Will the Scottish Budget help to tackle poverty?

Between announcement of the UK and Scottish Budgets, JRF published state-of-the-nation reports on 2017 poverty rates for Scotland and the UK. Jim McCormick asks how far the budgets addressed the warning bells sounded by these reports.

After two decades of progress for pensioners and families with children, poverty is rising again. Forecasts by the IFS show the gains are set to unravel. The UK Budget failed to take action to unfreeze social security rates for working-age households, and the fix to Universal Credit didn’t extend to restoring Work Allowances. The Scottish Budget is another chance to get back on track with solving poverty. How does it stack up?

The big news from the Budget is the change to income tax, which the SNP has said will make the system fairer and reduce the tax bill for people on lower incomes. The Finance Secretary plans to flex devolved tax powers, by establishing five income tax bands stretching from 19p to 46p. Those paying the Scottish rate of income tax next year will be better off if they earn at or below £26,000. Good for easing in-work poverty? Not good enough. No-one earning up to this level stands to gain more than £20 a year. No-one paid the lowest wages or working the shortest hours – earning below the personal allowance of £11,850 - will gain a penny.

And beyond taxes, sustained action is needed on at least three fronts.

  1. Fair work and inclusive growth. The Finance Secretary has proposed an increase in resources here; £122m of capital spending for city region and growth deals, including lagging parts of Ayrshire. This is an opportunity, if the Scottish Government is clear about what returns it wants to see. For example, a tougher equalities test for investment is needed. We welcome the commitment to double the number of low-paid workers gaining a pay rise due to their employer becoming Living Wage accredited, but we also recommend a programme to test and improve progression opportunities in low-wage sectors like hospitality and retail.
  2. Housing costs are rising for low-income households and housing quality is lagging behind, especially in the private rented sector. Support to end homelessness, starting with emergency measures this winter, should be complemented with a bigger Housing First programme. There is already a loans scheme in place for improving the quality of sub-standard homes. To have greater effect, we recommend it is targeted on larger numbers of private landlords to incentivise faster progress.
  3. There is no feasible means to achieve the demanding targets in the Child Poverty Act without social security playing its part, for families in- and out-of-work. There may still be time to amend the UK Budget. But if not, the Scottish Government should act. Topping up Child Tax Credits or the child element of Universal Credit for all children in eligible households, or channelling the equivalent resources via local government (via more generous Council Tax rebates or higher school clothing allowances) would put more money directly into the pockets of hard-pressed families. Any of these options appear to be better at reducing poverty than cutting income tax.

While the better off will certainly pay more, the overall gain to Scottish revenues is modest. The Scottish Fiscal Commission reveals why: weak productivity, slow wage growth, very limited employment growth and the effect of inflation are likely to combine to keep real household disposable incomes stuck until 2020-21 – the eve of the next Scottish Parliament election. When MSPs return to amend the budget in the new year, the full picture on how to cut poverty should be in sharper focus than in this week’s announcement.