Publication - FOI/EIR release

Behavioural analysis on income tax banding: FOI release

Published: 28 November 2017
Topic: Equality and rights, Public sector

Information request and response under the Freedom of Information (Scotland) Act 2002.

FOI reference: FOI/17/02249
Date received: 3 October 2017
Date responded: 31 October 2017

Information requested

Information covering:

Any documents, data, briefs or otherwise detailing behavioural analysis undertaken or examined by the Scottish Government from 1 June 2016 to 1 October 2017. Information should include any behavioural analysis on income tax at each banding (particularly higher and additional rates) and any behavioural analysis of LBTT and its effect on tax receipts.
Also, any documents explaining why the Scottish Government's models only estimate a maximum number of 1,300 additional rate taxpayers acting behaviourally under the conditions of an increase in the additional rate of income tax to 50p.
Also, any analysis of how many of Scotland's additional rate taxpayers have property in the rest of the UK outside of Scotland?
Also, any briefing documents regarding the Laffer Curve delivered to Scottish ministers in the timeframe mentioned.

Response

I enclose as attachments to this e-mail a copy of some of the information you requested.

Some of the information you have requested is available from online sources:

http://www.gov.scot/Publications/2016/12/6669/downloads;

http://www.gov.scot/Resource/0051/00514336.pdf;

http://www.parliament.scot/FinanceCommittee-LBTT_inquiry-Letter_from_Cabinet_Secretary-_August_2016.pdf;

http://www.gov.scot/Publications/2016/12/6669;

The Scottish Government monitors the monthly Revenue Scotland data (https://www.revenue.scot/about-us/publications/statistics) and the quarterly Registers of Scotland data (https://www.ros.gov.uk/property-data/property-statistics/quarterly-house-price-statistics), both of which provide breakdowns of transactions by price bands; and http://www.fiscalcommission.scot/media/1100/2015-16-outturn-reportseptember-2016.pdf

Under section 25(1) of FOISA, we do not have to give you information which is already reasonably accessible to you. If, however, you do not have internet access to obtain this information from the website(s) listed, then please contact me again and I will send you a paper copy.

Additionally, as you note, the paper " The impact of an increase in the additional rate of income tax from 45p to 50p Scotland" published in March 2016 stated that:

"Given the high average tax liabilities of additional rate taxpayers, the overall change in revenue could be influenced by changes in the tax liabilities of a relatively low number of taxpayers. For example, if 1,000 (6%) additional rate taxpayers in 2017/18 reduced their tax liabilities to zero, out of an expected additional rate taxpayer population of 18,000, this would result in the policy change raising no extra revenue. In the high behaviour scenario where there would be revenue loss of £30m this would be caused by 1,300 additional rate taxpayers leaving Scotland, or 7% of the additional taxpaying population."

This is a purely illustrative calculation. The behavioural analysis considers the impact of policy changes on total taxable income in a taxpayer group. The above calculation assumes that all additional rate taxpayers earn the same average income and that they would no longer pay any tax in Scotland. In practice, the response will be more nuanced as these taxpayers have different levels of income and may choose different ways of reducing their tax liability. As such, it is possible that more, or fewer, additional rate taxpayers may decide to leave Scotland, incorporate as a business or work fewer hours in response to a 50p rate.

While our aim is to provide information whenever possible, in this instance the Scottish Government does not have some of the information you have requested. The reasons why we don't have the information are explained below.

While our aim is to provide information whenever possible, in this instance we are unable to provide some of the information you have requested because an exemption(s) under section(s) s.29(1)(a) (policy formulation), s.27(1) (intended for future publication), s. 30(b)(i) (free and frank provision of advice) and s. 30(b)(ii) (free and frank exchange of views) of FOISA applies to that information. The reasons why that exemption(s) applies are explained below.

Our aim is to provide information whenever possible. However, in this instance, some of the information you have requested is not held by the Scottish Government for the purposes of FOISA because we received it in confidence from the UK Government. This means that, under the terms of section 3(2)(a)(ii) of FOISA, we are unable to disclose it in response to your request. However, you may wish to submit a new request under the Freedom of Information Act 2000 (FOIA) to HMRC at HMRC Freedom of Information Team Room 1C/23 100 Parliament Street London SW1A 2BQ who should be able to help you further.

Reasons for not providing information

The Scottish Government does not have the information.

The Scottish Government does not have some of the information you have asked for because: the Scottish Government is not responsible for the collection and management of information relating to properties outside of Scotland; and no analysis is held relating to the Laffer Curve.

This is a formal notice under section 17(1) of FOISA that the Scottish Government does not have the information you have requested.

An exemption applies, subject to the public interest test.

An exemption under section s.29(1)(a) (policy formulation) of FOISA applies to some of the information you have requested.

This exemption is subject to the 'public interest test'. Therefore, taking account of all the circumstances of this case, we have considered if the public interest in disclosing the information outweighs the public interest in applying the exemption. We have found that, on balance, the public interest lies in favour of upholding the exemption. We recognise that there is some public interest in release as part of open, transparent and accountable government, and to inform public debate. However, this is outweighed by the public interest in high quality policy and decision-making, and in the properly considered implementation and development of policies and decisions. This means that Ministers and officials need to be able to consider all available options and to debate those rigorously, to fully understand their possible implications. Their candour in doing so will be affected by their assessment of whether the discussions on the behavioral impacts of tax policy will be disclosed in the near future, when it may undermine or constrain the Government's view on that policy while it is still under discussion and development. An exemption under section s.27(1) (intended for future publication) of FOISA applies to some of the information you have requested.

An exemption under section 30(b)(i) of FOISA (free and frank provision of advice) and section 30(b)(ii) of FOISA (free and frank exchange of views) applies to some of the information requested. This exemption applies because disclosure would, or would be likely to, inhibit substantially the free and frank provision of advice. This exemption also recognises the need for Ministers and officials to have a private space within which to discuss and explore options before the Scottish Government reaches a settled public view. Disclosing the content of free and frank advice on the behavioural impacts of tax policy will substantially inhibit the provision of such advice in the future, particularly because these discussions are still ongoing and decisions have not been taken, and these discussions relate to a sensitive or controversial issue such as the formulation and development of tax policy.

This exemption is subject to the 'public interest test'. Therefore, taking account of all the circumstances of this case, we have considered if the public interest in disclosing the information outweighs the public interest in applying the exemption. We have found that, on balance, the public interest lies in favour of upholding the exemption. We recognise that there is a public interest in disclosing information as part of open, transparent and accountable government, and to inform public debate. However, there is a greater public interest in allowing Ministers and officials a private space within which to explore and refine the Government's policy on taxation, until the Government as a whole can adopt a policy that is sound and likely to be effective. This private thinking space is essential to enable all options to be properly considered, based on the best available advice, so that good policy decisions can be taken. Premature disclosure is likely to undermine the full and frank discussion of issues between Ministers and officials, which in turn will undermine the quality of the policy making process, which would not be in the public interest.

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