New research sets out tax reforms to raise over £2 billion a year and put Scotland’s stretched public finances on a sustainable path.

 

The Scottish Government risks harmful spending cuts unless it makes greater use of its tax powers in the next Parliament, according to a major new report by Future Economy Scotland (FES), a non-partisan think tank.

 

The report warns that growing budget pressures mean current tax revenues will soon be insufficient to sustain existing services – let alone fund ambitions such as net zero and stronger public services. Current plans to close the budget gap through public sector efficiency savings are unlikely to be sufficient, the authors argue.

The report comes as Scotland faces mounting fiscal pressures ahead of the next parliamentary term. It argues that maintaining Scotland’s social contract will require confronting what the authors describe as an “uncomfortable truth”: most Scots will need to pay a little more tax.

Without reform, Scotland risks a return to spending cuts that would hit lower-income households hardest and weaken already stretched public services.

Using detailed tax-benefit modelling, the report sets out a package of reforms to raise an additional £2.3 billion per year. By creating a fairer and more efficient tax system, the package aims to protect public services while delivering Scotland’s climate ambitions. The report also considers distributional impacts, behavioural responses and wider economic impacts.

Key recommendations include:

The report also examines the case for new wealth and carbon taxes, but concludes that standalone Scottish versions would be unlikely to succeed, recommending further exploration at a UK-wide level instead. 

Commenting on the report, FES Senior Economist Hanna Wheatley said:

 

“Our analysis finds a growing mismatch between the Scottish Government’s ambitions and the capacity of the public finances to deliver them. Even maintaining existing services will require additional revenue in the years ahead, and delivering net zero and stronger public services will require significantly more. Relying on ‘efficiency savings’ to close the gap is not credible.

 

“Sooner or later, Scotland’s politicians will need to have an honest conversation with the public. If we want strong public services and a fair transition to a greener economy, most Scots will need to pay a little more tax. But this must be done in a way that is fair and progressive.”

 

FES Economist Juan-Pedro Castro added:

 

“The Scottish Government’s use of devolved tax powers to date has amounted to tinkering rather than fundamental reform. Our report sets out an ambitious but credible package of reforms to put Scotland’s public finances on a sustainable path.

 

“By raising over £2 billion a year, these reforms would help safeguard Scotland’s social contract while supporting the transition to a fairer, greener economy. Replacing inefficient taxes like Council Tax and LBTT will also help create a more productive and dynamic economy. Crucially, all our reforms fall within Scotland’s existing devolved powers.”

 

 

[1] The report was initially covered exclusively in today's edition of the The Scotsman. 

[2] To request an interview with a spokesperson or for any other questions please contact press@futureeconomy.scot or call Laurie Macfarlane on 07909107890

 

[3] The report, ‘Funding Scotland’s Future: Tax Reform For A Just Transition’ is available on Future Economy Scotland’s website.

 

[4] All modelling was undertaken using the ScotBen tax-benefit model and bespoke modelling from Landman Economics. Full methodologies can be found in the full report.

 

[5] Future Economy Scotland is a non-partisan think tank that aims to create a new economy that is democratic, sustainable and just. The organisation does not have a formal stance on Scotland’s constitutional future, and is not aligned to any political party or any politician. The organisation is a not-for-profit company limited by guarantee operating with charitable principles. For more information visit: www.futureeconomy.scot