Scottish taxes: Holyrood at twenty
Edinburgh-based Luath Press has published a new book entitled ‘The Scottish Parliament at Twenty’, and Donald Drysdale takes a look at its chapter on ‘Raising Taxes’.
The Scottish Parliament, based at Holyrood in Edinburgh, has a proud history.
The original Parliament of Scotland can be traced from the 13th century, and its tax-raising and other legislative powers were significant by the 14th century. It was prorogued at the time of the Acts of Union in 1707, when its powers were subsumed within those of a new Parliament of Great Britain sitting at Westminster.
Following a referendum in 1997, a new Parliament was created by the Scotland Act 1998 and given power to legislate on all matters not specifically reserved to the UK Parliament at Westminster. This new Scottish Parliament first met on 12 May 1999 – almost exactly twenty years ago.
Edinburgh-based Luath Press has celebrated this milestone by publishing a new book entitled ‘The Scottish Parliament at Twenty’, edited by James Mitchell and Jim Johnston.
In such a work the Scots might easily have rested on their laurels – self-congratulating themselves on all that their new Parliament had achieved over that past two decades. Instead the book looks ahead, bringing together authors from various backgrounds to discuss the Parliament’s future.
Their contributions discuss vital issues such as the increased complexity of devolution, the Parliament’s new fiscal and welfare powers, and the need to respond to public expectations and demands.
Of particular interest to tax practitioners is the fact that Charlotte Barbour, Director of Tax at ICAS, and Moira Kelly, former chair of the CIOT Scottish Technical Committee, were jointly invited to provide a chapter on tax.
Evolution of Scotland’s tax powers
It seems ironic that the chapter is entitled ‘Raising Taxes’. Scottish fiscal devolution is seen by many, not only as an exercise in levying taxes, but as a sustained move to raise tax rates north of the border. However, it is not within my remit to make any political comment.
When the new Parliament was first established, minimal tax powers were devolved to it. At that stage it was almost entirely reliant on the block grant from Westminster to fund its Budget.
Since then Scotland’s tax powers have further evolved through the Scotland Acts of 2012 and 2016, paving the way for a range of wholly-devolved, partly-devolved and assigned taxes which now fund around half the nation’s Budget.
From the start, Holyrood has had control of council tax and business rates. It controls key aspects of Scottish income tax – an intrinsic part of the UK income tax regime. And it is wholly responsible for land and buildings transaction tax (LBTT) and Scottish landfill tax (SLfT).
Partial assignment of VAT revenues to the Scottish Parliament was due to begin this year, although it may now be postponed. Air passenger duty (APD) is still to be devolved – as air departure tax (ADT). Aggregates levy is also to be devolved.
The tax measures have been designed so that Scotland’s economic performance may influence the amount raised through the new taxes. This brings opportunities and risks, creating a need for the Scottish Government to manage actively any consequent uncertainties and volatility.
The authors acknowledge that many aspects of devolution are complex – including interaction with UK taxes, the benefits regime and the UK Budget, and understanding how the block grant adjustments work. These have created challenges for the Scottish Parliament in scrutinising tax policy.
Holyrood has adapted both politically and operationally to deal with its evolving tax powers. The establishment in 2018 of a ministerial-level position with responsibility for tax policy recognised the increasing prominence of the devolved taxes.
In their chapter, Charlotte Barbour and Moira Kelly take a considered look ahead at priorities for Scottish taxes.
They applaud the initiative taken by Holyrood’s Finance and Constitution Committee in 2016 when it began an inquiry into a Scottish approach to tax policy, but they also express disappointment that this project seems to have petered out in 2017 without reaching any conclusions. It should be revived.
They believe that differentials between tax regimes north and south of the border may create scope for tax planning or avoidance without serving longer-term Scottish interests. Tax policy principles should determine when Scottish policy should be distinctive and when it might more appropriately follow UK measures.
Scottish taxes are widely misunderstood – especially the interaction between pan-UK and devolved taxes. It is crucial that Scottish taxpayers, and individuals and businesses considering moving to Scotland, should be able to understand and approve of their contribution to the nation’s public finances.
While the authors have welcomed Holyrood’s appointment of Kate Forbes MSP as Minister with responsibility for tax scrutiny, they are concerned that the much wider ambit of her portfolio might not allow sufficient time for adequate consideration of Scottish tax policy and its interactions with UK taxes.
Currently, changes to Scots tax law are made by a mixture of primary and secondary legislation and there is no regular process for considering them. The introduction of an annual Finance Bill would make the whole process more efficient, and it would also be helpful if the Scottish Parliament had a Tax Committee to allow increased scrutiny of tax legislation.
In Scotland there is scope to introduce new devolved taxes. Those suggested so far include a tourist levy, a vacant land tax, and a charge on disposable cups. Individually and collectively they are unlikely to raise significant revenues, and might be best administered by local councils.
Revisiting council tax and business rates could allow policies to evolve around progression and support for business, although perhaps with tension between the two goals. I am aware that a land value tax and a local income tax are options which have been mooted.
Scotland has been in pole position, spearheading the growth of fiscal devolution throughout the UK. Wales has followed suit with its land transaction tax, landfill disposals tax and the Welsh rates of income tax, and the framework for the Northern Ireland rate of corporation tax exists.
The authors suggest that the Scottish experience to date might be used to make Scotland a centre of excellence, able to share its proven expertise in the devolution of taxes. This seems a commendable objective.
Article supplied by Taxing Words Ltd