In every tax jurisdiction situations arise where changes may need to be made without advance consultation. For example, to tackle tax avoidance, to correct an anomaly or to respond quickly to changes in the economy. This often means that legislation is introduced with immediate effect, and in certain circumstances, it needs to be given retroactive effect.
Due to the operation of the Fiscal Framework and the interaction of the UK and Scottish Budget timetables, tax changes announced as part of the UK Autumn Budget can present challenges for the Scottish Government, particularly if the Scottish Government is required to legislate at short notice to protect revenues or prevent distortions in markets.
Changes may also need to be made without advance consultation where the effect of providing advance notice would pose a significant risk to revenues and markets, known as forestalling. This is particularly relevant for transactional taxes, such as LBTT, where taxpayers have more flexibility around bringing transactions forward, or as the case may be, delaying them until after a tax change has taken effect. As forestalling usually occurs to the benefit of the taxpayer, there will always be a loss in revenue. The Office of Budget Responsibility published the paper Forestalling ahead of property tax changes which provides a detailed analysis on the effects of forestalling, including case studies relevant to LBTT.
The Scottish Government will aim to make most changes to the devolved taxes through the policy and legislative cycle. However, in light of the above, it will be important to maintain provision for changes to be made immediately or following a shorter timescale and without substantial consultation.
The Scottish Government will consider the appropriate approach to consultation and pre-announcing tax changes on a case-by-case basis, carefully balancing the need for transparency and certainty with the risks associated with forestalling. In doing so, legislation will only be introduced at short notice if there are clear and justifiable reasons, and in such cases those reasons and rationale will be set out in the accompanying documents.
Question 7: Do you agree with the Scottish Government’s approach to the circumstances set out in this section?