Ross Stupart

One of the main criticisms businesses have aimed at the Scottish Government’s approach to tax so far has been the lack of alignment with wider economic policy.

Scottish businesses want clarity on how the Scottish Government’s tax strategy will encourage and promote growth in Scotland.

Let’s consider the content of the strategy document and whether it will do that.

Strategic priorities for existing tax system

Maintaining the position that over half of Scottish taxpayers will pay less than taxpayers in the rest of the UK is notable. Let’s remember that this differential is at its maximum £28, and therefore arguably is more a token policy for PR purposes, yet adds complexity to the tax system.

Working together with local councils to ensure council tax and non-domestic rates are fair and sustainable is a stated aim. The government’s plan involves establishing a road map for council tax reform and plans for further engagement and dialogue on non-domestic rates reforms and simplification.

There has been much talk of reform in these two key areas of local taxation, and there must come a time when discussions become actions with tangible results. The new strategy gives no suggestion of timescales for the implementation of reform in these areas, and therefore lacks the clarity businesses need.

Commitment has been made to implement the Scottish Aggregates Tax, which will be the Scottish equivalent of the Aggregates Levy, which currently applies across the UK, from 1 April 2026. There is also commitment to create the legislative basis for the introduction of the Scottish Building Safety Levy during this parliament.

Unfortunately, there is no target date for implementation, making it difficult for businesses to plan.

Strategic priorities looking further ahead

The strategy document states, “we are focused on activities that will support our economy to be more productive and competitive, and as part of this are taking action to grow our economy and our tax base.”

The actions proposed include removing barriers to employment, providing employability support and supporting the ability to recruit internationally. What the strategy does not do is provide any real detail on how these three actions will be developed.

The lack of detail, coupled with significant further spending commitments to benefit systems which are not linked to supporting people into employment, is concerning. How will this objective be achieved without alignment of policies?

The strategy document also acknowledges a need to balance taxes across income, labour and wealth, and as part of wider devolution of taxes in Scotland, commits to consider what a Scottish wealth tax might look like.

It will be interesting to see how the Scottish Government proposes to implement such a tax in a way which ensures the tax take exceeds the cost of administration to make this worthwhile. Given the value of land and estates in Scotland, this could be one to keep an eye on.

Pleasingly, the Scottish Government seems to have taken note of feedback from the business community, and acknowledges that the Scottish tax system will affect Scotland’s competitiveness on the global stage, and therefore the attractiveness of Scotland as a place to live, work and invest.

The Scottish Government is committed to seeking evidence on tax policy and its links to the economy, with a view to publishing responses in 2025. We’d like to see this call for evidence led by an independent panel of experts, alongside key business community stakeholders from a range of industries that are critical to Scotland’s future growth.

Conclusion

The government’s data suggests the number of people in Scotland over 65 will grow by 9.8% over the next five years, which it anticipates will put further strain on the government’s budget. Over the next 50 years, the working age population is projected to fall by around 8%, which will have an obvious impact on the tax base.

While it is some progress, the strategy document provides little detail on how all the commitments made will be actioned, or when we can expect to see outcomes.

Given many of the strategy topics like council tax and rates reform have been on the ‘to do’ list for some time, the Scottish business community will expect to see progress soon, as patience is wearing thin.

With the Scottish Government’s own data identifying further significant budget strain on the horizon, now is the time to deliver outcomes that will power growth in Scotland and protect Scotland’s budget and tax base.

Ross Stupart is head of tax in Scotland at RSM