Scotland forging its own fiscal future through tax changes


By Don Peebles, CIPFA Head of Policy and Technical

Some 20 years ago, Scots voted to have their own parliament, with its own tax-varying powers, and these have since been enhanced to become a suite of fully devolved tax raising powers in income tax, land and buildings transaction tax, and landfill tax. Yet for the majority of that time, there was little differentiation in taxation across the United Kingdom. Citizens across the United Kingdom, whatever they were earning, would be paying the same. This is now changing. While a differential income tax rate within the United Kingdom has been retained, the thresholds and rates in Scotland are no longer in sync with their neighbours in England, Wales or Northern Ireland.

Changes to taxation put forward by Finance Secretary Derek MacKay in the 2018 Budget have impacted on just about every taxpayer in Scotland, in what the government termed the ‘fairest income tax system in the UK’. The income tax proposals were set using four key tests, which were protecting lower paid workers, making the system more progressive, raising additional revenue, and supporting public investment in the Scottish economy. As a result the government claims that 55% of Scottish income taxpayers will pay less tax than they would if they lived elsewhere in the United Kingdom. Of course other parties note the opposite is also true, with 45% paying more than they would if they were elsewhere.

Such changes to taxation will always create difficult trade-offs, and it was bold of the government to take these steps and set up the potential for more radical alterations. When looking back it can be seen that although the referendum of 2014 didn’t trigger independence, it did fundamentally reshape Holyrood’s relationship with Westminster. Taxation is one of the most powerful levers a government has to shape the economy, able to either incentivise actions, like opening your own business, or to redistribute wealth from one part of society to another. By putting these tax powers to use, and yes by paying more, Scotland is setting itself on a new path.

However, although these changes to taxation remain in the air, when it comes to public finance and the challenges associated with expenditure on public services, there is still far more in common between Scotland and the rest of the United Kingdom than there is different. On Thursday and Friday at Public Finance Live Scotland 2019, we will be taking a look at some of the unique stories from the public finance profession in Scotland, as well as some of the shared challenges being faced in the United Kingdom. As well as key note speakers Kate Forbes, the Minister for Public Finance and Digital Economy, and Willie Rennie, Leader of the Scottish Liberal Democrats, there are a range of experts from all across the country on board for the discussion. 

We’ll be learning from a public body which failed and how to be more financially resilient. From developing a capital strategy, or sustainable investment and new technologies, the conference has it covered. There are also practical examples of public finance in action, with presentations from the award-winning NHS National Services Scotland Counter Fraud Services. Underpinning all of this will be the launch in Scotland of the consultation on CIPFA’s new Financial Management Code, which is designed to ensure good financial management, from setting tax to incurring public expenditure. With more than 100 of the top finance professionals in attendance from all over Scotland, I’m looking forward to sharing knowledge, and helping to build new skills and confidence into a country which is right now taking bold steps to decide its own fiscal future. 

This article first appeared in Public Finance.

CIPFA Thinks

0 KB

Download now

Webchat is available Monday to Friday, 09:00 - 17:00 (excluding UK bank holidays).