Chamber and committees

The Scottish Government has not increased overall taxation in Scotland compared with the rest of the UK. Those who earn less than £26,000 per annum, who make up 55% of Scottish Income Taxpayers, pay less income tax in Scotland than they would in the rest of the UK. In Scotland the average council tax charge for all property bands, including E, F, G and H, is between £300 and £450 lower than England. The average Band D Council Tax bill in Scotland in 2018-19 is £1,208 compared to £1,671 in England – a difference of £463. The Scottish Government is however investing in a range of measures to support the Scottish economy and increase productivity including almost £2.4 billion on enterprise and skills through our enterprise agencies and higher education bodies and providing investment for business to grow through the £500 million Scottish Growth Scheme. Scotland also provides the most competitive non-domestic rates reliefs package in the UK, worth a record £720 million this year.

As the Scottish Fiscal Commission state in their latest report, the available data shows a “mixed picture” on wage growth in Scotland, with some sources showing earnings growing in real terms, and others showing negative growth.

The Scottish Government’s Public Sector Pay Policy for 2018 – 19 is directly boosting wage growth in Scotland by lifting the 1% public sector pay cap, as well as providing support to employment and the wider economy. Furthermore, the Scottish Government is continuing to take action to support wages by championing the real Living Wage. We have achieved our target of reaching 1,000 accredited employers, and over 80% of workers in Scotland now earn the real Living Wage of £8.75 per hour, the highest rate in the UK.

As highlighted by the Scottish Fiscal Commission’s latest report, the growth rate of Real Disposable Household Income (RDHI) is influenced by a range of macroeconomic trends. In particular differences in population growth rates are an important determinant in the difference between the growth rate of RDHI between the UK and Scotland.

The Scottish Fiscal Commission go on to forecast that any gap between Scottish and UK RDHI on a per capita basis (controlling for differences in population growth) will narrow and then close over the next two years.

The Scottish Government’s 2018-19 income tax reform will - even after behaviour effects - deliver an additional £1.2 billion over the next 5 years to support public services and the economy, as well as making our system fairer and more progressive.

The Laffer curve suggests that increasing tax rates beyond a certain point is counter-productive for raising further tax revenue because higher tax rates discourage people from working. However, the independent Scottish Fiscal Commission very clearly forecast that the Scottish Government’s 2018-19 income tax reform will - even after behaviour effects - deliver an additional £1.2 billion over the next 5 years to support public services and the economy.

In common with many advanced economies, consumption is the largest component of aggregate demand in Scotland.

With regard to the Scottish government position on the consumption component of aggregate demand, I refer the member to the answer to question S5W-14068 on‎ 6 February 2018.

All answers to written Parliamentary Questions are available on the Parliament's website, the search facility for which can be found at http://www.parliament.scot/parliamentarybusiness/28877.aspx .

The latest statistics from ONS show that over the period 2006 – 2016 (the latest available year) Gross Household Disposable Income per person in Scotland has grown at 2.6% a year in current prices, the same as in the UK as a whole. The SFC forecasts for disposable income growth shows a gap in the coming years, however they are forecasting that this will close (see figure 5 of their publication, which can be found here: http://www.fiscalcommission.scot/media/1314/scotlands-economic-and-fiscal-forecasts-may-2018-full-report.pdf ). The tax changes we have made have ensured that, for the majority of income tax payers, Scotland is the lowest taxed part of the UK.

The Scottish Government’s capital borrowing powers are constrained by the UK Government. Future borrowing availability is a key element taken into consideration as part of Scottish Government financial strategy. The Scottish Government will continue to try to maximise investment and seek alternative funding sources within sustainable levels.

Real Disposable Household Income is the largest determinant of aggregate consumption. However, other factors, such as household wealth or population growth, can also have an important impact. The Scottish Fiscal Commission is clear that leaving the EU is expected to reduce future population growth in Scotland, which will directly reduce the growth rate of aggregate consumption.

No decisions have been made on capital borrowing in 2019-20. The impact of capital borrowing in 2019-20 has been modelled by Scottish Government and the Scottish Fiscal Commission but final decisions on if, and how much, to borrow will be taken as part of the 2019-20 budget process.