Tax policy and the budget consultation

The RSE welcomes the opportunity to respond to the Scottish Government’s Tax Policy and the Budget consultation. The response was facilitated through an RSE working group which included RSE Fellows and members of the Young Academy of Scotland with significant practitioner and research experience in the tax sector, and on tax policy.

RSE advice paper, tax policy budget consultation (107KB, PDF)

Professor Jeremy Peat OBE FRSE, Vice-President; Business of the Royal Society of Edinburgh, gives an outline of the RSE response to the Scottish Government’s Tax Policy and the Budget consultation.

Summary

Whilst the six principles underpinning Scotland’s Tax Policy Framework are generally acceptable, the role of the Scottish Government’s taxation policy in fostering economic growth and securing other policy objectives merits greater emphasis.

Clarity is required around the Scottish Government and Scottish Parliament’s scope to influence UK tax policy, how this might be enhanced and indeed Scotland’s specific interests in relation to UK-wide taxation.

Scotland’s Tax Framework should be underpinned by a holistic perspective, whereby assessments of conformity with tax principles, and indeed of the overall effect of the tax and benefit system from an economic and social perspective, are based upon consideration of the tax system as a whole, as opposed to assessing the relative progressivity or regressivity of individual taxes.

To increase transparency of the tax system, accessible guides should be developed explaining how taxes are raised, why they are implemented, and why a simplified tax system would not necessarily result in a fairer or more efficient tax system.

Given Scotland’s ambitions to become carbon neutral by 2045, we suggest that any new areas of taxation should be centred on a desire to reduce dependency on fossil fuels and make progress towards net-zero emissions, whilst recognising that there is a balance to be struck with other competing priorities. Encouraging behavioural change should be central to achieving wider policy goals.

The Scottish Government should give early attention to exercising existing devolved competence to refine existing tax powers, such as Council Tax, Non-Domestic Rates, and Land and Buildings Transaction Tax. Council Tax should be re-evaluated based on up-to-date price indices to account for shifts in house prices, demonstrate devolved competence, and strengthen the case for enhanced fiscal autonomy.

The RSE welcomes proposals for Scotland’s Tax Framework to include a Citizens’ Assembly on Council Tax to facilitate public understanding about the complexities and inherent trade-offs embedded within tax policy. Crucially, consideration at a Citizens’ Assembly should be preceded by in-depth technical analysis, and thereafter findings should be widely disseminated before final Government decision-making and implementation.

A principle of ‘local taxation for local services’ should be built into the Scottish Taxation Framework, in response to calls for stronger local fiscal autonomy. This should be accompanied by consideration of how to ensure local authorities can provide an equitable level of service provision, given the unequal distribution of taxable capacity at local authority level.

The Scottish Government should consider taking action in those areas where the scope for devolved taxes has not yet been implemented, for example Air Departure Tax (ADT). The new Scottish ADT need not be uniform. A higher level of ADT tax on frequent flyers could be used to help achieve carbon neutrality, while a lower level of ADT could be introduced to help enhance access to the Western (and perhaps Northern) Isles.

Scotland’s Tax Policy Framework should be re-assessed in a post-COVID context, and accompanied by broad, in-depth analysis. This could be facilitated by the Scottish Fiscal Commission.

Download this policy advice paper

RSE advice paper, tax policy budget consultation (107KB, PDF)