Redistribution and work incentives in an independent Scotland: opportunities and constraints

Through independence the Scottish Government aims to reverse many of the UK Government’s welfare reforms, and at the same time, reform the welfare system so that it improves the transition into work. There is an apparent trade-off between the desire to increase redistribution and improve work incentives. However, because different groups respond differently to particular incentives inherent in the tax and benefit system, the way in which these incentives are structured has important implications for labour market participation and inequality. An effective tax system minimises work disincentives where they matter most – for low earners, families with children, and those at the beginning and end of their working lives. This paper discusses how the balance between redistribution and work incentives is changing under current UK Government welfare reforms, and how an independent Scottish Government might balance this trade-off differently.