CIOT sets out priorities for tax in Scottish Parliament evidence

10 Sep 2021

The Chartered Institute of Taxation set out its priorities for the Scottish tax system in an evidence session with the Scottish Parliament’s Finance and Public Administration Committee this week.

This session took place as part of the committee’s inquiry into the public finances and the impact of Covid-19.

Joanne Walker, CIOT’s Scottish Technical Officer, represented CIOT at the session, where the committee heard suggestions from other organisations that Scotland may have to increase or adopt new taxes to meet the country’s wider policy objectives.

During an evidence session immediately prior to the CIOT’s appearance, the committee were told of the need for tax rises to help Scotland meet its legally-binding child poverty targets, and from alcohol campaigners who called for the introduction of new local taxes to curb excess drinking.

Here are some of the themes that were discussed with CIOT during the session:

The Scottish approach to tax

Committee convener Kenneth Gibson (SNP) began by asking the CIOT whether the Scottish Government’s approach to tax policy conformed with the Adam Smith principles of fairness, certainty, convenience and efficiency.

Joanne Walker said it was difficult for taxes to conform to all four principles simultaneously, but that the Scottish Government had taken the principles into consideration when considering the Scottish tax system as a whole. She said:

“It is difficult for the system to follow all four of the principles at one time…Broadly, however, the answer to your question is yes. When new policies are brought in, the Scottish Government tends to look at the four principles and ask about them.”

National Insurance

Kenneth Gibson then asked about the speculation (at the time) that there would be changes to National Insurance, and whether these could be judged against the Low Incomes Tax Reform Group’s (LITRG’s) seven principles for the tax system (which he cited as: clear and up to date, simple, equitable, just, accessible and responsive, joined up and inclusive).

Walker said that because the proposed (at the time) change does not cover all types of income, it “does not necessarily meet all those principles”. She also noted that the level of income at which National Insurance is levied is lower than the income tax threshold, and that Scottish taxpayers with income between the Scottish and UK higher rate thresholds will be charged a marginal tax rate of 54.25 per cent on their income between £43,662 and £50,270.

Scottish income tax

Citing evidence from the Scottish Trades Union Congress arguing against the Scottish Government’s commitment to freeze income tax rates for the 2021-26 parliament, Kenneth Gibson asked whether it would be possible for the Scottish Government to maintain this commitment or whether it should be revised.

Walker said that this commitment would limit the Scottish Government’s room for manoeuvre with tax policy because “the tax levers that are currently at the disposal of the Scottish Parliament are fairly limited”. She explained that taxes like the Land and Buildings Transaction Tax (LBTT) were “relatively small in terms of the amount of revenue that they can raise”, meaning that any future discussions around tax were likely to involve the creation of new ones or reform of existing levies, such as Council Tax, if the current income tax policy is maintained.

Daniel Johnson (Labour) asked Joanne Walker for observations on the way the devolved income tax system has been operating in Scotland.

Walker explained that Holyrood’s ‘limited’ powers over income tax meant that it was restricted in its policy choices. She pointed to figures showing that around half of people in Scotland pay no income tax, driven partly by increases in the UK-wide personal allowance. She told the committee that the personal allowance “has risen significantly over the past few years” and has meant that:

“although there are something like 4.5 million adults in Scotland, only 2.5 million of them actually pay tax. The rest of them are either not earning enough or are not earning at all”.

Tax policy scrutiny

Conservative MSP Liz Smith then asked whether more could be done to improve scrutiny of tax policy in the Scottish Parliament. She described this as “a prime consideration for the committee”.

Walker set out some of the themes identified by CIOT and ICAS in its pre-election manifesto, Building a Better Tax System. These include an annual finance bill to improve parliamentary scrutiny and public engagement with the tax system.

Although the system used at Westminster that this would be based on “is not necessarily perfect”, Walker explained that “Scotland would not have to adopt its exact replica and could change some things about it”. In particular, she pointed to the fact that the Westminster process does not invite oral evidence from subject matter experts: “should Scotland adopt one, (this) could allow for oral evidence sessions”.

Joanne Walker was also asked by Ms Smith about the timing of UK and Scottish budgets and the need for closer coordination. Walker explained that recent UK budgets have had “a significant effect” on Holyrood’s ability to set its own budget. She said that “better timing and co-ordination between the UK and Scottish Governments” could help to improve the relationship between both administrations “as would better communication, albeit behind the scenes and not necessarily at a public level”.

One of the points that she focused on was the lack of a Provisional Collection of Taxes Act (PCOTA), which means that the Scottish Parliament must set rates and bands of income tax before the start of the new tax year. At a UK level, the PCOTA allows measures to take effect pending the passing of the Finance Act.

John Mason (SNP) also asked about the need for a finance bill and if there was more, in addition to a bill, that could be done to improve scrutiny. Walker noted that the Scottish Government has recently published a consultation on its tax policy framework and that this would help address issues relating to tax scrutiny. In terms of a finance bill, she told Mason “that is the main outcome that we would like to see”.

Mason also asked whether it was feasible for the Scottish and UK governments to develop multi-year approaches to budget making. Walker acknowledged the difficulties, but noted that it would help to provide “certainty, (which) is really helpful”.


Kenneth Gibson (SNP) asked whether rates of LBTT, or house price inflation, was the biggest barrier to people’s ability to move up the property ladder. Walker explained that it was too early to determine what the impact of the temporary cut to LBTT on the property market introduced last year would be, but she said that an HMRC evaluation of the impact of a previous Stamp Duty Land Tax (in 2010) suggested that:

“if you cut LBTT or stamp duty land tax, partly because you are sending out the message to people that they are paying less tax, that creates higher demand, which pushes up prices”.

She continued:

“there has been a suggestion that prices went up significantly during the recent period in which LBTT, and SDLT in the rest of the UK, were cut.”

Noting a suggestion from the Scottish Property Federation suggesting that rates and thresholds of LBTT should be reviewed more generally, Walker told the committee:

“Given that the average house price has gone up significantly since the introduction of LBTT, there comes a point where you have to review rates and thresholds to see whether they are still relevant and appropriate.”

Non-Domestic (Business) Rates

Daniel Johnson (Labour) was keen to explore issues relating to the reform or replacement of the current system of Business Rates. Walker explained that any future review of the system needed to be ‘holistic’ and consider the ‘other ways in which companies are taxed’. She cited corporation tax as an example, as well as the ongoing efforts to achieve a global agreement on the taxation of multinational businesses, as other examples of the ways that businesses were taxed beyond the Business Rates system.

You can read the full transcript of the meeting by clicking here.

The committee will resume consideration of its inquiry into the public finances and the impact of Covid-19 when it takes evidence from representatives of local government, trade unions and think-tanks.

By Chris Young, CIOT External Relations Manager.