When the Scottish Parliament was established in 1999, roughly 93% of Scotland’s funding came in the form of a block grant calculated through the Barnett Formula.
In a relatively short period of time this balance has drastically shifted, with around 40% of the Scottish Government’s resource budget now being funded through devolved and local tax revenues.
While there are significant limits to our fiscal autonomy, we are using our devolved powers to make tax policy fairer and more progressive in Scotland. An example of this is the shift to a five band system for Income Tax in the 2018-19 tax year. This protects those on the lowest incomes, while those with higher incomes pay more in order to help support the vital public services we all need, use and rely on.
Justice Oliver Wendell Holmes, Jr. famously said: ‘taxes are what we pay for civilised society’. Our decisions on tax have protected lower and middle income taxpayers, while raising additional revenue to support our economy and invest in the widest range of free-to-access public services in the UK.
As we continue to recover from the pandemic, we are also providing individuals and businesses with certainty and stability – for example, we stated clearly in our manifesto that we would aim to maintain current Income Tax rates for the duration of this Scottish Parliament.
A cornerstone of our approach to tax is engagement with a wide range of stakeholders. Taxes do not just support public services, they also allow the Government to support business and encourage growth through economic development, skills investment and major infrastructure. So everyone is a stakeholder. That is why we want to encourage debate, not just at Holyrood but also in businesses, communities and homes across Scotland.
With the sixth term of the Scottish Parliament ahead of us, a handful of devolved taxes now fully operating, and a process underway to develop our strategy for economic transformation, this is an appropriate time to renew focus on our Scottish Approach to Taxation.
On 31 August, the Scottish Government published a draft of Scotland’s first Framework for Tax.
The consultation, Tax Policy and Budget – a Framework for Tax, provides you with the opportunity to have your say on how the Scottish Government should use its devolved and local tax powers as part of the upcoming Scottish Budget 2022-23, the priorities for tax over the lifetime of this Parliament, and comment on our draft Framework for Tax.
The Framework for Tax sets out the principles that underpin our approach to tax and how we apply them today; the strategic objectives we are pursuing through tax policy; how we make decisions; how we plan and sequence our work around the policy and Budget cycles; and how we work in partnership with tax authorities like Revenue Scotland to ensure a people-centred approach to tax.
The latter is of critical importance. I want people to understand the taxes they pay, why they pay them, and how their contribution funds the public services we all rely on, or equally why changing their practices or behaviours will help us deliver on policy outcomes like a circular economy.
Overall, the Framework for Tax represents our vision for the design and delivery of a tax system that meets the needs of the people of Scotland. The final chapter of the Framework also sets out our high-level programme of work over the course of this Parliament, in line with our manifesto and public commitments.
Alongside input on the Framework, we also want to ensure that we hear the widest possible range of views on how we use our tax powers at the Scottish Budget 2022-23.
I want to hear views from across the country on the actions we can take, through our tax system, to support our vision of a society that thrives economically, socially, and environmentally, with prosperity for all of Scotland’s people and places. This is critical to our commitments to open government and transparency, and embodies our ambition for excellence in tax policy and delivery.
I want to see a more mature public debate on tax in Scotland and I want people to understand the rationale for our tax policy decisions. The data we have gathered suggests that there are low levels of understanding of the tax system, particularly the tax powers devolved to Scotland.
We are at the foothills of this journey. I therefore want to stress the importance of engagement and co-production in everything we do. And I want us to work collaboratively to improve awareness, understanding and the quality of the debate on devolved tax policy making.
We have already used our devolved tax powers positively in Scotland. We now need to look to the future – how tax can help us achieve our economic and policy objectives; and equally how our ambition for the economy can drive tax performance; how we embed continuous improvement in the way we make and evaluate tax policy, and the ways we can improve public understanding and the quality of the debate on tax.
That is an ambitious agenda and we will need the benefit of your insights and perspectives to achieve it. The consultation is open until 26 October so please consider taking the time to submit a response on the draft Framework for Tax and your priorities for tax policy.
Tom Arthur MSP is Minister for Public Finance, Planning and Community Wealth
The Scottish Government’s consultation ‘Tax Policy and the Budget – a Framework for Tax’ closes on Tuesday 26 October.