Publication - Consultation paper

Tax policy and the budget: consultation

Published: 31 Aug 2021
Directorate:
Taxation and Fiscal Sustainability Directorate
Part of:
Economy, Money and tax
ISBN:
9781802013269

This consultation seeks views on our overarching approach to tax policy, through Scotland’s first framework for tax, and how we should use our devolved and local tax powers as part of the Scottish Budget 2022 to 2023.

Tax policy and the budget: consultation
5 – Programme of work

5 – Programme of work

As part of the cycle for tax policy, our programme of work will be determined by our strategic priorities, the incumbent administration’s manifesto commitments and the economic conditions of the day. Undoubtedly COVID-19 and our recovery is and will continue to be front and centre during this Parliament (2021-26).

This section sets out our high-level programme of work over the course of this Parliament. We will keep this regularly under review and are committed to refreshing its content at the mid-point during the Parliament (2023) and to ensure we deliver on all aspects by the end of the Parliament (2026), recognising the need for flexibility to respond to unforeseen developments.

Scotland’s devolved and local tax policy will play a vital role in supporting our recovery from COVID-19, providing the certainty and stability that individuals and businesses need, generating sustainable revenues to fund our public services and thus helping to build a greener, fairer and stronger economy and reinforce our efforts to reduce inequality and child poverty.

Engagement

Through the Scottish Approach to Taxation we are striving for a best practice approach to engagement, ensuring that we deploy our tax powers through a transparent policy making process. This reflects our commitment to open government and collaborative working, as well as our desire to maximise understanding of tax policy and garner a diverse range of views.

To achieve this we will:

  • Communicate clear messages on tax;
  • Connect with a broad group of stakeholders;
  • Create platforms for ongoing and proactive tax policy engagement.

We will establish a clear engagement cycle that aligns with the policy and Budget cycles set out above. We will create spaces for different ideas to emerge, to build trust and foster collective capacity to deliver tax policy. Central to this approach will be promoting a positive case for the role of tax in supporting public services in Scotland.

In pursuing this we will:

Consult, Convene and Listen: collaborating with stakeholders on policy development, new ideas and through consultation. Creating platforms to hear and understand citizens and stakeholders perspectives on tax, through set-piece events, calls for evidence and recurring engagements.

Engage and Inform: maximising engagement and communication with stakeholders and the public, through events and public messaging, seeking to increase understanding of, and participation in our approach to tax policy.

COVID-19 Recovery

As we recover from COVID-19 and in line with Scotland’s forthcoming 10 year economic strategy, we will seek to protect and grow the tax base in pursuit of stable revenue growth, reflecting our commitment to fiscal sustainability and to ensure the funding of our vital public services.

We will pursue a greater understanding of the drivers of devolved tax performance, as well as threats and opportunities for the tax base, and use this to inform and implement improvements, aligned with the economic cycle.

While it is important for any government to have flexibility to respond to a change in circumstances, our aim is to maintain current Income Tax rates for the duration of the parliament and increase thresholds by a maximum of inflation.

We will also look to maintain current rates and bands for residential Land and Buildings Transaction Tax for the duration of the Parliament and continue the first time buyer relief.

This approach to devolved tax policy provides a stable platform for recovery from the pandemic, with flexibility to respond if we need to, as we build a greener and more prosperous future in Scotland.

Ensuring local taxation meets our future challenges and needs

A local tax system plays a vital role in supporting our local communities to thrive and our local businesses, economic recovery and social renewal in the wake of COVID-19, building on the targeted support we have provided.

We will ask a Citizens’ Assembly to consider the way forward for Council Tax reform and remain committed to working with parties across the Scottish Parliament to find an appropriate solution.

In this Parliament, we will increase the age at which people become liable for Council Tax from 18 to 22 years of age, supporting our young adults.

We will ensure Scotland’s non-domestic rates, which are the most generous in the UK, support (i) businesses to recover from the pandemic, (ii) local employment and prosperity and (iii) the transition to a net zero economy, helping to tackle the climate crisis. This includes:

  • ensuring continued competitiveness including by gradually reducing the combined poundage rate for the largest properties to match the equivalent rate in England over the course of the Parliament;
  • maintaining the Small Business Bonus Scheme for 100,000 properties for the duration of the Parliament;
  • exploring levying a higher poundage on properties registered in tax havens;
  • exploring tackling other known tax avoidance tactics;
  • supporting district and hydropower generators with relief until 2032; and
  • maintaining the Business Growth Accelerator and Fresh Start reliefs.

Enhancing and deploying our devolved tax powers

Whilst it remains the position of the Scottish Government that devolution of the full set of fiscal powers is the best way of delivering future economic prosperity for Scotland, we will continue to deliver the powers set out in the Scotland Act 2016.

This includes taking steps to progress the introduction of a devolved tax on the commercial exploitation of aggregates and the Air Departure Tax.

We will consider the role of Scottish Landfill tax and other fiscal incentives, such as a waste tax, in the context of the planned waste route map and the Climate Change Plan.

We will also explore the taxation of digital sales in Scotland, ensuring our high street retailers and town centres can recover from the effects of the pandemic and that online retailers contribute to tax revenues alongside our bricks and mortar businesses.

As part of the upcoming Fiscal Framework Review, we will call upon the UK Government to ensure the scope of the review includes the further devolution of tax and fiscal powers to Scotland; primarily full devolution of Income Tax, National Insurance Contributions and VAT. This will provide the Scottish Government with further levers to tailor taxation policy to Scotland’s economic circumstances and the Scottish Government’s policy objectives.

Specifically concerning VAT, it is apparent from the extensive work to establish a methodology for the assignment of VAT revenue to Scotland that intrinsic difficulties remain. We therefore propose the review should explore whether the devolution of full VAT powers would present a better alternative.

Delivering outcomes in line with Scotland’s National Performance Framework

The challenges facing Scotland over the course of this Parliament are significant, and generating sustainable devolved tax revenues, along with spending and capital expenditure, act as vital fiscal levers to tackle the challenges we face.

For instance, we will consider how the tax powers that we have could help change behaviour supporting the transition to a net zero economy. Whilst the majority of green tax powers are reserved, we will pursue changes at every level to deliver on Scotland’s climate and environmental ambitions, beginning with COP26.

We will undertake a full review of LBTT’s Additional Dwelling Supplement, including consideration of its impact on homes in remote and rural communities. And as we set out in the Housing to 2040 route-map, we will continue to review the role of taxation in supporting our Housing to 2040 vision for both new and existing homes and our communities.

We must also ensure the our tax powers can sustainably generate revenues that contribute to our priorities, including the delivery of a National Care Service in Scotland, reductions in inequality and child poverty and the decarbonisation of industry, transport and energy generation in Scotland (including the heating of our homes).

The Scottish Land Commission (SLC) are expected to present proposed changes to local and devolved taxation in Scotland that can support Scotland’s land reform objectives. They will be considered closely and in line with our strategic objectives. We will continue to support the SLC as they explore Scotland’s longer-term options for reform of land and property taxation, ensuring our land reform aims can be met, and that vacant and derelict land in Scotland is brought back in to productive use and Scotland’s natural environment is protected.

Continuous improvement and building our evidence base

We will continue to enhance our understanding and delivery of devolved tax policy and apply that learning to ensure continuous improvement is embedded in everything we do, putting engagement and policy excellence at the heart of our work.

This includes working with the Scottish Parliament to re-establish the Devolved Taxes Legislation working group to progress work to ensure a robust legislative framework for tax is in place.

In 2021 we will conduct an evaluation of Scotland’s Income Tax performance in 2018-19 – the first year of the five band system. We also expect the Fraser of Allander Institute to publish their independent evaluation of NDR’s Small Business Bonus Scheme relief (commissioned by the Scottish Government) in late 2021.

Future NDR evaluations over the course of the Parliament may include an evaluation of Nursery Day relief, Enterprise Areas relief and a broader review of Purpose Built Student Accommodation.

We will ensure that reviews and consultations draw on a diverse range of perspectives and apply the learning and insights drawn from those processes.


Contact

Email: taxdivisionengagement@gov.scot