This consultation seeks views on our overarching approach to tax policy, through Scotland’s first framework for tax, and how we should use our devolved and local tax powers as part of the Scottish Budget 2022 to 2023.
1 Views on draft framework
What are your views on the draft Framework for Tax?
Your response could include new areas that could be included or suggested alterations to existing elements of the Framework and your general reflections.
1.1 Scotland should aim for the tax systems that compares positively with the best tax systems in the world and a system that plays a key role in meeting the Scottish Governments high level policy commitments
1.1.1 Given the priority that the Scottish Government has given to tackling child poverty a key strategic objective should be to contribute to meeting the Scottish child poverty targets through providing resources to prevent and reduce poverty and through redistribution
22.214.171.124 The child poverty targets use income based measures, and these are the targets that must be the focus of the Scottish Governments child poverty strategy. But consideration of how the tax system can reduce wealth inequality must also be a part of the ‘delivering national outcomes’ strategic objective
1.2 An additional key principle should be embedding a human rights approach to taxation in the decision making process.
1.2.1 Under the International Covenant on Economic, Social and Cultural Rights (ICESCR), States have the obligation to take steps towards the goal of the full realisation of all economic, social and cultural rights. Therefore, States must devote the “maximum available resources” to ensure the progressive realisation of these rights as expeditiously and effectively as possible – this requires the effective use of available resources, including potential resources that could be raised through reasonable efforts, such as taxation.
Therefore a key strategic objective of the Scottish taxation system should be maximising resources to enable everyone in Scotland to realise their human rights
1.3 Taxation can do more than be used as a lever to ‘increase the costs of harmful behaviour’ - it can also be used to encourage individuals and organisations to behave in ways which will help meet other key policy objectives. The decision making process should actively consider how devolved taxation policy could be used to achieve such aims. This could be done by considering what policy aims could be encouraged via the devolved taxation system, and how they could be achieved.
1.3.1 For example, tax policy could be used to encourage employers to meet the fair work policy objectives. Non-domestic rates could be used to do this, but their scope is limited as they tax buildings rather than businesses, but thought must be given to how the tax powers Scotland does have can be utilised to encourage organisations to meet the fair work policy objectives.
1.4 We agree that ‘engagement’ should be included as a key principle of the taxation system. Active and successful engagement requires an increased understanding of taxation. This engagement must involve explaining both the reserved and devolved taxes that people pay, explain how Scotland is funded and how the money raised is spent.
1.4.1 For example. It is important that the Scottish Government challenges the idea that only 50% of working age people pay tax (around 50% of working age people may pay income tax but everyone contributes via VAT, Council Tax, and other direct and indirect taxation). If the explanation of tax only focussed on devolved taxes then this would create a distorted view of taxation in Scotland.
1.5 The matrix of tax decision making should specifically include analysis of how changes to tax policy interacts with the complexities of the social security system.
1.5.1 For example, a reduction in the lowest rate of income tax could increase an individual’s income from work but reduce their social security income, in some cases leaving them worse off.
1.5.2 For example, changes to the council tax bands intended to help low-income households may not have the intend impact due to the interaction with council tax reduction.
1.6 The framework could also consider how data sharing, and IT systems interactions, can be used to benefit individuals accessing their entitlements, whilst preserving confidentiality. This functionality should be designed into systems from the outset.
2 Priorities for local and devolved taxation 21 – 26
What should the Scottish Government’s priorities for devolved and local tax be over the course of this Parliament (2021-2026)?
Your response could consider what changes to devolved and local taxes in Scotland should be focused on in the next five years and what should be prioritised.
2.1 The Scottish Government should undertake an assessment of the possible taxes that could be introduced under the powers it has.
2.1.1 This should be bold, and include options such as Scotland specific taxes on wealth or inheritance.
2.1.2 This should include analysis of the potential scale, and consequences, of such taxes
2.1.3 Specifically it should include an assessment of how any such taxes can help the Scottish Government reach its legally binding 2030 child poverty targets
2.2 Ensure that council tax is reformed in a way that is in line with the key principles, specifically the principle of proportionality and the additional principle of embedding a human rights approach to taxation. Any reform should also prioritises the functions of raising funds and promoting a more equal society.
2.3 We note that Scotland's non-domestic rates are the lowest in the UK. Whilst this may bring many positive impacts, it also may mean that businesses may be contributing lower rates of tax in Scotland. The Scottish Government should undertake a robust evaluation of the rates of, and reliefs to, non-domestic rates, in order to assess whether the benefits justify the opportunity costs.
2.4 The Scottish Government should consider the impact of already proposed new taxes:
2.4.1 It must ensure that the introduction of taxes on work place parking meet the functions of increased funding for public services by ensuring they create meaningful uplifts to local authority budgets and the function of redistribution by ensure that they do not increase funding disparities between economically stronger and weaker local authorities.
2.4.2 It must carefully consider the impact of the introduction of Air departure tax to ensure that is does not disproportionally benefit high-income households.
2.4.3 Carefully consider the impact of the introduction of a waste tax, and the current impact of the landfill tax, to ensure they do not disproportional impact on low-income households.
3 Use of devolved and local tax powers as part of Scottish Budget 2022/3
How should the Scottish Government use its devolved and local tax powers as part of Scottish Budget 2022-23?
Your response should contain policy proposals in relation to devolved and local taxes, with a focus on the Scottish Budget 2022-23.
3.1 We know that continued investment in social security, specifically the Scottish Child Payment (SCP) will be needed if the Scottish Government is to meet its interim child poverty target of bringing child poverty to below 18% by 2023/24. We also know that additional further investment will be needed before 2023/24 - the level of this further investment will depend of the success of other policy levers. This budget must ensure there are sufficient resources available to immediately double the SCP to £20 per week per child, and allow for the additional investment in SCP and wider social infrastructure (including childcare and housing) that is required in order for the Scottish Government to meet its child poverty targets.
Delivering on the First Minister’s ‘national mission’ to end child poverty must be at the heart of the Scottish budget process. Scotland’s tax powers must be used to ensure the nations income and wealth is harnessed to fund the social security and infrastructure needed to prevent and reduce child poverty.
CPAG supports action to increase tax revenue in a progressive way, to provide the resources that are essential to delivering policies that will ensure the government’s statutory child poverty targets are met allocated. For example work by IPPR Scotland (15/03/21) on a Social Renewal Supplement (a £5 a week increase each year in tax paid by higher earners in Scotland through reducing the Higher Rate Tax Threshold) should be seriously considered.