Tax Debate Needed in Light of New Powers

29 Jan 2016

 

Holyrood’s Finance Committee has called for a wide ranging debate on taxation policy following the implementation of new financial powers arising from the Smith Commission. 

 

The Committee issued the call in its report on the Scottish Government’s draft budget for 2016-17, published today (29 January). 

 

This year is the first time that MSPs will decide the Scottish Rate of Income Tax (SRIT) following powers devolved under the Scotland Act 2012.  Parliamentary scrutiny of the budget has previously focussed on the Scottish Government’s spending plans.  However, new financial powers mean that a much greater share of the government’s budget is now raised through taxation.

 

The Committee heard differing arguments from witnesses for setting a different rate of income tax to the rest of the UK but the overwhelming view of witnesses, from the CBI to the STUC was that SRIT should be set at 10p in its first year and the Committee has therefore come out in support of the SNP Government’s intention to set SRIT at that rate.  This means that Scottish taxpayers will pay the same rate of income tax as other taxpayers in the UK.  However, the Committee also calls for “a wider debate on taxation once the new financial powers arising from the Smith Commission are introduced.”    

 

The report also details the Committee’s support for the Government’s decision to maintain the current rates and bands for Land and Buildings Transaction Tax, but includes a recommendation that the Government should conduct a review of the operation of the first year of the tax.         

 

Kenneth Gibson MSP, Convener of the Finance Committee, said:

 

“A lot of the committee’s attention has focussed, rightly, on the Scottish Government’s taxation plans for the year ahead. This is the first time we’ve had to consider a Scottish Rate of Income Tax and, although the proposal is for this to be maintained at its existing level for this year, the additional financial powers expected to be delivered by the Scotland Bill mean that, in the future, taxation will account for 48% of devolved expenditure. It’s important that people have the opportunity to contribute to a national debate on how these new powers should be used.”

 

Other recommendations in the report include:

 

•    The Scottish Government has been asked to confirm that it is content that sufficient work has been carried out by HMRC to ensure a high level of public awareness of SRIT when it is introduced on 6 April.

 

•    The Scottish Government is asked for details of discussions it has had with HMRC to ensure that reliefs for taxpayers who make donations under the gift aid scheme or who make pension contributions will continue to apply once SRIT is introduced.

 

•    The report notes that it is clear that there was an element of forestalling (transactions brought forward ahead of LBTT being introduced) as a consequence of the introduction of residential LBTT last April. The Committee recommends that in keeping with the principle of no detriment, it is essential that there is an adjustment to the block grant to account for the impact of forestalling. 

 

•    As a means of taking account of differing rates in population growth in Scotland and the rest of the UK, indexed deduction per capita should be used in the calculation of the block grant adjustment. Labour and Tory members dissented from this, despite clear evidence that the alternatives are likely to impact adversely on Scotland’s budget in the years ahead. 

 

Under the Scottish Rate of Income Tax, the UK Government deducts 10 pence in the pound across each of the rates of income tax. The Scottish Parliament then has the power to set a Scottish rate that applies across each of the three main tax bands. 
 

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