Scottish Finance Bill back in the Holyrood spotlight

9 Jun 2022

Scotland’s tax minister has reiterated the Scottish Government’s commitment to consider a finance bill for Holyrood.

Tom Arthur, Minister for Public Finance, Planning and Community Wealth, made the remarks in a debate on the government’s economic priorities, initiated by the Scottish Conservatives, in the Scottish Parliament on Wednesday (8 June 2022).

Better scrutiny of the Scottish Government’s tax policies is an idea that has been gaining cross-party traction in the early months of the 2021-26 parliament. That was evident in the contributions made by MSPs to the debate.

The Chartered Institute of Taxation (CIOT) is one of a number of professional bodies to have backed calls for a review of tax scrutiny. In 2021, alongside ICAS (Institute of Chartered Accountants of Scotland), the two bodies called for the introduction of a Scottish finance bill in their joint ‘manifesto’ for the Scottish Parliament elections (see link).

In her contribution to the debate, Scottish Conservative finance spokesperson Liz Smith said that such a bill “would enhance the scrutiny of public spending decisions”. She received backing for the move from Scottish Green MSP Ross Greer.

Despite the parties taking very different approaches to taxation and wider economic strategy, Greer also argued that consideration of a finance bill was “appropriate” and should be taken forward by Holyrood’s Finance and Public Administration Committee.

Responding on behalf of the government, Arthur said that plans to improve scrutiny of tax decisions were already being taken forward by the Scottish Government and Parliament through the Devolved Taxes Legislation Working Group (on which CIOT is represented). He added that the work of the group would be an important milestone in the process of tax devolution and called for greater focus on the “detailed technical consideration” of tax matters in parliamentary debate. He added his expectation that a specific finance bill proposal would be included as part of the process, but would not pre-empt the possible outcome of the discussions.

The debate also provided MSPs with the chance to scrutinise the Scottish Government’s overall approach to income tax policy, a debate that unsurprisingly split down party lines.

It came as a new analysis by the Scottish Fiscal Commission predicted that nearly one in six (around 697,000) Scottish taxpayers will pay the 41p higher rate of tax if the threshold remains frozen at £43,662.

For the Scottish Conservatives, the government approach to income tax had led to weaker than expected tax receipts, with higher rates of income tax potentially creating economic disincentives. Liz Smith argued that the UK Government’s move to cut the basic rate of income tax to 19p from 2024 could exacerbate this position. Smith said her party would press for Scottish income tax rates to return to parity with the rest of the UK as part of a package of wider measures to restore the country’s economic competitiveness. Alexander Stewart cited the Institute for Fiscal Studies in remarks describing Scottish income tax policy as “little more than…a “political statement””.

Labour’s Katy Clark argued that the Scottish Government could do more “within the powers of the Parliament” to enhance the devolved tax regime, citing research from think-tanks and the trade union movement in support of the establishment of local inheritance, payroll and carbon taxes, as well as a land-value tax. Her colleague, the party’s shadow finance secretary Daniel Johnson, criticised the government for increasing taxes while delivering cuts to public spending.

SNP MSPs noted that income tax divergence had led to increased revenues. Finance secretary Kate Forbes noting comments from the Institute for Fiscal Studies that tax devolution “almost certaintly have raised revenue”.  John Mason saying it had helped to raise an additional £240 million of revenue in 2018-19 (the first year of Scotland’s five-band income tax regime). Jim Fairlie said Scotland’s tax system was more progressive, “so that those who are at the bottom pay less and those who are at the top pay a wee bittie more”.

For the Scottish Greens, Ross Greer acknowledged the challenges associated with income tax devolution but said a more progressive system had delivered extra funding for public services.

You can read the full debate here.