ICAS responds to Scottish Parliament Finance Committee call for evidence on the impact of the cost of living and public service reform
Justine Riccomini highlights the key tax points in the ICAS response to the Scottish Parliament’s call for evidence on public service reform
ICAS submitted a response in August 2022 to the Scottish Parliament’s call for evidence relating to the impact of the cost of living crisis, and public service reform.
ICAS responded only to the taxation points contained in the call for evidence at questions 1-4, 6 and 8. The key areas referred to in the ICAS response were as follows:
ICAS wants to see the Scottish Parliament/Government continuing to evolve from being mainly spending institutions to those in which equal weight and deliberation is given to levying the taxes necessary to fund public spending. The Framework for Tax is a pillar of stability and good policymaking and ICAS would encourage that to be followed to avoid unintended tax consequences.
It is reasonable to consider that some further thought might be given between 2023/24 and 2026/27 to Scotland’s competitiveness and attractiveness to workers, as well as to the size and capability of the tax base from which public funding is derived.
The already devolved property taxes, namely LBTT, Non-Domestic Rates and Council Tax are potentially capable of being reviewed and improved upon being as they are harder to avoid, transaction-based taxes.
It is important to keep in mind that Scottish taxes do not sit in isolation – they are interwoven with the UK tax regime and there are connections and constraints which policymakers need to be mindful of.
The UK income tax Personal Allowance which is set by Westminster and applies to all UK taxpayers, has the effect that a significant proportion of the Scottish population are lifted out of income tax altogether, which reduces the size of the tax base. In addition, the vast majority of Scottish taxpayers currently sit in the two lowest taxable income bands due to the median salary being £26,000 pa (2021).
It would be desirable to attract more higher rate and additional rate taxpayers to Scotland by creating roles and entrepreneurial opportunities at that earnings level. Specific tax policy around this may influence Scotland’s attractiveness to individuals and families to an extent, but there are likely to be other non-tax considerations which would help to achieve this objective.
When developing tax policy, particularly if there is increasing divergence from the rest of the UK, ICAS would support the transparent modelling of different policy options.
Making Tax Digital (MTD) should represent an opportunity to improve the taxpayer experience if done well. HMRC and SG should work together to ensure Scotland is not left behind and simultaneously supply the Scottish Fiscal Commission with additional sources of current data for forecasting purposes.
Studies such as The Tax Education Gap of 2019 have shown there is a clear interaction between understanding and perceptions of fairness. Educating people on tax affairs can help to inform them and set the foundations for a UK tax system in which people understand how much they pay and why, and become engaged as active contributors. ICAS published its Public Finances Accountability Guide in April 2022 to encourage increased fiscal transparency and accountability.
The Spending Review documents are of course publicly available but there is still more that can be done to explain the detail to the general public so that complex issues are presented to all Scottish citizens in a way they can easily understand, such as infographics, explainer videos and suchlike. The communications plan which was being set up before the pandemic could be reignited now to fulfil this purpose.
Having submitted a response, ICAS awaits the publication of the Scottish Parliament’s conclusions and next steps.
Have you thought about volunteering on an ICAS tax committee? Email the tax team on firstname.lastname@example.org if you are interested.