Scottish taxes - CIOT advises MSPs that scrutiny of devolved taxes essential to COVID economic recovery

The CIOT has told MSPs not to lose sight of the way tax policies are scrutinised as the country deals with the economic and fiscal fallouts from the Coronavirus lockdown.

The comments came in oral evidence to Holyrood’s Finance and Constitution Committee last week as part of its inquiry into the impact of COVID-19 on the Public Finances and Fiscal Framework.

You can read the transcript of the meeting by clicking here or alternatively, watch the video of proceedings here.

CIOT tax policy director John Cullinane represented the Institute at the session, which also heard evidence from the economist Professor Jim Gallagher, the Institute for Fiscal Studies and Audit Scotland.

In opening remarks, Cullinane told MSPs it was ‘evident’ COVID-19 would have an impact on Scotland’s income tax base. He also said that the pandemic had highlighted (as had been shown in the case of recent changes to the rules around the LBTT Additional Dwelling Supplement (ADS)) the need to ensure MSPs can make changes to the tax system quickly and with proper parliamentary scrutiny.

Committee convener Bruce Crawford described the process of making tax changes quickly, without sacrificing scrutiny, as ‘a pretty difficult circle to square’. Cullinane drew on processes used at Westminster to help consider what might be done in Scotland.

He added that it would be important to ensure greater public awareness and political accountability around the devolved tax regime, noting that two CIOT surveys in 2018 and 2019 had found low levels of understanding among the public.

On a question on the role of professional bodies such as the CIOT in promoting greater public awareness and understanding of taxation, from Conservative MSP Alexander Burnett, Cullinane acknowledged that there was still a long way to go.

John Cullinane’s evidence also touched upon the interactions and imbalances between devolved and reserved taxes north of the border, highlighting the challenges to Scottish finances as a result of decisions to incorporate businesses and the subsequent tax revenues being foregone to Westminster.

SNP MSP George Adam asked about the challenges to the Scottish economy as the country emerges from the pandemic.

John Cullinane reflected that while aspects of tax were devolved to Scotland, the majority of the ‘stresses and strains’ that the economy will face are those that will be experienced across the UK, from UK-wide policy decisions, such as those involving support for incorporated businesses that have missed out on UK-wide Coronavirus government support schemes.

In Scotland, he said that the government may face challenges in its adherence to the Adam Smith principles of fairness, certainty, convenience and efficiency. He suggested that it might be easier for these principles to be reflected across the tax system as a whole, as opposed to applying each principle to each specific devolved tax.

Labour MSP Alex Rowley expressed concern that the pandemic would lead to further austerity. John Cullinane said that there was not the same ‘press and media frenzy’ in support of austerity as there had been in the wake of the 2008 financial crisis and that ‘the preponderant balance of opinion seems to be much more in favour of letting the economy recover’.

In response to a follow-up question from Green MSP Patrick Harvie, he said that the UK government had responded ‘with more largesse than one might have anticipated’, with priority being given to supporting the economy, ‘instead of giving early priority to the fiscal problems that will arise’ (as a result of the government’s economic interventions).

While the committee will continue to take evidence on the specific impacts of COVID-19 – with a virtual evidence session with the finance secretary today (Friday) – it has also started preparations for its scrutiny of next year’s Scottish budget process.

A call for public evidence – which is open until 7 August – includes a request for information on, among other areas, whether changes will be needed to the Scottish budget process to improve transparency and accountability, as well as the implications for Scottish taxation policy arising from the COVID-19 pandemic.

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