I am concentrating on one matter in this “tax land” and that is the publication by the Scottish Government of its latest independence paper: “Principles for a Modern and Efficient Tax System in an Independent Scotland”. The paper can be found here. I prefer my title for this paper found above.
It is a good paper and makes a number of sensible suggestions. If you do not have time to read the whole paper I would recommend you take the opportunity to read the “Executive Summary” and also the “Summary of Recommendations”.
For ease of reference I have copied part of the “Executive Summary” below as well as adding a number of comments.
“Under the current constitutional framework, the Scottish Parliament is responsible for around 7% of all taxes raised in Scotland (including a geographical share of oil). This will rise to 15% with the introduction of new responsibilities flowing from the Scotland Act 2012.”
This is a point that the ‘YES’ campaign needs to keep repeating. The ‘NO’ parties often claim that a substantial amount of power is being devolved under the Scotland Act 2012. This is clearly nonsense. Only two minor taxes are being devolved and the Scottish Parliament’s control over income tax will only increase slightly. This only gives the Scottish Parliament control of four minor taxes and partial control of income tax. This hardly gives the Scottish Parliament substantial tax powers when you consider there are approximately 25 taxes, charges and duties. Finally on this point. Do not forget that Calman began its work in 2007 but the powers are not being devolved until 2015 and 2016.
“Independence would provide full control of all taxation and expenditure levers in Scotland with autonomy over tax design, collection and implementation. The requirement to establish a new tax system post-independence provides an opportunity to re-examine the tax framework as a whole and to design a system based upon specific Scottish circumstances, preferences and principles but also with modern technology and data collection in mind.”
This is very important. One of the most disappointing aspects of the ‘NO’ parties involvement in the fiscal powers debate has been their complete lack of interest in devolving control of those tax powers that would complement the powers already held by the Scottish Parliament. This would have given the Scottish Parliament a substantial number of economic levers and also the chance to develop policy in a more effective way. For example, health is devolved but alcohol and tobacco duties are not.
In addition VAT can only come under the control of the Scottish Parliament if Scotland votes ‘YES’.
The debate surrounding a new Scottish tax system should also include whether any taxes should be abolished. For example, air passenger duty and stamp duty on shares. I also look forward to seeing in more detail how we might improve how our taxes are collected and also how tax advice and assistance is provided. I have long argued that we need to create local advice offices. These could be located in each local authority area. Scotland also does not need a separate Stamp Office, Registers of Scotland and Companies House. “Specific Scottish circumstances, preferences and principles” should also include taking into consideration Scots law.
“A re-designed Scottish tax system could represent a major competitive advantage, offering a more robust and efficient tax system than key competitors. A number of objectives will need to be considered –
o Designing a modern and efficient system
o Delivering an effective macroeconomic framework
o Promoting competitiveness, economic growth and tackling inequalities
o Implementing and managing the transition to full autonomy
o The European and international context”
“A tax system which follows the principles of simplicity, neutrality, stability and flexibility, will minimise administration and compliance costs, maximise tax-take and boost investment and growth.”
There is no doubt a “re-designed Scottish tax system could represent a major competitive advantage. Control of a few minor taxes and partial control of one major tax is all very well but does not give the Scottish Parliament the economic tools it so clearly needs. Taxes are not looked at in isolation by individuals and businesses alike. The underlying law is also crucial in this regard. The power to only vary a tax rate is in effect almost no power at all.
The fact that this point is so self-evident is I suspect one of the major reasons why the devolving of substantial tax powers is so fiercely resisted by Westminster and in particular HMRC and HM Treasury.
“To follow these principles, a balance will be required between the different broad methods of taxation – income, expenditure and wealth taxes – and how, within these taxes, individual elements are structured and developed.”
This debate needs to include looking at where and in what proportion taxes are applied. For example between individuals and businesses. The recent spat between the energy companies and the UK Government is an example of how this should not be done. In addition it should also be made clear if a tax is primarily a means to raise revenue or to change behaviour, or even a mixture of the two.
“As the report makes clear, the tax system – in conjunction with other policies such as welfare and general public service provision – can be used to shape outcomes that reflect the socio-economic vision of a country. It also plays a crucial role in any macroeconomic framework.”
That is a crucial point. The new Scottish tax system needs to be developed alongside a new Scottish welfare system. That includes how we provide advice in both of these areas. This is an area where a new Scottish system can improve hugely on the present system.
“Transition to a new tax system will take time. The UK tax system is complex and costly, and studies have shown there is considerable room for improvement in its design and operation. It is vital that such a transition is handled smoothly. The Scottish Government should develop a clear plan for how it will migrate, over time, towards the development of its own modern Scottish specific tax system.”
I have long argued that the Scottish Government should clearly state that they will retain the majority of the present tax system for a number of years. This will ensure a degree of certainty and stability during which time the debate can begin as to how we will create a Scottish tax system and also how it will look. It may be that the Scottish Government wishes to make a small number of immediate changes on Scotland gaining independence such as to a particular tax rate or abolishing stamp duty on shares. That is only to be expected.
The most enjoyable aspect of reading this paper was for me the fact that the debate about what a Scottish tax system might actually look like has started. There shall be a Scottish tax system.
