Hansard

I wish to update Parliament on the Government’s proposals for the future of taxation in Scotland in the context of our economic and constitutional aspirations.

The passing of the Scotland Act 2012 means that from April 2015 this Parliament will be empowered to introduce and manage taxes on the purchase or leasing of land and buildings, and on the disposal of waste to landfill. From April 2016, under current constitutional arrangements, this Parliament will set a partial rate of income tax to be administered and collected by Her Majesty’s Revenue and Customs.

Prior to both those events, we will ask the people of Scotland to support this Government’s belief that decisions about Scotland should be made by those who care most about Scotland—the people of Scotland—and that, as a result, this Parliament should hold responsibility for the full range of taxes that are needed to generate sustainable economic growth and to support our public services.

The transfer of powers in the Scotland Act 2012 falls significantly short of our ambition for full fiscal autonomy. It does not even match the ambition of the Calman commission, as it fails to deliver on its proposals that air passenger duty and aggregates levy also be devolved.

After the measures are in place, 85 per cent of tax that is paid in Scotland will remain reserved. This Parliament will exercise responsibility for only 15 per cent of taxes that are paid in Scotland and for only 58 per cent of the revenue that is spent in Scotland. Our aspiration for full fiscal responsibility would allow Parliament to design and set all taxes in the interests of stimulating economic growth, supporting the public services of Scotland and building social cohesion and wellbeing.

Since 2007 we have demonstrated an approach to taxation that is equitable and that promotes economic growth. We have put an end to unfair council tax rises that punished some of the poorest people in our society. In business, we have used our responsibility for non-domestic rates to develop the most competitive environment for business in the United Kingdom.

The Scottish Government intends to introduce two new taxes to replace the UK taxes that will cease in Scotland from April 2015—a tax on land and building transactions and a tax on disposal of waste to landfill. Today, I launch the consultation on the land and buildings transaction tax. We will consult on a landfill tax in the autumn and we will follow that with a consultation on tax management provisions later in the year.

As with the entire approach the Government takes and intends to take on taxation, those proposals are firmly founded on principles—Scottish principles—that have stood the test of time. In 1776 Adam Smith set out four maxims with regard to taxes in his “An Inquiry into the Nature and Causes of the Wealth of Nations”—the burden should be proportionate to the ability to pay and there should be certainty, convenience and efficiency of collection. Smith’s maxims allow us to build a system that will meet the needs of a modern, 21st century Scotland that is grounded on solid foundations. To those four principles, this Government will add our core purpose of delivering sustainable economic growth for Scotland and meeting the distinctive needs of Scotland.

This Government has sought to use what responsibility it has on taxation to ensure that no one is asked to pay more than they can legitimately afford. In today’s consultation on the proposed land and building transaction tax, we continue that approach. Our consultation signals our preference for a move from the UK’s slab-tax approach to a progressive system of taxation in which the amount that is paid is more closely related to the value of the property and, therefore, to the ability of the individual to pay. At the same time, our consultation also indicates our willingness to adjust the threshold at which taxation is levied in order to support those who are at the lowest end of the market.

We will take the views of the public and tax professionals through our consultation. However, to demonstrate the difference that taking a progressive approach can bring for people who are purchasing property in Scotland, the consultation paper illustrates two revenue-neutral scenarios. One scenario would remove the tax charge from all house purchases below £180,000, which would significantly benefit first-time buyers. The other scenario would ensure that all those who purchase properties that cost under £325,000 would see the tax that they pay decrease, which would bring benefits to about 95 per cent of the property market. Those who would purchase property at higher values would, of course, pay more.

We are also consulting on reliefs and exemptions, with proposals for simplifying the present arrangements for stamp duty land tax, and for tailoring exemptions to Scottish needs and policy interests. We are proposing anti-avoidance measures and will be interested to hear views on those. We are also giving thought to the merits of a general anti-avoidance measure and are seeking views throughout our consultation processes on what form that might take.

We have another nearly three years before the devolved taxes come into force. It would not make sense, nor would it be the practice of any Government, to consult now on tax rates that will apply so far in the future. The examples in the consultation document that I am launching today are therefore illustrative. However, I expect to propose rates for parliamentary approval through the annual budget process nearer the time.

We believe that it is important to create certainty around the amount of tax that individuals have to pay. To do this, we need to consult effectively on our proposals and to implement them with care. That is the process that we commence today and which will take a final form in the proposals that we will enact.

The UK Government’s recent mismanagement of the North Sea fiscal regime has illustrated the damage that can be caused by a lack of engagement with taxpayers. The Chancellor of the Exchequer’s decision to increase the tax rate on all North Sea oil fields last year, irrespective of their profitability and without consultation, seriously damaged investor confidence. Providing certainty about when and how much tax is due is therefore an important guiding principle for our new system.

We will engage with taxpayers to provide certainty and ensure that tax changes have been properly thought through and communicated before being introduced. As is the case for any Government, we may at times need to move swiftly in order to tackle threats of tax evasion and avoidance, or to limit or reduce distortive behaviours. However, wherever possible, we will seek to provide information and clarity about our intentions.

One of the opportunities that are before us is to create a simple and administratively efficient tax collection system. Improving ease of payment will contribute to our agenda for economic growth. Businesses that are operating in Scotland tell us that our doing that would significantly reduce the tax burden and increase the attractiveness of doing business here.

We will ensure that it is easy to fulfil the obligations of a citizen in Scotland to pay taxes. We envisage a system that is simple to operate and is what we call digital first. Although we are basing our system on the principles of Adam Smith, no one should feel that they have to journey back to Smith’s time to pay their taxes. We will develop appropriate information technology systems to ensure that information about Scottish taxes and ways to pay them is easily accessible to all, in line with our broader objectives.

Our consultation also proposes a link between payment of tax on property purchases and the provision of land registration documentation in order to simplify processing and reduce late payment.

It is essential that our tax system be efficient. It is received wisdom that taxes that are paid must be devoted to running the country and not consumed in administration of the system. That is a lesson that we will take on board. Scotland will benchmark itself against international standards to ensure that as little as possible of the revenue that is raised is spent on administration of the system. Our approach to collection will be not only the right one for Scotland, but the most cost-efficient one.

Having the responsibility in Scotland, for Scotland, for the design of the new system, as well as for rates and the approach to tax itself, can bring clear benefits. Scottish taxes will fit our distinctive social context and be expressed in Scots law. I have given careful thought to the appropriate arrangements for administration of those taxes, by weighing up the considerations of flexibility, cost and risk. In taking forward our proposals for taxation, I am determined to ensure that we have a system that is fit for purpose—now and in the future.

I have considered carefully the option of paying Her Majesty’s Revenue and Customs to collect taxes on behalf of this Parliament. In evidence to the Scottish Parliament’s Finance Committee, a representative of HMRC said of the role that it would play:

“If the Scottish Government … wants something that has a different framework or different rates, we would have to look at the details of what it wanted to do and decide whether it made sense for us to try to adapt our systems to operate that or whether we would need to say that it was so different that there would be no point in our trying to operate it.”

Pressed on what would happen if a future Scottish Government sought to amend the tax, the representative of HMRC said:

“In the end, however, it will be up to HMRC management to decide whether … to operate the taxes.”—[Official Report, Finance Committee, 30 May 2012; c 1291-92.]

It is clear to me that, if we ask HMRC to operate land and buildings transaction tax on behalf of this Parliament, the freedom of this Parliament to take forward in full taxation responsibilities could be inhibited. That cannot be right. The very purpose of devolution is to allow the will of the Scottish Parliament to prevail.

We will establish a tax administration function for assessing and collecting both the taxes here in Scotland. The function, which I propose to name revenue Scotland, will be established this year. By 2015, in line with international best practice, it will be operationally independent and its governance enshrined in legislation. That will enable people in Scotland to judge for themselves the benefit of the Scottish Parliament having responsibility for the issues and it will ensure that the will of Parliament is delivered.

Revenue Scotland will offer an innovative approach to collection of taxes. It will work with two firmly established and highly respected organisations: Registers of Scotland, to administer the new land and property tax; and the Scottish Environment Protection Agency, to administer tax on disposals to landfill. Those partnerships will offer further opportunities for us to customise tax collection arrangements that are specific to the Scottish situation, drawing on the relevant knowledge and expertise in Registers of Scotland and SEPA to eradicate duplication and to deliver greater simplicity.

Our costs for revenue Scotland are based on the assumption that we will incorporate the changes to the structure of taxation on land and building transactions that I have already set out. It is a sign of the costliness of HMRC that we will establish revenue Scotland and implement and collect both the replacement taxes for less than HMRC would charge us to deliver what it terms a like-for-like system within the United Kingdom. I estimate that, in the period to 2020, start-up and operational costs in pursuing that approach will be at least 25 per cent lower than they would be had I asked HMRC to deliver the status quo. Through revenue Scotland, we will serve the needs of the people of Scotland at a lower cost than the UK set-up, and we will deliver a better system that is more in line with Scotland’s needs. In due course, revenue Scotland will oversee administration of the full range of taxes that are set by Scottish ministers. It will become the focus of the expertise in tax administration that will grow in Scotland.

In contrast, under the Scotland Act 2012, HMRC will implement the Scottish rate of income tax. Under current constitutional arrangements, that tax will be introduced in 2016 at an estimated cost of £45 million to the Scottish public purse. By establishing revenue Scotland, the Parliament and I can exert our influence to keep costs to a minimum. As yet, the UK Government has not provided a means for me or the Parliament to keep such a check on HMRC’s costs. I will continue to pursue that matter and I hope that I will have Parliament’s full support in that.

Aligned with our broad approach and principles, our tax system will be supported by regular and engaged consultation of taxpayers. In reaching this point, we have already engaged with the Institute of Chartered Accountants of Scotland, the Law Society of Scotland, the Chartered Institute of Taxation, the Scottish Property Federation and the Council of Mortgage Lenders on the issues of tax on land transactions.

To ensure that the views of taxpayers and expert communities remain embedded in the development of our approach to taxation, we will also establish a tax consultation forum to which representative bodies, networks and organisations with an interest in the tax system can contribute. I will chair the forum, which will receive updates on the Government’s emerging taxation proposals and provide an opportunity for us to engage in regular and active listening to the concerns of industry, interest groups and individuals. The first meeting of the forum will take place early in the autumn.

Our work on taxation will also be supported by our recently established fiscal commission, which is a panel of eminent international experts who will oversee our proposals for developing a tax system for an independent Scotland. That is part of our broader programme of work in establishing a macroeconomic framework that promotes fiscal responsibility and market confidence in an independent Scotland.

The views of Parliament are also of primary importance. The ability to scrutinise effectively and to manage properly a taxation system are key responsibilities that come with devolution of taxation. We must work together across party divides to fulfil the function, both in scrutiny of HMRC’s administration of the Scottish rate of income tax, and of the devolved taxes.

The approach that I have outlined represents a strong foundation for the future and creates the basis for this Parliament to acquire the full range of tax powers. With full fiscal responsibilities, we could tailor policies to match the aspirations of the Scottish people and deliver competitive advantages. We could change air passenger duty, harmonise the tax and benefits systems to create a fairer and simpler regime for people, and we could reduce corporate taxation. We could seek opportunities to simplify the tax system and make it more transparent in order to reduce compliance and administration costs, and we could use borrowing powers for capital investment. Those are the opportunities that would be opened up by independence.

This Government is focused on taking forward the powers that we have, implementing the powers that we are scheduled to receive and preparing the foundations for utilising the full range of powers that we require. With that approach, this Government is preparing Scotland effectively for the future.