Scotland faces significant challenges in closing its 'inequality gap', according to new research carried out by University of Stirling academics.

The research team's work on inequality uses a new model of the Scottish economy to analyse taxes and spending among Scottish households.

Key points

• Scotland and the UK currently have much higher income inequality than comparable Nordic countries such as Norway and Denmark, with Scotland having a gap against these countries of 4.7 points on the 'Gini' coefficient – the recognised measure of the equality of a nation's income distribution.
• The Scottish Government has stated that reducing inequality is a strategic priority. The research finds the Scottish Government’s current fiscal powers – including council tax and the new Scottish rate of income tax – are relatively ineffective at tackling inequality because they cannot be targeted at specific income groups.
• Although an independent Scottish Government would have access to the full range of fiscal powers, the impact on inequality of exercising these additional powers would in fact be relatively small. And relying on fiscal policy alone could be problematic because it could trigger migration between countries.
• If the Scottish Government increased the rates of job seekers' allowance and income support by 10 per cent, it would close just 3.2 per cent of the 'inequality gap' between Scotland and the Nordic countries. If it added one penny to the upper rate of income tax, this would close 1.0 per cent of the gap. Similarly, if it chose to lower the additional rate tax threshold from £150,000 a year to £100,000, the gap would close by only 1.6 per cent.

Co-author David Eiser said: 'Achieving Nordic levels of inequality in Scotland will likely have to involve some equalisation of incomes before taxes and benefits, rather than a large increase in redistribution'.

Source: David Comerford and David Eiser, Constitutional Change and Inequality in Scotland, University of Stirling
Links: Report | Stirling University press release | ESRC press release | BBC report