What do the Scottish elections mean for tax?

The actual makeup of the Scottish Parliament – in terms of the number of seats – remains largely as it was in the last (2016-21) session, with the SNP on 64 seats (+1) and the Scottish Conservatives on 31 seats (no change). Scottish Labour secured 22 seats (-2), the Scottish Greens, 8 (+2) and the Scottish Liberal Democrats, 4 (-1).

Who will form the next Scottish Government?

As the largest party, the SNP will form the next Scottish Government, with Nicola Sturgeon continuing as First Minister, a role she has held since November 2014.

It has been suggested in the media that the size of the Scottish Cabinet will be reduced, with an increase in the number of junior ministerial positions. Whether that will result in the CIOT’s wish for a dedicated Minister for Scottish Taxes, we will wait to see.

There has been speculation that the SNP could look to form a formal coalition with the Scottish Green Party.

There hasn’t been a formal coalition government in Scotland since the 2003-2007 Labour/Liberal Democrat Scottish Executive, with the SNP operating as a minority government from 2007 to 2011, and 2016 to 2021, along with its term as a majority government from 2011 to 2016.

That would see Scottish Green MSPs join the Scottish Government’s ministerial ranks, a move the party’s co-leaders – Patrick Harvie and Lorna Slater – have said they would be open to. However, they have said that it will be for the SNP to make the first move.

What will this mean for tax?

If the SNP decides to stick as a minority administration, then it will once again be reliant on the support of other parties in the Scottish Parliament for its legislation to pass.

It can choose to do so by way of a formal coalition (see below) or on an issue-by-issue basis. In recent years, the most willing suitors have been the Scottish Greens. These agreements resulted in the freezing of the higher rate threshold for Scottish Income Tax, and legislation for the introduction of new taxes on workplace car parking and tourism.

Scottish Labour leader Anas Sarwar has offered his party’s support to the new government following last week’s election, although the detail behind this is not yet clear.

The headline tax commitments made by the SNP in its election manifesto included:

• Freezing rates and bands of Scottish Income Tax for five years, with thresholds increasing by a maximum of inflation
• Maintaining existing rates of Land and Buildings Transaction Tax and reviewing the operation of the Additional Dwelling Supplement
• Reforming Council Tax and establishing a Citizens’ Assembly to consider the matter
• Ensuring Air Passenger Duty rates align with the Scottish Government’s climate commitments
• Continuing to provide support to businesses through the Business Rates system, and exploring higher rates of tax on businesses headquartered in tax havens, and on digital-based businesses
• Demanding the devolution of full powers over VAT, income tax and National Insurance

Read more by downloading our Scottish election tax tracker here.

The prospects for a coalition?

A coalition with the Scottish Greens would mean a formal agreement between the parties from the outset.

Both sides appeared to talk up the prospects during the election campaign, with the Greens pledged to be tougher to deal with in future budget negotiations.

The Greens could be expected to demand action in a range of devolved tax areas. For example, the party supports the replacement of Council Tax with a residential property tax, and the introduction of a 1 per cent wealth tax (‘dubbed a ‘millionaires tax’ by the press) that the party’s manifesto said could be delivered via a reformed system of Council Tax.

Expect decisions around a coalition to be made in a matter of days, if not hours.

What about the Scottish Parliament’s role over tax?

The new Scottish Parliament is due to meet for the first time on 13 May, with MSPs sworn in and the election of the parliament’s new presiding officer and his/her deputies.

MSPs are then expected to elect the First Minister on 18 May, with the vote to agree appointments to the Scottish Government expected on 20 May. Following this, we can also expect to see the opposition parties announce their front bench spokespeople and for the Scottish Parliament’s committees to be established.

During the election campaign, the CIOT – along with ICAS – argued for the removal of the constitution remit from the parliament’s Finance Committee to enable it to spend more time scrutinising tax policy.

There are a range of tax-related matters for the successor to the Finance and Constitution Committee to get its teeth into.

The outgoing committee recommended a return to scrutinising the Scottish Approach to Taxation, while the work of the Devolved Tax Legislation Working Group – a body established to make recommendations on improving scrutiny of tax legislation in the Scottish Parliament (featuring CIOT representation) – is expected to resume its work. It had been postponed last year as a result of the pandemic.

Conclusion

They say that the more things change, the more they stay the same. But while the arithmetic of the new Scottish Parliament has the same feel as the one that came before it, it is certain that we are likely to see a number of developments in relation to the devolved taxes, particularly in light of the prospects of minority, or coalition, government.

All of this will become much clearer in the weeks and months to come.

By Chris Young