Ross Stupart

The Scottish Government wants to create a sustainable fiscal environment in Scotland that embodies fairness and equality. The recent Scottish Framework for Tax sets out a plan to achieve this; but is it possible within the current economic landscape, limited devolved powers and the latest Scottish productivity data?

Following a consultation process from August to October 2021, the Scottish Government has now published its final Framework for Tax, which seeks to define the Scottish Government’s approach to tax policy. The Finance Minister, Kate Forbes, states that the framework will provide the Scottish Government with ‘the foundation from which we can design and deliver tax policies that support the recovery, national outcomes and our pursuit of a fairer, greener and more prosperous Scotland for everyone. The Framework for Tax gives us a platform for best practice in tax policy making, to deliver our Scottish Approach to Taxation’.

The framework document states that the Scottish Government wants to create a sustainable fiscal environment in Scotland that embodies fairness and equality. To achieve this, it intends to apply a set of guiding principles:

• Generating stable revenues to fund public services and support social renewal
• Supporting a wellbeing economy by helping to deliver a sustainable and inclusive economic recovery
• Delivering national outcomes by reducing inequality and funding the public services
• Delivering a tax system with the ability to respond to societal and economic shifts.

The redistribution of wealth is a critical purpose of a progressive tax system. However, too much focus on the redistribution and not enough focus on policies that promote the creation of wealth could reduce both productivity and the pool of wealth available within Scotland to redistribute. Therefore, the effectiveness of the Framework will be heavily influenced by the Scottish Government’s ability to stimulate the Scottish economy. The latest productivity data for Scotland published by the CBI/Fraser of Allander Institute suggests that productivity in Scotland still lags behind other parts of the UK. And productivity is needed to drive the creation of wealth.

The 2011 Institute of Fiscal Studies review on the design of tax systems, chaired by Sir James Mirrlees, argues that a progressive tax system does not mean that every single tax must be progressive. This review indicates that taxes should be designed to fit together as a cohesive progressive system rather than taxes being individually designed in isolation.

Without more control over taxes or a fundamental shift in stance, where the UK and Scottish Governments work more collaboratively to drive tax policy affecting Scotland, it may be difficult for the tax system affecting Scotland as a whole to achieve all the aims and objectives set out in the Scottish Government’s Framework for Tax.

This, therefore, begs the question around the purpose and current value of the Framework for Tax, given the limited control the Scottish Government has over taxes. Whilst the Framework is well written and positive in terms of content, it could feel to some more like a theoretical statement for political purposes rather than something that will have a fundamentally positive impact on the Scottish economy and fiscal responsibility now.

The Institute for Fiscal Studies previously described the changes to the Scottish Income Tax system as being progressive but complicated, stating that the system has achieved ‘very little except as a political statement.’ Is this more of the same?