Scottish Budget 2021-22 consultation
ICAS has responded to the consultation ‘Budget 2021-22: Supporting the Covid -19 Recovery’ – part of a welcome trend of pre-budget consultation in Scotland. Charlotte Barbour outlines key points in the ICAS response.
The economic backdrop
Scottish tax policy in the 2021/22 Budget will need to be set against the overall background of the need for funds to support the economy to rebuild and to provide public services. At the same time, sources of revenues are likely to be reduced and fragile. The Budget in 2021/22 will need to manage the tensions arising from a desire to spend, but less revenue with which to do so.
More broadly, the private sector economy needs to be as robust as possible to provide employment and wealth creation. Without this, there are limited sources of taxation revenues to provide government funds. Beyond Budget 2021-22, if increased tax revenues are required, the ideal would be to grow the tax base rather than to raise more tax from the existing base.
Scotland has an opportunity to promote itself as a great place to live and work. Attracting businesses will be important but in an expected future of greater remote working and flexibility, attracting individuals may be just as important. The current Scottish taxpayer rules means that ‘home’ is the relevant criterion when determining Scottish income tax. Much of what makes Scotland an attractive place to live is already in place, but non-tax measures can contribute to this – broadband infrastructure, education, health and social care, quality of housing stock and affordability. Making Scotland more attractive as a place to live and work will grow the tax base.
The components of the Scottish budget
The Scottish Budget comprises the block grant, block grant adjustments, tax receipts and spending commitments. There are many moving parts, each of which may have COVID-19 risks attaching to it. There is concern about how the cumulative effect of these risks may impact on the Budget. There may also be a particular issue for the Scottish Government, if the Scottish economy grows less (or more) than the economy in the rest of the UK – this is a key risk (or reward) linked to Scottish tax raising powers affecting the Scottish Budget.
A broader pressure on the tax system is a lack of public understanding and, hence, support: there needs to be a greater level of public debate, public understanding and engagement on public finances and tax, including increasing transparency about the link between raising tax revenues and paying for improved public services. ICAS has welcomed the work to improve communications about tax with the general public, which the Scottish Government has been carrying out. With greater awareness comes more understanding and this should help to generate taxpayer support for the tax policies adopted.
A need for collegiate politics
The coronavirus pandemic has highlighted points of tension in existing policies, systems and processes. This can be seen in the problems that are created for the Scottish Government when the UK budget is delayed beyond the autumn; or in more specific measures such as the increase in the threshold for paying SDLT (introduced in July 2020), followed by a rise in the LBTT threshold. It may have been helpful for the Scottish Government if this had been better coordinated across the two governments before the measures were announced.
The delay in the UK Budget to spring 2021 combined with the Scottish elections in May 2021, which will require a Scottish Parliamentary dissolution, may reduce the available parliamentary time for debating and resolving Scottish budget matters. The 2020 Scottish Budget was published on 6 February 2020 and had to be based on a number of assumptions because the UK Budget took place later (on 11 March 2020) due to the delays arising from the general election of 2019. It was fortunate that no major changes in taxation were announced in that UK Budget. It will not be ideal, in 2021, if Holyrood has to manage the effects of major UK tax changes which might affect the block grant allocation or subsequent Barnett consequentials when there is an election for the Scottish Parliament taking place.
Scottish taxes do not sit in isolation – they are interwoven with the UK tax regime and there are connections and constraints which policy makers need to be mindful of. There also needs to be intergovernmental liaison to ensure that both Scottish taxes, and UK taxes work effectively and efficiently for all taxpayers. Success will depend on more collegiate politics across the UK, Scotland, regional partnerships and local authorities.
The ICAS response to the consultation concentrates on tax: