Six lessons from the Big Tax Debate
Devolved taxation powers have seen Scottish taxes diverging, more and more, from the rest of the UK. What does this mean for the Scottish economy and will it lead politicians and public to think seriously about a vision for not only how taxes are raised in Scotland, but how they are spent and what they are spent on
At a joint event, the Big Tax Debate, co-hosted by ICAS and the Chartered Institute of Taxation (CIOT) in Edinburgh on 17 January, a panel of politicians and commentators discussed the issues around an ever more distinctly Scottish tax regime.
The panel was chaired by the BBC’s Glen Campbell and included:
- Murdo Fraser MSP, Conservative Shadow Cabinet Secretary for Finance;
- Darren McGarvey, activist on poverty and social justice issues, author, journalist and (as “Loki”) rap artist;
- Alan McFarlane, Senior Partner, Dundas Global Investors and Chair, Reform Scotland; and
- Kate Forbes MSP, Parliamentary Liaison Officer to the Cabinet Secretary for Finance and Constitution.
The debate was lively and surprisingly non-partisan, and included questions and contributions from the audience of ICAS and CIOT members and guests. Here are six “big ideas” from among the many put forward at the Big Tax Debate:
1. Taxpayers say they are happy to pay more tax for more effective services, but they want to know more about how that revenue is spent
As Murdo Fraser put it: “We spend more per head than the UK average, but are we spending that money wisely?”
Alan McFarlane said: “I’d like people to be able to see where their taxes go” but also praised Finance Secretary Derek Mackay, for introducing greater transparency in public spending.
Kate Forbes argued: “Polls all suggest that a majority would be willing to pay slightly more tax if it means having better public services.”
2. Scotland’s income tax could be less complex if more of it was devolved
“Complexity was unavoidable this time round,” Alan said, referring to the extra bands introduced by the Scottish Government and their interaction with UK rules covering, for example tax relief on pension contributions.
Kate pointed out that income tax on investment income is still under the control of Westminster, which means that some taxpayers are operating under two systems. She said that bringing income tax for Scottish taxpayers wholly within the jurisdiction of the Scottish Parliament could make it less complex.
3. Taxation should not hold back growth – and if possible, should encourage it
Matt Lancashire, Scottish Council for Development & Industry (SCDI) said: “It’s about keeping Scotland competitive. You could have a highly taxed system, with better public services to attract people; or you could have lower taxes.
Is Scotland the most highly taxed part of the UK… or the least? “Scotland is arguably the lowest taxed part of the UK for those earning £24,000 or less, and when you take council tax into account,” Kate said.
For higher earners, paying land & buildings transaction tax (LBTT) on a high-end property, progressive taxation may have less of an appeal, of course.
4. Some areas of the economy could stand a little more taxation
The panel discussed alternatives beyond income tax. Murdo said: “There are areas that we probably don’t tax enough, like the Internet.”
He added that companies like Amazon enjoy an unfair advantage over traditional traders.
Other suggestions, from the audience, included a tourist tax levied by local councils, or rethinking the generous decommissioning relief available to oil and gas producers.
5. The public sector should be judged on what it achieves, not what it spends
Alan argued: “We should measure the success of our public services in terms of outputs, not inputs”.
6. Debates on spending should focus on the root causes of poverty
Many of Scotland’s biggest health, social and educational challenges are inextricably linked with the problem of poverty. Darren McGarvey, who has experienced these issues at first hand, said: “I don’t believe the influential classes really understand what is driving poverty. We should be listening more to the people who are experiencing it.”
He added: “Social mobility - or rather ‘social immobility’ – is a massive issue. We need something like a commission to get to the truth of things.”
In conclusion, Kate said: “One of the best things about devolved taxation is that it focuses the debate on how we spend it… it’s the public’s hard-earned money, and if we take that attitude throughout the public sector, we’ll get better services.”
The ICAS Guide to Scottish Taxes is now available.