, without publishing any details of where this came from.
It fact, news reports yesterday suggest we can get an idea of the source anyway. Last week the Institute for Fiscal Studies (IFS) caused a stir after it published research suggesting that an independent Scotland would face even tougher choices about tax and spend than the current UK administration. The Treasury says that could be bad news for Scottish taxpayers.
The £1,000 cost is based on the IFS's most optimistic scenario, in which it projects the public finance outlook for a separate Scotland over the next 50 years. Under the most 'favourable' condititons, Scotland could face a 'fiscal gap' of about £3 billion, meaning that in order to reduce its public debt to manageable levels in 50 years' time, it would need to find £3 billion extra a year to achieve this.
A £3 billion gap could be filled in any number of ways, as the IFS outlines. Among these, raising income tax by 8 percentage points, affecting 2.4 million taxpayers, would raise close to this amount, the rest being made up via other tax brackets. That works out at approximately £1,000 per basic rate taxpayer.
But you can't factcheck the future
Let alone 50 years into the future. Organisations like the IFS and Office for Budget Responsibility (OBR) habitually make projections about future public finances using quite sophisticated models, but it's often not reported how much uncertainty is built in.
For a start, models like these strip out the politics and focus on the quantifiable. The debt projections assume that no policy action takes place. That leaves out a lot of uncertainty over what role governments will play. The IFS themselves suggest just a few ways that an independent Scottish administration might approach matters:
- "Independence would give Scotland an opportunity to design a much more efficient tax system than the UK currently has. While pressures on the public finances would point towards tax increases, the characteristics of an independent Scotland suggest a number of ways in which the 'optimal' tax system for Scotland might involve lower taxes than that for the UK.
- "The Scottish income distribution is more equal than the UK's, so the scope and need to redistribute through high rates of income tax would be less.
- "There is less congestion on Scottish roads, so optimal motoring taxation would be lower.
- "Independence could lead to tax competition and cross-border shopping, creating pressures to reduce taxes such as corporation tax and excise duties."
Add to that the number of other assumptions involved. This 'optimistic' scenario involves high levels of migration, a decent income from North Sea oil, a favourable debt interest bill for the government, and robust growth in producitivty.
In other words, a lot would need to go well and the Scottish government would have to actually implement the tax rises as a means of plugging the hole in its public finances. There's little evidence the government plans to do this. In their white paper the Scottish government states as much:
"The process of independence itself will not change the tax rates we pay. As Scotland's public finances are healthier than those of the UK as a whole, there will no requirement to raise the general rate of taxation to fund existing levels of spending after independence."
In reality, neither the Scottish government nor the Treasury are in a position to be anything but vague about the likely state of the Scottish public finances 40 or 50 years down the line.
We've asked the Scottish government to source their own claim: that Scots will be £600 a year better off under independence. We're waiting to hear back and wil bring you the latest when it happens.
This article has been updated. We originally said that the white paper has 670 pages, and have amended this after a reader pointed out that some of these pages are taken up with cover and content pages. There are 649 numbered pages of content.