SNP conference 2021 - Tax takes a back seat but direction of travel is clear
It has been a common theme in recent years for there to be relatively little discussion of tax policy at the SNP’s annual conference. Despite this, we now have a pretty clear view on how the party intends to use Holyrood’s existing tax powers in the coming years, as well as the areas where they are likely to make the case for further fiscal devolution.
Will the status quo hold?
While the 2016-21 Scottish Parliament session saw the implementation of a distinctively Scottish tax system in some respects – the most visible being the introduction of a new system of rates and bands of Scottish Income Tax – the 2021-26 session (at this stage at least) appears to be focused on providing businesses and taxpayers with certainty as the country recovers from coronavirus.
In her speech to delegates to close the conference – which once again took place entirely online – First Minister Nicola Sturgeon said the Scottish Government had built “a new income tax system…entirely from scratch”.
While it is certainly true that the Scottish Government has used its powers to create a distinct system comprising of five rates and bands of Scottish Income Tax (SIT), charged on non-savings, non-dividend income, the country’s income tax system remains largely tied to the wider UK system.
SIT is, for example, administered and collected by HMRC. Other aspects of the income tax system – such as the tax-free personal allowance, and other reliefs and allowances, as well as income tax on savings and dividends, are set on a UK-wide basis. This is a position Scottish Ministers would ultimately like to change.
Ahead of the Scottish Budget that is due to be published next week, the SNP administration has already promised to freeze rates and bands of Scottish Income Tax and Land and Buildings Transaction Tax (LBTT).
But Ministers have promised to review the operation of the LBTT Additional Dwelling Supplement and will keep UK rates of Air Passenger Duty under review ahead of the expected devolution of the tax (which will become known as Air Departure Tax) in the coming years.
Local taxes – will talk lead to reform?
Local taxation is an area where reform of Holyrood’s existing tax powers is more likely.
Some modest changes have already been made to the existing systems of council tax and non-domestic (business) rates in recent years, while the prospect of new taxes on car parking and tourists were floated prior to the pandemic.
This summer’s agreement between the SNP and Scottish Greens is expected to lead to the creation of a Citizens’ Assembly to debate the future of council tax (see ‘Endorsement for citizens’ panel that could decide future of council tax, below).
Finance Secretary Kate Forbes, speaking at a conference fringe event hosted by IPPR Scotland and the Post Office, said that the Scottish Government’s approach to business rates provided the ‘most generous reliefs’ for struggling high street businesses anywhere in the UK.
Shortly before the conference, the CIOT said the Scottish Government could go further and commit to delivering – rather than only talking – about reform before the next Scottish election. The Institute observed that local taxation now appears to be the only viable option for further reform of Scottish taxation over the course of the next five years, given commitments to retain income tax and LBTT in their current form.
As the conference got underway the Sunday National – a paper seen as close to the SNP and the wider independence movement – reported ‘fury’ among Scottish councils over reports that Ministers are going to put plans for the tourist tax (or Transient Visitor Levy as it is formally known) on hold for an indefinite period. Asked to comment, the CIOT said that the suggestion gave the impression that Holyrood’s powers over taxation were not being used to their fullest extent.
Towards the future
Next week, we will have confirmation of how SNP Ministers plan to use Scotland’s tax-setting powers for the coming year when the draft Scottish Budget for 2022-23 is published.
In recent years, negotiations have gone down to the wire, with the Greens extracting concessions that included commitments to introduce workplace car parking and tourist taxes in 2019, and the freezing of the higher rate threshold for Scottish Income Tax in 2017. That won’t be the case this year as one of the features of this summer agreement between the SNP and Scottish Greens is a commitment for Green MSPs to support the Scottish Budget.
Looking towards the medium term, SNP Ministers have given strong indications that they will press for the devolution of further tax-setting powers to the Scottish Parliament as part of the upcoming Fiscal Framework Review.
As set out in their manifesto, this is expected to include demands for the devolution of the remaining aspects of the income tax system reserved to Westminster, control over National Insurance and the devolution of VAT powers.
We may also expect to see progress to resolve the state aid issues that have prevented the devolution of Air Passenger Duty (APD) to the Scottish Parliament. This could present yet more challenges to Ministers, given that the decision by the UK Government to cut rates of domestic APD stands in contrast to Scottish plans to tie the tax more closely to its climate ambitions once the devolved Air Departure Tax is eventually implemented.
The party’s ultimate goal – Scottish independence – was prominent in debate.
Deputy First Minister John Swinney claimed in his speech to the conference that devolution was under ‘attack’ from the UK Government and that independence was “The only way to stop Scotland going backwards”.
Nicola Sturgeon confirmed her intention to begin the process of preparing for a second referendum before the end of 2023 this spring.
Despite Boris Johnson and the UK Government adamant that there won’t be another referendum, SNP members passed a number of resolutions aimed at preparing the groundwork for the transition to independence. These included proposals to establish a separate Scottish civil service and to establish a separate Scottish currency ‘as soon as practicable after independence’.
Members warned that the current party policy of retaining the UK pound in the aftermath of independence would limit an independent Scotland’s economic freedom, with the activist who proposed the motion describing the policy of ‘Sterlingisation’ as "probably the most dangerous experiment in global monetary history".
Delegates passed an amended version of the motion put before conference by 418 votes to 37. It would see the Scottish Parliament introduce an enabling bill the day after an independence vote to begin the process of establishing an independent Scottish Central Bank. The amended motion commits the party to the establishment of a National Assembly with the aim of reassuring voters about the regulation, culture and practice of banking in an independent Scotland.
This is the last of our reports of the 2021 party conference season. You can read our write-ups of the other main party conferences via the links below:
Labour Conference 2021: Labour promises biggest overhaul of business taxation in a generation
Lib Dem conference 2021: G7 tax deal needs strengthening, small business needs support