More Than Tax Changes Needed For Equality

Major change would be needed to reduce inequality in Scotland using fiscal policy alone, a new report has warned.

Research by economics experts at Stirling University said that given the ``relatively high levels'' of income inequality in Britain, achieving a substantial reduction in this using tax and spending powers alone would be ``challenging''. 

The report also argued that even if Scotland had full control over tax and benefit policy, the Scottish Government ``might need to look beyond fiscal policy and redistribution to achieve the substantial reductions in inequality that it desires''. 

The Scottish Government has claimed the powers of independence are needed to address inequality north of the border, with First Minister Alex Salmond having previously stated the economic policies of successive Westminster governments have ''resulted in the UK becoming one of the most unequal societies in the developed world''. 

The report, by Stirling University researcher Dr David Comerford and research assistant David Eiser, points out the Nordic countries are ``often seen as operating the type of social-democratic model that an independent Scotland might wish to follow'', but said that inequality is higher in Scotland than in these nations. 

It argued the fiscal policies the Scottish Government has, or will soon have control over, such as new powers over income tax, were ``relatively blunt tools with which to address inequality''. 

Inequality in Scotland is around five percentage points higher than it is in Nordic countries, according to the the GINI index - which is commonly used as a measure of inequality of income or wealth. 

Putting a penny on the Scottish rate of income tax, when Holyrood gets power to do this in 2016, would only reduce this by about 0.2%, the report said Further devolution of powers over income tax - such as the ability to vary tax thresholds - could provide the Scottish Government with ``an opportunity to more effectively use fiscal policy to influence the income distribution''. 

The report also said control over benefits for those who are out of work and those on low incomes ``would provide other important levers with which to influence inequality'', adding these could be used to target specific groups of the population. 

But it warned major changes to tax levels in Scotland could result in higher earners leaving the country, as it concluded: ``It is difficult for a small, open economy to implement substantially different redistributive policy from that of its close partners.

Deputy First Minister Nicola Sturgeon said: ``This report makes clear that Scotland currently has very limited powers to properly tackle the huge inequality which has seen the UK become one of the most unequal societies in the developed world. 

``It also finds that independence will give a Scottish Government real economic and social policy tools to address the issue.

A Better Together spokesman said: ``This report completely undermines the nationalist argument that leaving the UK would automatically reduce inequality. In fact, it says quite the opposite. 

``The reality is that it is people on the lowest incomes who would pay the price for Alex Salmond's obsession with independence.