Scottish income tax rates for 23/24 agreed by MSPs

Earlier in the week, the Scottish Parliament's Finance and Public Administration Committee concluded the second stage of the parliament's scrutiny of the Scottish Government's budget for the year ahead following an evidence session with the interim Finance Secretary, John Swinney, that included discussion of a number of tax related matters.

A summary of both sessions can be found below.

Scottish Rate Resolution debate (Thursday 9 February)

The Scottish Rate Resolution must be passed before the Budget Bill can become law and before the start of the new tax year.

The income tax proposals as agreed by the parliament will see the higher and top rates of tax increase by 1p (to 42p and 47p respectively) and the higher rate threshold lowered from £150,000 to £125,140 (in line with a policy change announced by the UK Government last autumn).

The debate

Public Finance Minister Tom Arthur said that the government’s tax proposals would raise an additional £500 million in the coming year and maintain Scotland’s ‘progressive’ approach to taxation by ensuring that the majority of Scottish taxpayers continue to pay less income tax than if they lived elsewhere in the UK.

Liz Smith (Conservative) said that despite her party’s ‘strongly different views on tax’ to those of the government, her party would not oppose the government’s plans, saying it would be ‘irresponsible’ to oppose a measure that is required in order to ensure that taxes can be collected.

The Scottish Liberal Democrats and Scottish Labour signaled their support for the measures. Labour’s finance spokesperson Daniel Johnson welcomed the progressive nature of the government’s approach but cautioned that there was a need to ensure that the potential impacts of behavioural change and fiscal drag needed further consideration in the coming years.

Lib Dem leader Alex Cole-Hamilton and his predecessor Willie Rennie argued that the tax increases proposed by the government were necessary in the current economic climate but sought assurances that ministers would consider their reversal if the economy improved. Cole-Hamilton said that ‘one off, defined and limited tax changes’ could be justified, but that it could ‘cost us dearly’ if higher earners felt disincentivised to live and work in Scotland over the long-term due to higher taxes.

Speaking for the Scottish Greens, Ross Greer said that even with the ‘extremely limited’ powers at its disposal, the Scottish Parliament was delivering the greenest and fairest budget in its lifetime. He called on those opposed to higher taxes on higher earners to explain why and said that the trade union movement should take some of the credit for the tax policies under consideration.

Now that the rate resolution has been passed, it means that MSPs can vote on the Scottish Budget for the coming year. That vote is expected once the parliament returns from its February recess.

Finance and Public Administration Committee evidence session with interim Finance Secretary (Tuesday 7 February)

During the evidence session with John Swinney, the committee discussed a number of the tax-related findings committee’s Budget Scrutiny report. in its report. A brief summary follows.

Tax policymaking

Swinney was asked by committee convener Kenneth Gibson (SNP) why a discussion paper on the role of tax in Scotland’s budget was not published as promised last autumn. The interim Finance Secretary said that the paper had been planned as ‘a response to a very dramatic change’ to tax policy following the UK September mini-budget, but that the ‘immediate urgency and necessity’ of the document had receded following UK tax policy reversals.

Swinney said that the government had engaged ‘a broad range of stakeholders’ in preparing its budget and that he was open to a ‘longer-term discussion of taxation’ in the future.

Tax-related behaviour change

The interim Finance Secretary acknowledged the risk that further income tax divergence may lead to taxpayer behaviour change, but stressed it was too soon to judge. Swinney acknowledged evidence from the Scottish Fiscal Commission that taxpayers could take steps to lower their liabilities but that ‘from the evidence that we (government) have, we have not seen evidence of people relocating for tax purposes’.

He continued:

“We are also quite early in the era of tax divergence between Scotland and the rest of United Kingdom…We have to be attentive to the detail and open about exploring those questions…we have to be conscious of the risks of behavioural change and factor those into our consideration of what tax changes to make—if any.”

Council Tax reform

Gibson also asked the interim Finance Secretary to speculate on when proposals for long-term council tax reform could be expected. Swinney said that a working group of representatives from the Scottish Government and councils had been convened but that it was difficult to ‘predict exactly’ when it might report.

A written response from the Scottish Government to the tax concerns raised by the committee can be read here.

The transcript of the meeting can be found here.