Submission from the Low Incomes Tax Reform Group (LITRG) (2)

This is a continuation of comments made in the submission titled 'Submission from the Low Incomes Tax Reform Group (LITRG) (1).

Why the contribution is important

Q. Are there certain groups of people that you think should be given particular attention when thinking about how a Minimum Income Guarantee in Scotland should work? Benefits for unpaid carers fall within the powers of the Scottish Parliament now, with Carer’s Allowance Supplement (CAS) providing a top-up to Carer’s Allowance. With devolved benefits, and in particular, top-ups to UK benefits, the Smith Agreement set out the no detriment principle. This had to be adhered to in relation to CAS, meaning that while CAS is taxable, like Carer’s Allowance, it is not taken into account when determining entitlement to other social security benefits. We think there should be a focus on groups that may prove more difficult to reach or who may be less likely to claim the benefits to which they are entitled. This should cover thinking about how it might be possible to encourage them to claim and considering how to make it straightforward for them to claim. This might include pensioners on low incomes, who may feel a stigma associated with claiming social security benefits, but also migrants for whom English is not their first language and others, such as those with a low level of education or reading ability, who may find it difficult to actually make a claim in terms of completing the requisite forms. There may also be matters to consider around whether assessment for the MIG is based on the individual or the household income. In other support systems (tax credits, universal credit), we see household income and circumstances determine the level of support offered and a single award value is established for the household. This can create difficulties in some household situations and yet is intended to address arguments that individual entitlement can be unfairly beneficial to those in a joint household than a single household. In the tax regime however, apart from specific provisions such as the high income child benefit charge, for the most part, obligations are determined for each individual. Q. What steps should we take first to deliver the Minimum Income Guarantee in Scotland? You may wish to think about public services, employment and employers, and social security. It is important to think about administrative and operational matters of payment delivery at an early stage. Consideration will need to be given to frequency of payments, how they will be delivered, and how flexible they will be to allow them to adapt to changing circumstances, amongst other things. There will also need to be robust systems for dealing with both under- and overpayments, clear, fair and accessible processes for appeals and clear guidance. By its very nature, the MIG as proposed will need to involve means-testing. This can be complex and expensive to operate, and is therefore likely to reduce the efficiency of a MIG. There will be practicalities to consider in relation to means-testing, such as whether claimants should essentially self assess their means through the completion of a form, and how such assessments will be checked for accuracy. If there is an incorrect claim, will this generate overpayments that the individual must repay, and how these would be collected. There will also need to be thought given as to what should be taken into account when carrying out means-testing – should it only include income and other circumstances, such as disability, number of children, etc. or should it also include wealth? If it includes wealth, what types of wealth or assets should it include? Should it take account of debts, for example mortgages, loans and credit card debts? Moreover, if the MIG is to be subject to people making a claim, how will the Scottish Government ensure that all those eligible actually take it up, given there can be an issue with certain groups not claiming benefits to which they are entitled, either because of a lack of awareness or other reasons, including a perception of stigma? In relation to other aspects, for income tax, the Scottish Parliament currently can only set rates and thresholds for Scottish income tax on non-savings and non-dividend income. In order for tax reliefs to play a direct role, there would need to be further devolution of income tax powers, in particular over the tax base. This does not appear likely in the short-term. It might be worth considering whether it would be possible and appropriate to make more use of passported benefits. In addition, Scotland already has social security powers in some areas – in relation to carers and also the Scottish child payment. It will also be able to implement some powers in relation to disability payments. So, it may be possible to top-up or increase certain social security payments in these areas. This might not provide exact targeting. On the whole, however, this would reach people at the lower end of the income spectrum, given the criteria for entitlement to these benefits. Although Scotland does not currently have powers in relation to National Insurance contributions (NIC) or the state pension, consideration could be given as to whether a MIG could be connected with the NIC system in some way. For example, individuals who have employment income between the lower earnings limit for NIC and the primary threshold are credited with National Insurance, even though they do not have to pay any NIC, thus building up entitlement to state benefits including the state pension. Individuals with employment income below the lower earnings limit build up no such entitlement. If income from a MIG could be treated as employment income for the purposes of being credited with NIC, this might assist in bringing people to a minimum standard both in the present and the future, by building up entitlement to state benefits. This would of course require collaboration with the UK Government. It will also be necessary to give thought to the funding of a MIG. The Scottish Budget consists of three key elements: revenues from Scottish taxes, the block grant and limited borrowing. Existing devolved national tax powers do not offer much scope for raising significant additional revenues. The Scottish Parliament has limited Scottish income tax powers – the ability to set rates and bands for income tax that applies to the non-savings and non-dividend income of Scottish taxpayers. The Scottish income tax structure is arguably already more progressive than that for UK income tax. The Scottish Government has indicated that it does not intend to make significant changes to Scottish income tax during the term of this parliament. Beyond that, given the current powers, if changes are made in future, with a view to raising additional revenues, it would be important to examine possible behavioural effects on Scottish taxpayers and the interaction with the Fiscal Framework, to ensure that the desired outcome is achieved. The Scottish Parliament has full control of Land and Buildings Transaction Tax and Scottish Landfill Tax. However, these raise relatively small amounts of revenue, and it is unlikely that any policy changes would result in a significant contribution towards the funding of a MIG. Local taxes may provide more scope for revenue raising. Over the past few years there have been reviews of both non-domestic rates and council tax. The Scottish Government has agreed to establish a Citizens’ Assembly to look at the reform of council tax as part of its agreement with the Scottish Green Party. Council tax offers scope for significant and useful reform, and we hope that the work of the Assembly will address this. Reform of council tax could potentially serve a dual purpose – it might potentially assist in raising additional funds (although these revenues are spent by local authorities not the Scottish Government), but perhaps more importantly, it could play a role within a MIG. An earnest reform, that led to property values being reflected more consistently and updated more regularly, could assist those on lower incomes and could offer a more targeted way of providing tax relief to help an individual achieve a MIG. If there were concerns about capacity to pay in cash terms for certain groups, consideration could be given to mechanisms to allow payment deferral, for example. LITRG 14 September 2021

by LITRG on September 15, 2021 at 01:01PM

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