Scotland’s finance secretary, Derek Mackay, professed himself “filled with pride” over the government’s tax policies, but the SNP’s annual conference was this year light on tax debate, with little in the way of new policy announcements.
This is part of a series of reports on tax policy discussions at the main party conferences. A round-up of the Conservative conference can be found here, Labour conference here and the Lib Dem conference here.
Brexit backdrop fuels Scottish independence debate
Delegates gathered in Glasgow amid a backdrop of speculation that Brexit may provide the impetus for a fresh vote on Scottish independence.
Despite the publication of an opinion poll suggesting that more than 50 per cent of Scots would back Scottish independence in the wake of the UK’s departure from the EU, First Minister Nicola Sturgeon dampened such talk when she asked delegates for patience until the “fog of Brexit” cleared.
But she was contradicted by one of her own senior MPs, Angus MacNeil, who warned the party couldn’t afford to “dither” when it came to calling for a rerun of the 2014 vote.
Independence is the issue that won’t go away and the apparent driving force behind the SNP’s popularity after 11 years in government. Despite finding itself under increasing criticism over domestic policies including the NHS and education, polls continually have the party holding a double-digit lead over its opponents.
SNP MPs would back second Brexit vote
Nicola Sturgeon also confirmed that her Westminster MPs would back a second referendum on the UK’s EU membership, regardless of any guarantees (or otherwise) over a second Scottish independence vote.
Speaking on the BBC’s Andrew Marr show, she suggested a “double lock” that would require the all four of the UK’s constituent nations to vote in favour of leaving the EU. A poll of party members heading into the conference found support for a second vote at 79 per cent.
Ms Sturgeon also said it was unconceivable that MPs would support the government’s Brexit deal if it did not include membership of the single market and customs union.
Joanna Cherry MP, speaking at a fringe event hosted by City UK, suggested that Brexit was not a done deal – to rapturous applause from the delegates in the room – while Michael Russell, Cabinet Secretary for Government Business and Constitutional Relations, told a Law Society of Scotland event that he didn’t believe that an end to negotiations was in sight.
Russell also said that expected a judgement from the Supreme Court by the end of this year on whether the Scottish Government’s UK Withdrawal from the European Union (Legal Continuity) (Scotland) Bill (commonly known as the ‘Continuity Bill’) was within Holyrood’s competence.
The bill would repatriate returning EU competences direct to Holyrood, bypassing the UK Parliament. It was introduced in order to ensure legal continuity in Scotland following Brexit if the Scottish Parliament failed to give its legislative consent to the UK’s Brexit legislation.
Mackay’s ‘pride’ in Scottish income tax
In his speech to delegates on the final day of the event, Derek Mackay spoke of his pride that Scotland was now, in his words, “the fairest taxed part of the UK”.
In last year’s budget, the Scottish Government introduced new ‘starter’ and ‘intermediate’ rates of income tax while also increasing the additional and higher rates of tax by 1p; a move Mackay said delivered fairness for those on lower incomes while asking the richer to pay a fairer share.
However the finance secretary may have been disheartened by the publication of a poll commissioned by CIOT that found 84 per cent of Scots feel that they need more information about the way in which taxes are decided north of the border.
Further Scottish income tax changes to come?
Speculation is mounting that Mackay may have to go further with changes to income tax in order to secure parliamentary backing for his upcoming budget, confirmed for 12 December.
Lacking a majority in the Scottish Parliament, the SNP will have to reach across the aisle to secure the backing of at least one opposition party for its Budget Bill to pass.
The Scottish Greens – last year’s saviours – have already indicated that they will be a tougher nut to crack next year, with reform of local taxation expected to be the principal bargaining chip.
But talk of a tourist tax – or “transient visitor levy” – may also bring the Greens and others to the negotiating table, the government having recently conceded to a study of its potential impact on the economy (see below).
Both Scottish Labour and the Scottish Greens say that the SNP government has not been progressive enough with its income tax policy. The Scottish Liberal Democrats too express support for further increases although the Scottish Conservatives would prefer that Scotland retain – or even reduce – taxes from current UK rates.
However Mackay, adopting a pragmatic (and some may say realistic) approach, has sought to counter these arguments, saying his government is restricted in the extent to which it can diverge from the rest of the UK as a result of the partial devolution of income tax powers.
Hammond under fire for “lack of respect”
The finance secretary also used his speech to attack the UK chancellor, Philip Hammond, for having a lack of respect for Scotland over his announcement of the UK Budget date (29 October).
Central to this criticism was the chancellor giving Derek Mackay less than 5 weeks’ notice of the budget (less than the 10 originally promised) and to make the announcement to a committee in Westminster without warning.
In comparison with recent years, however, Holyrood ministers and civil servants will have more time this year to prepare for their own event. The six-week gap between the UK budget and draft Scottish budget will be double the three weeks gap between the UK and Scottish statements of 2016 and 2017.
Impact of UK income tax changes on Scotland
Hammond’s decisions around income tax – in particular the personal allowance and potential increases (or otherwise) to the thresholds for basic and higher rate UK taxpayers could have knock on implications for Scottish income tax policy.
In particular, increases to the personal allowance have the potential to take more of the more than 2 million Scottish taxpayers out of paying income tax altogether.
Financial health checks
Derek Mackay also announced to conference plans to launch a Financial Health Check for older people and low income families from next month, supported by over £3 million of Scottish Government funding and supported by Citizens Advice Scotland.
Mackay said the measure would help more than 15,000 people to access a range of benefits and access to lower energy and households costs.
Together with the establishment of a standalone Scottish Social Security Agency and the devolution of a range of welfare benefits, the finance secretary painted the picture of a progressive government at odds with the austerity agenda of his Westminster counterparts.
This was further underscored in the main conference hall as delegates unanimously backed a resolution by Maureen Watt MSP condemning the UK Government’s child tax credit policies.
However no sooner had the financial health check policy been announced than opposition politicians accused the government of “reheating” a 2016 announcement from Nicola Sturgeon that had also appeared in September’s programme for government.
Online business rates levy to go ahead
The Scottish Government confirmed its intention to introduce an additional business rates levy on online and out of town retailers at the end of the conference.
Speaking at the CIOT and CBI Scotland event, Taxing Scottish Businesses in a Digital World, Scotland’s Minister for Public Finance and Digital Economy, Kate Forbes MSP, lamented the “limited” powers that Holyrood had over business taxation but said she was intent on using these levers to deliver a fair regime that supported economic growth and boosted competitiveness.
Under the plans, recommended by the independent Barclay Review of Business Rates, the government will invite three of Scotland’s councils to participate in a pilot scheme aimed at judging the effectiveness of the measure.
Both the CIOT and CBI Scotland have used their submissions to the Scottish Government’s consultation on the issue to voice concerns over the practicalities of such a measure.
More generally, the Scottish Government is under pressure to see through its reforms to the business rates regime, which represents the single biggest wholly devolved tax in Scotland, generating £2.77 billion in 2017/18.
Tax minister – I have the best job in government
Kate Forbes MSP told guests at the CIOT/CBI Scotland event that she had the “best job in government”, following her promotion to ministerial ranks in June this year.
Ms Forbes appointment as Minister for Public Finance was welcomed by the CIOT, which said it acknowledged the ever-increasing importance of devolved tax decisions in the day-to-day business of devolved government.
The Minister also spoke about how business rates reform would help to deliver a fairer regime that supported economic growth and boosted competitiveness.
Tourist tax debate builds momentum
Perhaps the most notable tax policy to come out of the period leading up to the Glasgow gathering has been the proposal to consider further work around the potential introduction of a ‘tourist tax’.
The SNP leader of the City of Edinburgh Council, Adam McVey, found himself under fire from his own colleagues, including the Culture Secretary, Fiona Hyslop, for his support for the levy, which originated from the capital’s town hall.
However, in the week prior to the conference, Nicola Sturgeon, confirmed that the government would work with the tourism industry and other partners to explore the feasibility of introducing such a levy, with a consultation expected later this year.
The move is likely to pique the interest of opposition parties, with both Scottish Labour and the Scottish Green Party expressing support for its introduction.
But given the first minister has so far only committed to a study of its potential impact – and the involvement of a tourism lobby sceptical of its introduction – it is unlikely that the promise of a tourist tax alone will be enough to win the support of opposition MSPs in passing the government’s budget earlier this year.
At an event on small businesses, Stewart Hosie MP said that the Scottish Government’s Small business bonus has saved companies £1.5 billion in rates since 2008.
Delegates also debated whether the tax system was optimised to support SMEs and support business innovation, with some lamenting the complexity within the system as a barrier to growth.
Hosie voiced his support for tax breaks as a means of encouraging research and development. He was also critical of changes to the annual investment allowance. He went on to say that businesses needed certainty and stability to grow and that the reliefs available to incentivise investment and growth should be there at the start and the end of projects.
He also used his platform to argue in favour of the devolution of Corporation Tax, noting that many reliefs, including R&D tax credits, remained reserved to Westminster. If we’re serious about revitalising the Scottish economy, he concluded, “we need to be a bit less ideological, a bit more practical”.
Elsewhere at conference
The SNPs flagship policy announcement at the start of conference was its plans to create a Scottish National Infrastructure Commission to advise on which major infrastructure projects should be included in the government’s refreshed Infrastructure Investment Plan.
This review will also consider the creation of a Scottish National Infrastructure Company to take forward major investment projects. It proved to be a hot topic on the conference fringe, with debate expected to crystallise in the coming years over how best to fund major construction projects.
There was little if any discussion – either in the main hall or on the fringes – on Scotland’s other devolved taxes, Land and Buildings Transaction Tax (LBTT) and Scottish Landfill Tax (SLfT).