What will tax be like in an independent Scotland?

Taxation and welfare payment

Stephen Richard — Thu, 28 Oct 2021 14:51:24 +0000

Taxation and welfare payment Stephen Richard Thu, 10/28/2021 - 15:51

Author or Creator

Common Weal

How do we make sure that we can collect tax and pay social security benefits?

What do we need to do to be able to collect taxes after independence?

Scotland already has a body called Revenue Scotland which has the basic tax details for everyone resident in Scotland. It only collects a small proportion of taxes at the moment but extending it to collect all taxes is primarily a matter of staffing and strengthening IT systems so is comparatively routine. What is a little more complicated is collecting business taxes as these are currently largely the responsibility of the UK (though businesses with premises in Scotland will be registered for non-domestic rates). Data on companies operating in Scotland would be transferred from the UK to Scotland during negotiations and any gaps would need to be worked on during transition.

And paying social security benefits?

It's much the same issue. Scotland has the skeleton of a social security system but during the transition it would need to build up its systems and have the UK's data and responsibilities transferred to it.

What about pensions?

This is often raised as a major issue for independence but the reasons for this are political rather than technical. The UK has a revenue system of pensions rather than a contributory one so we'll be paying the same pension to the same people in the same way as in the UK. There is nothing much to disentangle.

What about people who have paid towards the UK pension their whole life?

This is a hotly-contested grey area. The current rules say that anyone who has contributed enough in National Insurance Contributions that they are eligible for a full UK pension will be paid that pension irrespective of where they are located on retirement – the UK pays the pensions of people who have retired to other countries and there is no obvious exemption which means that they wouldn't pay Scottish citizen's pensions. However, in all likelihood this is a matter that would be resolved during transition negotiations and Scotland might negotiate to have UK liabilities offset against Scotland's debt share. Either way, Scotland would be able to pay pensions as the UK does now.

So tax and social security would be exactly the same after independence?

This is one of the areas which is tricky to deal with politically. The UK tax system is unsupportably complex and its social security system aggressive and unpleasant. Enshrining these for day one of independence is very hard to justify, but any changes (even just simplification or 'cleaning up') imply political decisions. A solution might be a cross-party summit after a vote for independence to negotiate an interim solution. After that tax and social security policy will be a matter for elected governments.

Keywords

Taxation

Pensions

Welfare benefits

A tax system for Scotland

Stephen Richard — Fri, 22 Oct 2021 21:29:55 +0000

A tax system for Scotland Stephen Richard Fri, 10/22/2021 - 22:29

Author or Creator

Oxford Review of Economic Policy

Scotland is different from the rest of the UK in some ways that are important for tax system design. Incomes are more equally distributed, for example. That is one reason why the progressive income tax currently raises less per head in Scotland than in the rest of the UK. It also suggests that there is less to be gained in terms of redistribution from sharply progressive taxation. In 2011–12, with 8.4 per cent of the UK population, Scotland contributed 9 per cent of UK onshore corporation tax. These facts show that a tax system designed for Scotland's economic and social objectives will provide benefits.

Keywords

tax

Income distribution

Scots remain confused over who sets tax rates

Stephen Richard — Sun, 14 Nov 2021 21:34:10 +0000

Scots remain confused over who sets tax rates

Primary Author or Creator

Terry Murden

Stephen Richard Sun, 11/14/2021 - 21:34

Additional Author(s) / Creators

Diffley Partnership

Date Published

Sat, 06/05/2021 - 12:00

Alternative Published Date

April 6, 2021

Category

Taxation

Type of Resource

Article

Fast Facts

Scots continue to be unclear about who is responsible for taxation north of the border.

More details

More than a quarter (26%) of those polled in a survey said they were “not aware of” the Scottish Parliament’s powers to make changes to income tax rates in Scotland, and more than 80% admit they need more information on how the system works.

The latest data shows an improvement on the findings of previous surveys. In 2018, 66% were unaware that income tax is the responsibility of both Westminster and Holyrood.

However, the Chartered Institute of Taxation (CIOT) and ICAS (the Institute of Chartered Accountants of Scotland) are calling on Scotland’s political parties to improve public awareness of devolved taxation in the next Scottish Parliament.

The tax and accountancy bodies make the call in a new paper, Building a Better Tax System, setting out their priorities for the devolved tax system in the next Scottish Parliament.

The poll of 1,098 adults in Scotland was undertaken by the Diffley Partnership in March 2021. It is the third to be commissioned by CIOT since the introduction of Scotland’s new income tax regime in 2018.

The 2021 poll found that:

33 per cent of those surveyed said they were unaware that the Scottish Parliament had made changes to the tax system since 2015 (such as to income tax and council tax).
26 per cent said they were ‘not aware of’ the Scottish Parliament’s powers to make changes to income tax rates in Scotland, while 25 per cent said the same for Holyrood’s powers over Council Tax, Business Rates and Land and Buildings Transaction Tax
Just over one in four (27 per cent) correctly identified that income tax powers are shared between the Scottish and UK parliaments, a fall of 4 points since the survey was first conducted in 2018
83 per cent of Scots surveyed think they need better information about how taxes are decided in Scotland. This compares to 86 per cent in 2019 and 84 per cent in 2018
39 per cent knew a little or a lot about the Scottish Taxpayer status (the rules that define who is eligible to pay Scottish Income Tax) . This is an increase on the 34 per cent who answered in this way in 2019, but is 9 per cent lower than the 2018 survey

The steps that CIOT and ICAS would like to see introduced in the next Scottish Parliament include:

Strengthening parliamentary scrutiny of tax by introducing a Scottish equivalent of the Westminster Finance Bill to make changes to the tax system easier and more visible and removing the constitution remit from the Finance Committee to enable it to spend more time scrutinising tax policy
Better budget coordination between the Scottish and UK governments to overcome recent budget delays that the organisations say have ‘cut across the devolution settlement’
Limiting the use of Holyrood’s tax powers as a source of ‘last minute budget concessions’ and moving towards the development of a longer-term approach to tax policy development that considers existing tax powers alongside any future proposals for new taxes
Improving public awareness and understanding of the Scottish tax regime through improved visibility of tax in the Scottish political calendar and promoting tax education within the Scottish curriculum

Alexander Garden, chairman of the CIOT’s Scottish technical committee, said: “As political parties set out how they plan to use Holyrood’s tax powers, it should be concerning that a third of respondents are unaware that the Scottish Parliament has made changes to the tax system in Scotland.

“The case for increased awareness has arguably been made stronger by the devolution and divergence that has taken place in recent years.

“As taxes account for a significant amount of money spent by Holyrood, it should be a priority of the next Scottish Parliament to ensure that taxpayers can understand more about Scotland’s tax powers and the changes that are being made in their names.”

Charlotte Barbour, director of taxation at ICAS, added: “The reality is that at present, many of the day-to-day changes needed to maintain the integrity of the devolved tax system are either not happening, due to a lack of parliamentary time, or in a way that limits detailed scrutiny.

“Having an equivalent to the UK Finance Bill at Holyrood is one of the ways that awareness of Holyrood’s tax powers could be boosted, by making sure that tax policy is more visible in the Scottish political calendar.

“Increased awareness will become more important if discussions around the role of the Scottish tax system increase in prominence as we emerge from the pandemic.”

On the need for a more strategic approach to making Scottish tax policy, Alexander Garden added: “We would like to see our MSPs taking a longer-term approach to thinking about how the Scottish tax system works.

“We need to move away from the recent trend that has seen new tax measures brought in at short notice with limited consultation in exchange for parliamentary votes, and towards an approach that focuses not just on new taxes, but on how we use those we already have more effectively.

“This should include better coordination between the Scottish and UK governments around the timing of future budgets.

“The delays to the last two UK Budgets have highlighted challenges for Holyrood when faced with the need to agree tax and spending plans without full sight of the UK picture. We hope that will change.”

Resource Address (URL)

https://dailybusinessgroup.co.uk/2021/04/scots-remain-confused-over-who-sets-ta…

Keywords

tax

Taxation

Language English

How smarter taxation would help build a fairer Scotland

Stephen Richard — Fri, 05 Nov 2021 12:34:35 +0000

How smarter taxation would help build a fairer Scotland

Primary Author or Creator

Believe in Scotland

Stephen Richard Fri, 11/05/2021 - 12:34

Alternative Published Date

2021

Category

Taxation

Type of Resource

Article

Fast Facts

It is evident that there is a desire for change to the current UK taxation system. This emphasises the need for the powers to be devolved to the Scottish Parliament. The Scottish government’s proposed changes to create a fairer taxation system, particularly the concept of incentivising corporate tax is welcomed.

More details

The UK taxation system

The UK’s tax system is widely recognised as dysfunctional. It is complex, ineffective and very centralised. Furthermore, any reforms that have been introduced have failed to keep up with economic and societal changes. The UK government often cuts corporation tax, which currently sits at 19%, in an attempt to make businesses more competitive and stimulate investment.

While it is true that too much tax can lower profitability and ultimately slow down private sector investment, this notion is not relevant to the UK’s current situation. Indeed, the UK government has no reserves and instead possesses a massive sovereign debt.

Cutting taxes will not stimulate the economy and will instead directly impact front line services

Furthermore, Brexit has greatly damaged private sector investment and the Covid-19 pandemic has had, and will continue to have, a critical and long-lasting impact on the economy.

Therefore, with the UK’s current economic situation looking rather grim, it is clear that cutting taxes will not stimulate the economy and will instead directly impact front line services.

Unified taxation powers

Corporation tax cuts can work, but only as part of a collection of flexible taxation powers and policies. For taxation policy to be successful it must involve a wide range of unified tax powers, otherwise the weight of taxation will be placed too heavily on one societal group. This issue has been recognised within the Social Justice and Fairness Commission’s report, highlighting that the burden of taxation must be shifted. The Joseph Rowntree Foundation has revealed that “the total cost of poverty to the UK economy is in the region of £78bn per year”.

A more balanced approach to taxation can be achieved in an independent Scotland. Indeed, with progressive policies such as those that Business for Scotland have advocated for years and that have now been proposed in the SNP’s report, Scotland can achieve a fairer tax system.

Changing behaviour

In 2019, we suggested to the Scottish government that rather than implementing ‘something for nothing’ tax cuts, taxation should be incentivised. For example, solutions such as benefit corporation tax credits could be introduced.

In the commission’s report, it is stated that taxation should be “used to influence actions or behaviours that generate good outcomes for society.”

This complements our campaigning and the ideas that we have proposed within many of our articles and reports. For example, in a previous article we offered a hypothetical scenario in which this concept was implemented:

Imagine if Scotland decided to avoid corporation tax cuts and instead raised taxation by 1%. While some may fear a decline in competitiveness, we suggest that this could be resolved through the numerous benefits of linking corporate taxation to the business pledge.

Under this system, businesses that are willing to make positive changes to company behaviour and support a more equal society will pay less in tax

This pledge asks businesses to behave in a way that benefits the company, wider society and the economy by changing corporate behaviours. However, because there is currently no profit to be gained from signing this pledge, it is easily ignored. Therefore, we advise that corporations should be able to earn back this loss and also gain further tax credits by signing this pledge and positively changing their behaviour. This may involve targeted investment and corporate behaviours that help create a better, fairer and more prosperous Scotland.

Positive changes rewarded

Under this system, businesses that are willing to make positive changes to company behaviour and support a more equal society will pay less in tax.

This system will fund itself with its benefit/cost approach. For example, corporates that invest in environmentally sustainable practices would pay less in taxation, but their contribution to society would help efforts to tackle the climate crisis and boost Scotland’s environmental and recycling sectors.

This concept of incentivising corporate taxpayers will also improve the growing issue of tax evasion and avoidance that exists across the UK. With the obvious benefits of this system, corporates are more likely to pay their taxes and ultimately this will increase Scotland’s taxation revenues by several billion every year.

Conclusions

It is evident that the people of Scotland and the Scottish government desire change to the current UK taxation system and this emphasises the need for the powers to do so to be devolved to the Scottish Parliament. We welcome the Scottish government’s proposed changes to create a fairer taxation system, particularly the concept of incentivising corporate tax.

Resource Address (URL)

https://www.believeinscotland.org/how-smarter-taxation-could-help-build-a-faire…

Keywords

Taxation

Corporation Tax

Language English

THE IMPACT OF SCOTTISH INDEPENDENCE ON TAX, PENSIONS AND FINANCIAL SERVICES

Stephen Richard — Mon, 04 Oct 2021 18:20:41 +0000

THE IMPACT OF SCOTTISH INDEPENDENCE ON TAX, PENSIONS AND FINANCIAL SERVICES

Primary Author or Creator

Clifford Chance

Stephen Richard Mon, 10/04/2021 - 19:20

Alternative Published Date

August 2021

Category

Taxation

Pensions

Finance

Type of Resource

Assessment report

Length (Pages, words, minutes etc...)

7pp

Fast Facts

The most likely overall outcome for taxation is that rUK would treat Scottish individuals and companies in the same way as it treats any other country's individuals and companies (and vice versa). Scotland will need to establish its own financial regulator and resolution authority and make arrangements for continuing the licences and supervision of Scottish firms. Arrangements for pension investments and payments will be required.

Resource Address (URL)

https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2021/08/the…

Keywords

Taxation

Financial regulation

Pensions

Language English

Minimizing the Cost of Union: Fiscal Autonomy and the Case of Scotland

Stephen Richard — Sat, 02 Oct 2021 17:54:39 +0000

Minimizing the Cost of Union: Fiscal Autonomy and the Case of Scotland

Primary Author or Creator

Paul Hallwood

Stephen Richard Sat, 10/02/2021 - 18:54

Alternative Published Date

2020

Category

Public Finance

Type of Resource

Academic Paper

Fast Facts

Argues for federalism in public funding where taxation is devolved. Proposes that this financial autonomy would provide a better connection between democracy and public finance.

More details

Propositions from the theory of fiscal federalism are used to argue for closer matching of taxes raised in Scotland and spending by the Holyrood government. Incentives would then be enhanced for Holyrood to provide public goods and services in quantities Scottish taxpayers are willing to pay for. Empirical evidence shows that this increase in vertical balance improves rates of regional and national economic growth. Two sequential games are used to show that whether Scotland chooses first or second in the public spending game with Westminster it still ends up with overly-generous funding. The argument is made that in fairness to taxpayers in the rest of the UK (increased horizontal balance) Scottish fiscal autonomy should be moved to.

IN: Hallwood P. (2020) Minimizing the Cost of Union: Fiscal Autonomy and the Case of Scotland. In: Interpreting Historical Sequences Using Economic Models. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-53854-5_8

Paywall

Resource Address (URL)

https://link.springer.com/chapter/10.1007/978-3-030-53854-5_8#citeas

Keywords

Democracy

Financial autonomy

Devolution

Language English

TAX POLICY FOR AN INDEPENDENT SCOTLAND

Stephen Richard — Fri, 01 Oct 2021 22:10:22 +0000

TAX POLICY FOR AN INDEPENDENT SCOTLAND

Primary Author or Creator

Richard Murphy

Stephen Richard Fri, 10/01/2021 - 23:10

Additional Author(s) / Creators

Scottish Independence Convention

Alternative Published Date

2020

Category

Taxation

Type of Resource

Policy Paper

Length (Pages, words, minutes etc...)

11pp

Fast Facts

The current UK tax system is not fit for purpose in Scotland. It is vital that during the transition period new systems for managing tax in Scotland be put in place. Taxes will need to be placed on a variety of sources and some of these will need extensive consideration. The tax and benefit systems must be integrated.

More details

Scottish Independence Convention (SIC) Transition Paper No. 5 Taxation.

Resource Address (URL)

https://independenceconvention.scot/transitions

Keywords

Taxation

Public revenue

social benefits

Language English

Taxing an independent Scotland

Stephen Richard — Mon, 13 Sep 2021 08:09:50 +0000

Taxing an independent Scotland

Primary Author or Creator

Stuart Adam

Stephen Richard Mon, 09/13/2021 - 09:09

Additional Author(s) / Creators

Paul Johnson, Barra Roantree, Oxford Review of Economic Policy

Alternative Published Date

2014

Category

Taxation

Type of Resource

Assessment report

Fast Facts

If Scotland were to become independent it would gain considerably more control over its tax system than it currently enjoys. This paper considers the consequences of independence for the optimal design of a new Scottish tax system, an analysis which would also be of some relevance for considering the consequences for tax design of independence of other smaller nations.

Independence would create additional complexity for individuals and firms working or trading across borders. It could also put downward pressure on tax rates and our analysis suggests that optimal tax rates in an independent Scotland are likely to be lower than optimal rates in the UK as a whole. At the same time, the context of a substantial budget deficit will continue to put upward pressure on tax rates.

More details

Possible consequences of Scottish independence for tax design.

Currently, onshore revenues per head in Scotland are very similar to those in the UK as a whole. The biggest differences relate to one of the important economic differences between Scotland and RUK—the relatively more equal distribution of income and wealth. This results in receipts for income tax and various capital taxes being lower in Scotland than in RUK. It also implies that, all else equal, the benefits from high and strongly progressive tax rates are less in Scotland than in RUK.

Of course the biggest difference between total tax receipts in Scotland and RUK is the very much greater importance of oil and gas revenues in Scotland. While the fact of independence would not obviously change the optimal structure of oil and gas taxation, it would matter a lot for the role of oil and gas revenues in the public finances. Total receipts in Scotland would have been very much more volatile than in the UK as a whole over recent decades because of the volatility of oil and gas revenues and their greater importance in a smaller economy. Going forward it is clear that an independent Scotland could not plan its public finances by treating oil and gas revenues as certain. While we do not consider it in this paper, the combination of higher spending per head in Scotland with similar onshore revenues, uncertainty about offshore revenues and, shared with RUK, more fiscal consolidation required in the short term, means that the pressure for taxes to rise following independence would be considerable.

Of more general application is our analysis of the possible effects of independence on optimal tax policy. The key new challenge is mobility of tax bases given the likely openness of the Scottish economy vis-à-vis RUK. If most of the major tax bases—people and personal income, goods and services, capital and profits—are mobile between Scotland and RUK (as well as wherever else they might already be mobile), then taxes on all of those would be harder to raise. This will create pressure to move towards more reliance on less mobile tax bases (notably property) and less reliance on the most mobile tax bases (notably corporate profits), and in the absence of cooperation in tax rate setting between Scotland and RUK, the optimal long-run level of taxation is likely to be lower than in a unified UK.

The same will also apply to RUK, which will (to a lesser extent) be a more open economy by virtue of having an independent Scotland next door. Tax competition between the two countries (as well as the existing competition vis-à-vis third countries) might lead them to raise less revenue between them than would be best for them collectively. There would therefore be a premium on cooperation and coordination to minimize potentially inefficient tax competition—as well as to minimize compliance costs for firms that trade (or hire etc.) across the border. Such concerns should not be overstated. The Scotland–RUK border is not densely populated and there are many reasons that people would not move between the two countries in a frictionless way to live, work, or shop. But it is a factor that an independent Scottish government would need to take into account.

One focus for an independent Scotland should be to look at how tax policy is made. Setting up institutions in such a way as to facilitate a tax strategy to be coherently formulated and implemented and to promote high-quality debate and scrutiny would increase the chances of good policies being implemented and poor ones being reversed (or, better still, not being introduced in the first place). This should also help to bring about a more stable tax system over the longer term, which in itself would help enable individuals and firms to plan and boost prosperity.

Resource Address (URL)

https://academic.oup.com/oxrep/article/30/2/325/521370

Keywords

Taxation

tax revenue

Language English

Policies for an independent Scotland? Putting the Independence White Paper in its fiscal context

Stephen Richard — Mon, 13 Sep 2021 08:00:53 +0000

Policies for an independent Scotland? Putting the Independence White Paper in its fiscal context

Primary Author or Creator

David Phillips

Stephen Richard Mon, 09/13/2021 - 09:00

Additional Author(s) / Creators

Gemma Tetlow, Institute for Fiscal Studies

Alternative Published Date

2014

Category

Taxation

Type of Resource

Assessment report

Fast Facts

A conservative anslysis of prospects for taxation in an independent Scotland.

More details

Independence would give the Scottish government additional powers over taxation and areas of spending that are currently the preserve of the UK government. This would give Scotland greater freedom to design a system of taxes that meets its needs and aspirations and, if it were willing, correct some of the failings of the existing UK system. It would also allow Scotland to redesign public services and welfare provision and to change the areas it prioritises for public spending. Scotland would also have more choices about whether it wanted to be a lower-tax, lower-public-spending country or a higher-tax, higher-public spending country. But it would still face the same need to ensure its tax and spending policies were consistent with a sustainable fiscal position.

Resource Address (URL)

https://ifs.org.uk/uploads/publications/bns/bn149.pdf

Keywords

Language English

Fighting for Tax Jobs, Fighting For Justice: A Workers’ Alternative

Stephen Richard — Mon, 06 Sep 2021 21:29:04 +0000

Fighting for Tax Jobs, Fighting For Justice: A Workers’ Alternative

Primary Author or Creator

Craig Dalzell

Stephen Richard Mon, 09/06/2021 - 22:29

Additional Author(s) / Creators

Ben Wray, Common Weal

Date Published

Sat, 06/30/2018 - 12:00

Category

Economy

Taxation

Type of Resource

consultation response

Fast Facts

Commissioned by PCS, this joint work examines the economic impact of HMRC’s plans to close departments around Scotland and establish two regional offices in Glasgow and Edinburgh.

It is found that over 2,300 jobs could be lost due to these changes with an overall negative impact on GDP of £89 million.

The economic impact will be particularly magnified in local areas where the current HMRC departmental office employs a substantial proportion of the local workforce

More details

― The UK Government’s modelling for the impact of cuts on the broader economy is outdated. We use the IMF?s revised estimates for the fiscal multiplier, which take greater account of data after the Great Recession. Using these findings, we show that any ?efficiency savings? from cuts will eventually be wiped out by the resulting contraction in tax revenue.

― However, the reality could be far more damaging if HMRC cuts make the campaign against tax avoidance and evasion less efficient. If so, HMRC cuts will mean a reduction in tax revenue for all public services. They will also damage the drive to reduce the social inequality and injustice caused by failure to enforce the tax system

― Current HMRC plans foresee a leaner service that does more with less thanks to centralised digital technology systems. Our research suggests that the practicalities of this model have not been thought out, particularly in areas like customs and excise which will be inundated with new problems after Brexit.

― According to widespread reports, existing cuts have already had a “chaotic” and “shocking” impact on HMRC administration, suggesting that a more cautious estimate of administrative change is needed. The current plans are, by contrast, radically optimistic in assessing the impact of replacing human services with technology.

― International evidence suggests that Britain’s model is inefficient and will not work. Where digital technology has been a success, it has been married to increases in staff numbers, not decreases.

― These decisions have been made by the UK Government with little consultation with the Scottish Government over the likely impact. This raises constitutional questions about democratic accountability.

― The cuts will exacerbate uneven development, both across the UK and within Scotland. Edinburgh, which already gets a significant subsidy from jobs created by public sector administration, will get a further boost under the plans. By contrast, businesses and communities in poorer areas like West Lothian, Cumbernauld and East Kilbride will suffer from centralisation.

― The plans risk a breakdown in trust and authority between central Government and Scotland’s communities.

― The plans make heroic assumptions about Scotland’s vast geography. They underestimate commuting times (and stresses on both individual and existing transport systems) in Greater Glasgow. They also take insufficient account of the waste and cost of sending mobile teams from Edinburgh or Glasgow to crucial economic areas like Aberdeen and Inverness.

― The Scottish Government has its own semi-independent taxation system, Revenue Scotland. However, HMRC’s Building Our Future proposals would violate many of the principles advocated by the Scottish Government as basic norms for a just tax administration. Moreover, and perhaps most significantly in the current political climate, we expect the proposed changes to interfere with the collection of the Scottish Rate of Income Tax, with consequences for funding public services in Scotland.

Resource Address (URL)

https://commonweal.scot/wp-content/uploads/2017/06/Fighting-for-Tax-Jobs.pdf

Keywords

Language English