lnstitute for Fiscal Studies - IFS Report R300 - The IFS Scottish

When combined with the freeze in the income tax higher-rate threshold (which was already built into tax revenue forecasts but only officially confirmed by the Scottish Government in the Budget), the hit to incomes will amount to an average 1.1% for households in the top tenth of the income distribution, 0.5% for the next-highest tenth, and an average of 0.4% across all households. [...] Distributional effects The effects of the introduction of the advanced rate, the increase in the additional rate and the freeze in council tax bills will on average offset each other. [...] The effect of the introduction of the advanced rate and increase in the additional rate of income tax will fall mostly on the richest tenth of households, with modest hits to the incomes of other households in the top half of the income distribution. [...] The contribution of devolved taxes to the Scottish budget depends on both the revenues from the taxes themselves and the block grant adjustments (BGAs) associated with the taxes – the amount subtracted from the block grant funding received from the UK government to account for the © The Institute for Fiscal Studies, February 2024 £ per year The IFS Scottish Budget Report – 2024–25 17 fact Scotland. [...] The expected reconciliation from the original overestimation of the income tax net position in 2021–22, included in the ‘other’ bars in Figure 2.6, has also decreased: in May 2022, this was expected to be £820 million, requiring the government to borrow the maximum then allowed (£300 million) and reduce spending in other areas (by £520 million).