Scotland’s existing power to set its own council tax could be one of the most effective ways to reduce income inequality, researchers from the University of Stirling will tell a major conference this week.
The Stirling team headed by Professor David Bell have been researching policy responses to inequality as part of the Economic and Social Research Council (ESRC)’s Future of the UK and Scotland activities to inform the referendum debate.
ESRC Fellow Professor Bell will present the findings at the International Conference on the Economics of Constitutional Change to be held in Edinburgh this Thursday and Friday (19-20 September).
Professor Bell said: "We’ve used data on Scottish households to examine how inequality is affected by changes in taxes and benefits. Some of these taxes, like Council tax, are already controlled by the Scottish Parliament. Others such as benefits and income tax are under Westminster control."
Professor Bell and colleagues from the Stirling Management School Dr David Comerford and David Eiser used standard measures of inequality applied to household income after allowing for the effects of taxes and benefits.
Their key findings include:
One of the most effective mechanisms for reducing inequality is already within the powers of the Scottish Parliament – the ability to increase the gap between council tax bands.
Changes to the Scottish Rate of Income Tax, which will become available to the Scottish Parliament from 2016-17, will have only a small impact on inequality, largely because the Parliament will not have the power to change income tax rates relative to each other.
Professor Bell added: "When we talk about effective ways of dealing with inequality, we look at which taxes and benefits give the biggest change in a standard measure of income inequality for the same increase in revenue or reduction in benefits. These findings are based on small changes to the various taxes and benefits. Larger changes might trigger responses from taxpayers and benefit recipients that conflicted with other Scottish Government objectives – such as maximizing economic growth."