Reform’s plans to cut income tax in Scotland have been described by a key research body as “not credible”.
The Institute for Fiscal Studies said Reform’s flagship policy to trim income tax rates at 1% below the rest of the UK, saving £2 billion a year by 2030, come at a time when the Scottish budget is already under strain.
Reform’s tax plans were announced in January and repeated at this week’s manifesto launch, with Mr party leader Malcolm Offord claiming the saving would come from economic growth and cutting the cost of 132 quangos.
David Phillips, head of devolved and local government finance at the IFS, noted that the Scottish fiscal framework means that cuts to capital investment – which includes much of the spending on ‘net zero’ initiatives – cannot be used to pay for tax cuts.
“Reform UK also claims that the income tax cuts would in fact pay for themselves via higher economic growth. This is not credible.
“Specifically, the manifesto’s claim that each percentage point of additional economic growth would generate a cumulative £8 billion over 10 years and that this would ‘repay the £2 billion up-front cost four times over’ is wrong.
“There is room for reasonable disagreement as to the likely size of behavioural responses [to tax cuts] but there is no evidence to suggest that the tax cuts would pay for themselves.
“Moreover, because only around one third of tax revenues are devolved to Scotland, only part of the revenue increase that would result from increased economic growth would accrue to the Scottish Government.
“Because of this, the Scottish Fiscal Commission estimates that a 1% boost to earnings, for example, would boost devolved income tax revenues by only around £300 million a year (or around £3 billion over 10 years).”
Mr Phillips adds that the £2 billion (or more) cost of the income tax cuts is not a one-off up-front cost – it is an annual cost.
“Even if the figure were correct, £8 billion over 10 years does not exceed £2 billion per year, let alone repay it four times over.
“The ‘self-funding’ tax cuts are therefore a mirage created by a misunderstanding or misrepresentation of the current devolution settlement and incorrectly comparing cumulative and annual figures. This is not good enough.
“The combination of big tax cuts and implied benefit increases without any identified source of funding is not fiscally credible. And the analysis of the potential revenue effects of the headline income tax cuts is unserious at best.”
Scottish Liberal Democrat economy spokesperson Jamie Greene said: “Coming after a clown show of a launch event and the deselection of a candidate 24 hours after they were announced, this is further confirmation that Reform UK are not a party to be taken seriously.”
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