Reform Scotland

Taxing Times: Why Scotland needs new, more and better taxes

Taxing Times: Why Scotland needs new, more and better taxes


Former New Zealand and Scottish government senior policy adviser says Scotland:

  • Has a more pressing demographic challenge than the rest of the UK
  • Will need significantly increased tax revenues
  • Cannot succeed by tinkering with Income Tax, and needs new taxes and a broader tax base
  • Should focus on immobile wealth taxes, rather than on employment income

Reform Scotland has today released an extensive paper on taxation in Scotland, written by Heather McCauley.

McCauley, a former senior civil servant who has worked for the New Zealand and Scottish Governments and the UK Parliament, has said that in order for Scotland to cope with the future challenges presented by demographics and climate change, the tax system will need to be completely redesigned, rather than simply tinkering with the rates of current taxes.

In the paper – Taxing Times: why Scotland needs new, more and better taxes – McCauley also argues that politicians of all stripes must accept change is needed in order to attain higher tax revenues in the long term.

In addition to sharing the global problem of climate change and high levels of UK government debt, further exacerbated by the pandemic, Scotland faces a particular demographic problem – our population will begin to fall during this decade. By 2045, Scotland’s population will be 1.5% lower while the UK’s will be 5.8% higher. More worryingly for tax revenues, Scotland’s population of over 76’s will be up by over two-thirds, whilst the population of those in their 30s, 40s and 50s will be static, and the population of under 30s will fall by 16%.  This will have significant implications for tax raising as well as for government spending.

"Scotland will face increasing pressure on its public finances in the coming years, both as a result of global issues such as climate change and the pandemic recovery, but also because of local issues such as Scotland’s demographic challenge.

“Inevitably, higher tax revenue will be required to deal with this. In order to create the right environment for optimal tax raising, debate in Scotland needs to focus as much on the way money is raised as it does on the way money is spent.

“Having studied tax systems in similarly sized countries across the world, from New Zealand to Scandinavia, it is clear to me that the current structure of Scotland’s tax system is not fit for the future.

“In short, Scotland needs to start again. It needs a new and fairer tax system, focused more on immobile tax bases such as wealth and less on mobile ones such as employment income. This new system needs to be used to drive sensible and sustainable increases in overall tax revenue to cope with the challenges of the rest of the 21st century.”

“Tax is among the most controversial and difficult issues in politics. Most people would prefer to pay less of it, but we live in times where the demands on the public purse are growing. Scotland’s overall population is ageing, while our working-age population is shrinking. We must find new revenue just to meet existing commitments, even as new commitments come on line too – such as funding a national care system. Meanwhile the Covid epidemic has raised national debt levels, and governments are also trying to help households through the cost-of-living crisis, with its consequences for heating bills, the weekly shop, and mortgages.

“As Heather McCauley points out in this report, it’s very difficult to see how Scotland can meet its future commitments – whatever its constitutional status - without looking afresh at the tax system, at who and what we tax, and at what the right balance should be.

“Redesigning the tax system is a major task, and a delicate one, but the system we have in the UK is clearly no longer fit for purpose, and serves only to limit smart thinking. As in so much else, political vision and courage are what the nation needs in this period of change. We trust policymakers will find this contribution to the debate a useful, innovative and inspiring one.”