Tax Advisory Group minutes: November 2024

Attendees and apologies

• Shona Robison MSP, Cabinet Secretary for Finance and Local Government
• Stuart Adam, senior economist at the Institute for Fiscal Studies
• Professor Mairi Spowage, Director of the Fraser of Allander Institute
• Dr Jim McCormick, Chief Executive of the Robertson Trust
• Cllr. Katie Hagmann, COSLA Resources spokesperson
• Aidan O'Carroll, Chair of Revenue Scotland and former Chair of the Institute of Directors in Scotland
• Charlotte Barbour, President of the Chartered Institute of Taxation
• Professor David Heald, Emeritus Professor in the Adam Smith Business School, University of Glasgow
• Dan Neidle, founder of Tax Policy Associates
• Ivan McKee MSP, Minister for Public Finance

Apologies

• Dave Moxham, Deputy General Secretary at the Scottish Trades Union Congress
• Dr. Liz Cameron, Chief Executive of the Scottish Chambers of Commerce

Scottish Government

• Alisdair Black, Deputy Director, Budget and Fiscal Coordination
• Secretariat

Items and actions

Welcome and apologies

The Chair welcomed members and noted the apologies below.

Minutes of last meeting 

The Chair noted that the minutes from the previous meeting had been circulated. Members confirmed they were content for them to be issued.

Presentation: UK Budget

The Chair noted the political context of the  UK Budget and its potential impacts on the Scottish Budget for 2024-25 and the upcoming Draft Scottish Budget 2025-26.

The Chair invited Alisdair Black to present on the Scottish implications from the UK Budget.

Following the presentation, the Chair invited questions and comment from members.

The increase in rates of Employer National Insurance Contributions (NICs) was raised. It was noted that the UK Government had confirmed that it would provide resources to the Scottish Government to mitigate the impact of costs in the public sector, but that it had not confirmed how large these would be. There remained the risk of pressure on the Scottish Budget, especially as the Scottish public sector is proportionately larger than across the UK and the UK Government was not proposing to mitigate the impacts of costs relating to the use of contractors by the public sector.

The Chair noted that there were ongoing conversations with HM Treasury for clarity around these issues but that they were unlikely to be resolved prior to publication of the Draft Scottish budget.

The threshold change in Employer NICs was also raised. It was noted that this could have a differential impact based on type of employment and a knock on effect on the delivery of services, for example, in the care sector. 

Presentation: Tax Strategy 

The Chair invited Scottish Government officials to present on this item.

Following the presentation, the Chair opened the discussion and invited views from members.

The potential population dynamics effects of the Top Rate of Income Tax was raised, and members asked if this was being considered in the Tax Strategy. Officials noted that we use real time data from HMRC to do monitoring at the moment with respect to PAYE data, but there is no evidence from self-assessment data at this time. Officials noted that the Strategy’s evidence and evaluation section will look at developing data in this area.

Local taxation was discussed, and specifically Council Tax (CT). It was noted that whilst there was broad agreement that reform was desirable, there was is no consensus on what this should look like. It was further noted that there is ongoing work between Scottish Government and Local Authorities on this.

Members noted that there have been two attempts at CT reform in Scotland, and that research efforts should consider why these processed had not resulted in change,as this may provide additional insight into how to approach the process of reforming CT.

The inclusion within the Strategy of areas of research interest was discussed. It was noted that the fiscal environment is challenging, but that officials are currently exploring opportunities to provide seed funding.

Non-Domestic Rates (NDR) was raised and members queried whether the Scottish Government would look to reform NDR following the Chancellor’s budget statement. It was noted there is ongoing consideration in that area.

Members raised the issue of ‘in-work progression’ (moving from less well to better paid work), noting that as a key driver of growing the tax base and revenues, as well as helping to address in work poverty. The Chair noted that in-work progression is an important point of consideration and would like to continue discussions on this in future.

The Chair had to leave at 12:15, and handed the chair to the nominated Scottish Government official.

Potential future priorities for Scottish tax policy were raised. It was noted by members that there should be consideration of the interaction with UK decisions on devolved Scottish taxes, and a focus on simplicity. In relation to potential introduction of new taxes, members expressed a view that the focus should be on taxes which would raise significant revenues.

Presentation: OCEA Paper – Scotland’s International Competitiveness 

Officials from the Office of the Chief Economic Adviser were invited to present on OCEA’s paper on Scotland’s International Competitiveness.

It was noted that with respect to migration into Scotland from rUK, this included individuals paying the higher rate and additional/top rate of Income Tax. Members noted Scotland has a smaller proportion of the population at those bands and as such it would be worth understanding more about the composition of this group. Officials noted there is available information on inflows and outflows, and that there is ongoing work on that analysis. 

The issue of progressivity of taxation was raised, and international comparisons to Scotland’s distribution of tax ‘burden’. Officials noted the approach varies substantially between countries with Denmark, for example, raising a large proportion of income tax revenues from middle earners.

Members asked if data on migration was based on published data. Officials noted that the underlying data has been published and that there is ongoing work with HMRC to make more data available to researchers.

Members queried if the data included ages and had regional and sectoral breakdowns. Officials noted there are parameters for age; however, there is not currently an intra-Scotland regional or sectoral breakdown. Officials noted they will take these items away as they work with HMRC to continue to develop the dataset.
AOB

Officials noted that the group will next meet in 2025 and that they will contact members to coordinate this.