Meeting of the Parliament (Hybrid)

Meeting date: Wednesday, February 2, 2022

Official Report 1019KB pdf

---

Scottish Income Tax Rate Resolution 2022-23

I remind members of the Covid-related measures that are in place, and that face coverings should be worn when moving around the chamber and across the Holyrood campus.

The next item of business is a debate on motion S6M-03019, in the name of Kate Forbes, on the Scottish income tax rate resolution 2022-23. Members should note that the question on the motion will be put immediately following the conclusion of the debate. I invite members who wish to speak in the debate to press their request-to-speak button now, or put R in the chat function.

16:22  

I draw the Parliament’s attention to the procedural connection between this debate and rule 9.16.7 of the standing orders, which states that a Scottish rate resolution must be agreed before stage 3 of the Budget (Scotland) Bill is able to proceed.

This is the first Scottish rate resolution debate of the new parliamentary session, and it is also the first in our partnership Government with the Scottish Green Party. The passing of the motion will put into effect the rates and bands of Scottish income tax for 2022-23, as set out in the budget on 9 December last year.

As minister with responsibility for public finance, I recognise the vital and dynamic role that tax will have in delivering on our ambitions of building a greener, fairer and more prosperous Scotland. Shortly after the budget, the Government was pleased to publish Scotland’s first framework for tax, which sets out how we will approach tax policy and make decisions on tax over the course of this parliamentary session.

The framework demonstrates our commitment to open government and transparency. As part of that commitment, ahead of the Scottish budget, we engaged extensively with a broad range of stakeholders. I was encouraged to see so many different organisations and members of the public respond to our pre-budget consultation, and I thank them for doing so. Once again, the key message from stakeholders was the need for certainty and stability in the tax system. We heard that message, and we have also been clear that, at a time when living costs are rising, taxpayers in lower income brackets should not pay more tax.

That is why we have proposed no change to the rates of income tax in 2022-23. The starter and basic rate bands will increase in line with inflation, and the higher and top rate thresholds will remain frozen in cash terms at their 2021-22 levels.

The Scottish Fiscal Commission forecast that our decision to freeze the higher rate threshold in 2022-23 will raise £106 million in additional tax revenue. That means that we can invest an extra £106 million in the widest and best-funded range of public services that are available anywhere in the United Kingdom, including universal free prescriptions and tuition fees.

The Institute for Public Policy Research Scotland agreed that our Scottish income tax policy was a welcome measure

“raising much-needed additional funding for public services”.

Income tax accounts for around 30 per cent of the Scottish budget, providing vital revenue for key public services such as our national health service. We have used our limited powers over taxation to support those in society who need it most, and this year is no exception.

While this Government delivers on its commitment to certainty and stability, the UK Government is—perhaps this is an understatement—in a state of chaos, presiding over the most severe cost of living crisis in a generation. The UK Government’s autumn budget offered little respite from that—a hike to national insurance was announced that even the chancellor is trying to distance himself from.

The decision to increase national insurance while reducing the lifeline universal credit uplift last October, despite our representations, is yet another hammer blow to families across Scotland. The people of Scotland deserve better than that.

In direct contrast to the UK Government, the Scottish budget has set out a range of ambitious actions—within our limited resources—to support households and reduce inequalities. From investing £197 million to doubling the “game-changing” Scottish child payment from April, to committing more than £831 million in 2022-23 towards the delivery of more affordable and social housing, it is a budget that delivers for the people of Scotland.

In addition, under the plans that we are putting before Parliament today, the majority of Scottish taxpayers will pay less income tax than they would elsewhere in the UK for the fifth consecutive year.

All that is at a time when Scotland’s block grant faces a cut in day-to-day funding for each year of the spending review compared with 2021-22, in addition to the continuing impacts of Covid-19 and Brexit.

In practical terms, between 2021-22 and 2022-23, resource funding is 7.1 per cent less in real terms. Despite those funding challenges, the Scottish Government remains committed to a fairer and more progressive approach to taxation, raising additional revenue for public services and supporting those on low incomes. Our income tax policy for the coming year delivers on that commitment.

I move,

That the Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2022-23 are as follows—

(a) a starter rate of 19%, charged on income up to a limit of £2,162,

(b) the Scottish basic rate is 20%, charged on income above £2,162 and up to a limit of £13,118,

(c) an intermediate rate of 21%, charged on income above £13,118 and up to a limit of £31,092,

(d) a higher rate of 41%, charged on income above £31,092 and up to a limit of £150,000, and

(e) a top rate of 46%, charged on income above £150,000.

16:28  

As the minister has rightly reminded us, it is the convention of this Parliament under the standing orders that a rate resolution must be agreed before stage 3 of the budget bill process.

Although political parties will inevitably have very different views about tax policy, a restraining order is upon us, which means that, if we voted against the rate resolution, we would, in effect, be preventing tax being collected, with the uncertainty that that would create for taxpayers and for those working on payroll for the next financial year. I am sure that we can all agree, particularly this year, given all the challenges of Covid, that that would be irresponsible and create greater instability and uncertainty. I put on record that we will certainly not oppose the rate resolution, even if we have very different views from the Scottish Government about tax policy.

In recent weeks, the Parliament has witnessed several debates—in the chamber and in committees—about the economic priorities as we continue our efforts to emerge from the pandemic. Despite the different tax policies of the different political parties, I think that we are agreed on what the objective should be: namely, to improve Scotland’s productivity and its labour market flexibility, especially in relation to the skills gap and retraining, and pursuing economic growth—although I am not entirely sure that the Greens share that particular agenda. We shall see.

We are very keen that Scotland remains attractive for investment, which is why we do not want Scotland to be the highest-taxed part of the UK, because that creates disincentives not only for business but for families who want to work and live in Scotland.

On 9 December, we were very pleased to hear the cabinet secretary confirm in her budget statement that the income tax rates for 2022-23 will remain unchanged. We were much less pleased about the adjustment to basic rate bands, which has put 68,000 people into paying more tax. On the Conservative benches, we believe that we need to be extremely careful about any policy that will lead to some divergence, and here is why. I refer to the Finance and Public Administration Committee’s report on scrutiny of the budget, which we have debated several times in recent weeks. It concludes that Scotland’s economic underperformance is “deeply worrying”. That is because the official forecast is that low wages, poor productivity—which, obviously, feeds lower wages—weak investment and changing demographics are having a downward impact on income tax receipts, and that comes at the same time that Scotland’s welfare burden is increasing and there are worries about rising inflation.

The Scottish Fiscal Commission shows us that, for the medium term at least, income tax revenues are not increasing sufficiently fast, as they would have done had income tax remained aligned to UK rates. In other words, our greater tax powers in this place and our higher taxes are not being accompanied—certainly not as yet, and certainly not in the SFC’s forecast—by the increased tax revenues that Scotland so desperately needs.

We also know, of course—I do not know how many times we have said this in the past few weeks—that what is extremely worrying is the net financial gap of £190 million shortfall that we have, and the prediction is that that will rise, possibly, to £417 million in four years’ time. I think that these are very serious statistics, because—

Will the member give way?

Yes.

I wonder whether the member would accept that if we had not raised tax, we would be in an even worse position.

No, I do not accept that and I do not think that that is borne out by a lot of the economic forecasts. There are serious issues regarding the amount of revenue that we are in effect not getting in because of the tax policies of the current Scottish Government. I do not think that what Mr Mason says stands up to the information that we have in front of us.

As my last comment, I want to say something about the fiscal framework. John Swinney and the UK Government signed it in 2016, and the Cabinet Secretary for Finance and the Economy will no doubt have to sign the new one with Simon Clarke in due course. The committee rightly sets out that there are very important issues to be debated. Although we will have very different views about borrowing powers, I think that there is some agreement on some issues on which we can make progress, and we look forward to hearing more from the cabinet secretary, who I know is meeting her counterparts very shortly.

The finance committee report was both comprehensive and very hard-hitting. It gives the Parliament an awful lot to think about. In the meantime, there is the legislative requirement to pass the rate resolution.

I call Daniel Johnston, who joins us remotely.

16:33  

Similarly to Liz Smith, I would reflect that this is in some ways an odd debate, but it is a very important one. Although it might be a little hypocritical for me, while sitting at home, to remark on the lack of people who are sitting in the chamber for the debate, it is perhaps a regret that there is not more interest in it. It might be about a technical requirement, but matters of taxation are hugely important and we need more discussion of these matters rather than less.

Let me also start with some points of agreement. I think that the Scottish Government is correct to leave the rates fundamentally unchanged and to raise the thresholds in line with inflation, thereby alleviating so-called fiscal drag at a time when we seek to both build a recovery and alleviate economic damage. It would be wrong to increase levels of taxation. That approach stands in sharp contrast to that of the UK Conservative Government, which is planning to introduce a national insurance rate rise that will apply to absolutely everybody in the most regressive and cruel fashion, whereas the Labour Party has proposed a windfall tax on utilities, which could be used directly to alleviate the cost-of-living crisis that is resulting from rising utility bills and other costs. I say gently to Liz Smith that her points on Scottish Government policies stand in sharp contrast to the actions of her party’s Government at UK level.

More importantly, we need to look at the detail, not least because of the implications that the comprehensive spending review will have in years 2 and 3, when fiscal plans will be under much greater pressure, and because of the Scottish Fiscal Commission’s insights in recent months on income tax growth.

It is important to look first at the detail of what the Scottish Government has done on income tax. Although I broadly support its progressive approach, not every impact of the changes in the levels is progressive, and nor do the measures go as far as they could. If we look at the impact, we find that those who earn under £25,000 will pay just 65p less tax in 2022-23 than they paid in the previous year, whereas those who earn £25,000 or more will pay £4.57 less. That is not a progressive impact.

More importantly, if we measure ourselves by the standards of the UK Government, we find that, in essence, the levels and rates in Scotland are only marginally more progressive. Those who earn less than £27,850 will pay just £21 less tax in Scotland than those in the rest of the UK. That inflection point is incredibly low. I do not think that £27,850 is a point at which people suddenly become rich. We need to give more consideration to the fact that people in Scotland who earn above that level are paying more tax. We also need to think carefully about whether we could use other tax powers, such as the ability to create new levies that might promote behaviour change with regard to reaching net zero.

More importantly, and to echo some of Liz Smith’s insights but not her prescriptions, we need to look at the longer-term trends that the Scottish Fiscal Commission has highlighted. We have higher rates of taxation for higher earners, but we have lower revenues. We are raising £190 million less through our income tax measures than we would have been if income tax had not been devolved. That is because we have grown our tax base more slowly than the rest of the UK has done.

The explanations from the Scottish Government point to oil and gas and the situation in the south-east of England, but that does not explain the whole picture. Virtually every Scottish region underperformed every other UK region, and Scottish regions certainly underperformed the UK average, in terms of both growth in earnings and the number of employees in the economy.

The explanation involving oil and gas does not bear much scrutiny either. The east of Scotland was the second-worst performing region in the whole of the UK, and it is largely unaffected by changes in the oil and gas sector. The east of Scotland also has many of the things that point to success for the south-east of England. The financial services and tech sectors are just as prevalent in Edinburgh as they are in the south-east, but we are lagging in that area.

I do not pretend that I have the answers, but these are serious issues that need serious examination. We also need to look at the workforce participation figures that we have at a time of labour shortages. Again, we have the supply-side levers in relation to skills and education policy, so we should at least be able to outperform the UK average, even if we cannot necessarily outperform every single region of the rest of the UK.

Those are long-term trends. We need strategic and sustained intervention. We need to acknowledge the relatively limited steps that have been taken to date, and we need to look at the impacts that they have had. However, ultimately, we need to talk much more about tax—both about how we raise it and, more importantly, how we grow wages and in turn grow the tax revenue that we generate so that we can invest in public services.

16:39  

This time last year, the rate resolution was agreed to against the backdrop of a country coming out of a second lockdown. Many millions remained on furlough, and the scale of critical public borrowing was so colossal that tax increases would have been quickly consumed.

Thankfully, we are in a significantly better position now than we were then in respect of the virus, but many people’s personal finances are no less precarious now than they were then. The cost-of-living crisis hangs heavy over the debate. Energy prices, food prices and rail prices are already squeezing people from left, right and centre. Inflation forecasts, the national insurance hike and the potential 50 per cent uplift in the energy cap mean that more pain is to come.

That is why it is important for the income tax system to provide stability at this time. We do not propose substantial changes to the rates and bands of Scottish income tax. Over the parliamentary session, there should be appropriate and affordable indexation of the thresholds.

Systems need time to bed in. There is a lot to be said for allowing alterations to the tax regime to take effect, so that behavioural change can be properly measured. The pandemic’s disruptive impact has made that picture all the murkier.

However, it would be remiss not to recognise the income tax issues that the Parliament will need to navigate—we have heard something of them. Our Parliament is maturing. We have come a long way since John Swinney, as finance secretary, unilaterally allowed Holyrood’s tax-varying powers to lapse in 2007 and did not tell the Parliament that he had done that until 2010.

Scottish Liberal Democrats have fought hard for tax powers every step of the way. Having such powers means facing up to the challenges and responsibilities that come with them, which cannot be avoided. We can look to the Scottish Fiscal Commission, among others, to provide clarity. The SFC points to the pressures that will come from having what it calls

“slightly slower growth in income tax revenue than the rest of the UK but faster growth in social security spending.”

Professor Graeme Roy from the University of Glasgow summarised the problem succinctly for the Finance and Public Administration Committee. He said:

“When the fiscal framework was signed up to and we agreed to have greater devolution, there was an acceptance that risk would be built in around Scotland’s economic performance relative to that of the UK. What has been striking is that, since that devolution of taxes, that risk has all gone in a negative way, in that Scotland has been underperforming relative to the UK as a whole.”—[Official Report, Finance and Public Administration Committee, 14 December 2021; c 28-9.]

What should be additional spending power for the Parliament is being offset by growth in income tax in Scotland lagging behind that in the rest of the UK. We have lower productivity, an ageing population and slow growth in average earnings across Scotland, compared with more rapid growth in earnings elsewhere in the UK, which is underpinned by financial services.

All those issues are structural and cannot be resolved by altering the income tax rates and bands that are before us. How those rates and bands deliver for Scotland will be traced back to how the Government and the Parliament respond to the structural issues.

16:43  

I will keep up the debate’s brisk pace. Given the multiple shocks to the economy from Brexit, the pandemic, spiralling energy costs and the impending rise in national insurance rates that the UK Government is to impose, I welcome the fact that the cabinet secretary has not added another shock to our system. By only increasing the starter and basic rate bands by inflation, she has produced proposals that bring a degree of welcome stability.

A significant and constant challenge is the instability of forecasts. Since the Scottish Fiscal Commission’s previous forecasts in August 2021, its forecasts for income tax revenues in 2022-23 have changed by £400 million. That forecasts can change so significantly in the short run should make us wary of laying too much store by longer-term forecasts.

I have in the past pointed out that forecasting, including from the Office for Budget Responsibility and the UK Treasury, is far from an exact science, and in turbulent times when behaviours at the level of both individuals and businesses can change quickly, forecasting models can often be subject to considerable error. My main message is therefore that we must be particularly vigilant on actual outcomes, rather than investing too much faith in forecasts.

One of the weaknesses that we face, however, is that too much of the tax base overall is not under the control of the Scottish Government. As Paul Johnson of the Institute for Fiscal Studies put it in The Times on 20 December this past year,

“We know from the experience of Scotland and Wales that income tax can be at least partially devolved, as can stamp duty on property transactions. There is no reason in principle why a slew of other taxes shouldn’t eventually be devolved to all three nations.”

Indeed, as chair of the Independent Fiscal Commission for Northern Ireland, he has argued for the devolution of corporation tax, for which I know that some members have argued too.

At a time of public health challenges, we too should reflect on Paul Johnson’s independent view of another area of tax. He argues that

“the devolved governments have responsibility for public health but cannot alter duties on alcohol. That’s one reason Scotland was forced down the route of a minimum unit price for alcohol, increasing the profits of those selling alcohol rather than increasing tax revenues.”

In the here and now, the cabinet secretary does not have the type of flexibility that would allow her to use a wide range of tax powers. Given the constraints and challenges of our times, I fully support the Scottish Government’s proposals on tax as strongly as I disagree with the UK Government’s national insurance hike.

16:46  

As my colleague Liz Smith mentioned in her opening remarks, the Scottish Conservatives will not oppose the rate resolution ahead of the stage 3 proceedings on the Budget (Scotland) Bill. It is a procedural necessity, which means that income tax can continue to be collected in Scotland.

We are a party of lower taxation, but we equally recognise the uncertain fiscal situation that the pandemic has created. Funding the economic recovery must come first.

At first glance, the Cabinet Secretary for Finance and the Economy’s commitment to freeze income tax rates for the year ahead is welcome, especially after the SNP’s outrageous U-turn on its manifesto pledge to freeze the basic rate of income tax in the previous parliamentary session—a U-turn, let us not forget, that both the First Minister and the Deputy First Minister insisted would not happen.

However, the SNP-Green Government’s failure to adjust the higher rate threshold according to inflation means that thousands of Scots still face a de facto tax hike, to the tune of £106 million.

Will the member give way?

I have only just started.

The income tax freeze does not detract from the fact that Scotland is still the highest-taxed part of the UK. The Scottish higher rate threshold might have been maintained at £43,662, but that figure is still significantly lower than the UK’s higher rate threshold of £50,270.

Those in Scotland who earn more than £27,850 will pay more in income tax in the year ahead than if they lived elsewhere in the UK, which means that hundreds of thousands of workers in Scotland who do the same job and earn the same wage have less money to spend than their counterparts in England, Wales and Northern Ireland.

That point comes down to a fundamental political difference. The member states that Scotland is the highest-taxed part of the UK, but 54 per cent of income tax payers in Scotland will pay less tax than if they lived elsewhere in the UK. The member should also recognise that people who live in Scotland are entitled to a range of benefits—free prescriptions, no university tuition fees—that are not available to people who live in England.

I will repeat what I have said—that those in Scotland who earn more than £27,850 will pay more in income tax in the year ahead than if they lived elsewhere in the UK.

The SNP says that its tax system is the fairest in the UK. Our teachers, nurses, and police officers might take a different view. We want Scotland to be a competitive place in which to live, work and do business, especially as we begin to emerge from the pandemic and focus on economic growth. Divergence in the tax regime cannot become a deterrent.

We know, for example, that the UK Government has had to compensate more than 14,000 armed forces personnel posted or based in Scotland, otherwise they would have taken an effective pay cut. I know from my own experience in human resources and industry that organisations will be reluctant to inflict a less favourable tax regime on their staff. That is more important than the other things that have been mentioned.

The reality is that more tax powers and higher tax rates are bringing Holyrood lower revenues. That is the view of the Scottish Fiscal Commission, and it is one that we must take seriously.

Yesterday, the First Minister pointed to further evidence that the threat from Covid-19 is receding. As we emerge from the pandemic, we must address the reasons why Scotland is lagging behind almost all other areas of the UK in key indicators of economic performance, as the Finance and Public Administration Committee highlighted in its budget scrutiny report.

Low growth in Scottish earnings and productivity, boosting labour force participation for young people, and providing adequate skills and training to meet the challenges and opportunities of the future are all issues that must consume our time and energy as policy makers during the current parliamentary term.

16:51  

I quite like talking about taxation policy, so this part of the annual budget process is usually either my favourite part or the bit I really cannot stand. It is my favourite part in the years when we have a substantive discussion about taxation policy, but in the years when we simply rehash chunks of the stage 1 debate, it is quite frustrating. Today, I think that we have erred on the side of a substantial discussion about tax, and I welcome that.

There are some points about this year’s income tax rates that I have made before but I want to make again. However, before I get to that, I would like to make a wider point. I cannot be the only one who is frustrated by the familiar pattern of budget debates in this Parliament. The overwhelming majority of our time is spent discussing, scrutinising and critiquing the spending proposals, with little regard being paid in most years to what we discuss in relation to the rates resolution package. Opposition parties quite legitimately want to see more money being spent on the areas that they prioritise. In last week’s debate, the Conservatives proposed changes that, by my rough estimates, would have cost at least £0.5 billion, and the Labour Party’s suggested changes came to more than £1 billion.

Given what Ross Greer is saying about the importance of this kind of debate, even if not many members seem to be attending it this afternoon, does he think that considering a finance bill alongside the budget bill would be an advantage to the Parliament because it would mean that we could engage in greater scrutiny?

I am grateful for the intervention because that is an interesting proposal, and the Finance and Public Administration Committee should look into it before making proposals about long-term reforms to the budget process.

We have not had a particularly informed public debate in the past few years, and that lets the Government off the hook. It is easy to dismiss Opposition proposals as lacking credibility when they lack credibility, but that was not the case in every year of the last session. Ahead of the 2018-19 budget, there was a collective understanding that a serious discussion about income tax was due, given its recent devolution. All five parties were offered the same opportunity at that point. We could submit a set of income tax proposals and the Fiscal Commission would project how much they were likely to raise. From memory, I believe that four out of the five parliamentary parties took up that opportunity, and the budget debates in that year were all the better for it.

Income tax is not the only revenue-raising mechanism at the Scottish Government’s disposal, so each party did not come out with comprehensive taxation proposals, but they added a depth and credibility to the debate that has been missing in recent years. The Greens certainly found it helpful in our budget negotiations to have a set of figures in front of us that supported our proposals for additional spending, particularly on local government, rather than the imbalance of power that exists when only the Government has access to key pieces of information during the budget process.

I welcome the positive response of the Cabinet Secretary for Finance and the Economy at yesterday’s meeting of the Finance and Public Administration Committee to my proposal that a similar opportunity be afforded to every party on an annual basis, or whenever we set the budget, if we move to multiyear budgeting. I do not think that it is an unreasonable expectation that we should all set out our spending policies and our taxation policies at budget time. That would, at least, be much more interesting than the often tedious and repetitive routines that we have all found ourselves in, and it would nullify the claims that a fully costed proposal is one whose price tag has been worked out, despite no effort whatever having been made to explain where the money would come from.

I am quite sure that, in any given year, various combinations of parties would not necessarily want to make any changes to the existing tax policies, but if those same parties were to propose additional spending, the onus would be even more clearly on them to explain where they would cut spending in order to fund those proposals. Such a system would help the Government and the Opposition. It would challenge all of us to make best use of the Parliament’s powers to deliver for the people who elected us. I would welcome thoughts from colleagues across all parties on that proposal.

Of course, I welcome today’s rate resolution, especially the freezing of the upper bands, which will raise another £106 million for our public services. Given the pressure on public services and the substantial cut to our budget by the UK Government, that additional money will certainly be put to good use.

The Greens support the rate resolution that the minister has proposed.

We move to closing speeches.

16:56  

I am pleased to close for Labour—as I always am—in this important debate on the Scottish income tax rate resolution for the financial year 2022-23.

As was the case last year, the debate comes at a slightly unusual time in the budget process, but I appreciate and understand why the Government has acted in the way that it has, and I welcome the certainty that it will bring to families and businesses as we move forward.

Labour will not oppose the rate resolution tonight, but I caution the Government against taking that as Labour wholly endorsing the budget proposals or, indeed, the income tax proposals that are contained in the resolution. We have concerns about the rates and, in particular, the disproportionate impact that they will have on lower earners compared with higher earners.

According to the Scottish Parliament information centre, people who earn less than £25,000 a year will pay only 65p less tax in 2022-23 than they did the previous year. In contrast, those who earn more than £25,000 a year will pay £4.57 less tax than they did in the previous year. As my colleague Daniel Johnson pointed out, the inflection point here is around £28,000. Even those who are under the threshold of £27,850 will make an annual saving of only £21, relative to those on the equivalent rate in the rest of the UK. We are talking about a very marginal saving and one that is pretty inconsequential, given the alarming rise in the cost of living across the UK. Therefore, although it is technically true that Scotland is somehow the most progressively taxed part of the UK, that claim is marginal and the proposed level of taxation will not make a meaningful impact on the average household.

We face a cost-of-living crisis. With the price of necessities such as energy, food and petrol rising across the board, inflation looks to be on course to hit 6 per cent over the year. That brings with it the prospect of the Bank of England’s monetary policy committee increasing interest rates. In that context, it seems rather bizarre that the Conservatives are griping about Scotland being the highest-taxed part of the UK when their colleagues in the UK Government are proposing to hike national insurance contributions. That is a regressive measure, which will disproportionately hammer those on the lowest incomes.

I do not doubt for a minute that there are serious issues with the cost of living, including the potential increase in national insurance contributions. That is a big concern. However, does Paul Sweeney not recognise that the proposed rise in national insurance contributions will be dedicated to helping the health and social care budgets following the pandemic, to which most parties agreed?

I note the fiscal effects that the pandemic has had, but I recall that, during the election campaign that was fought in 2019, the Conservatives committed to investing in improving social care and the national health service and providing a care service that was fit for purpose while making a commitment not to raise taxes—those improvements were to be funded through borrowing. With borrowing at such low rates—the current rates of interest are negligible—that would seem to be a very worthwhile investment to make instead of hammering the lowest-income households. The Conservatives’ proposed policy of national insurance increases is fiscally regressive and I regard it as indefensible.

On that basis, I think that it is fair that the Government in Scotland is choosing to keep rates broadly in line with where they were last year. However, that should not preclude us from having a serious conversation across civic Scotland about how we view taxation and the priorities for the next few years.

It is evident from the Scottish Fiscal Commission’s December update that the Scottish economy faces several challenges. However, the most pertinent of those is the likelihood of a £190 million black hole in income tax revenues in the coming financial year and a potential £417 million funding gap in the financial year 2026-27. Although I accept that right now—in the midst of a pandemic and the cost-of-living crisis—may not be the time to have a full and frank conversation about tax rates more generally, we will need to do that in the near future, before that potential funding gap hits us. We already see the impact of timid tax policies and unambitious Government fiscal policy. It leads to a £250 million cut to local authority budgets in the coming financial year, cuts to skills and education budgets and a curtailing of investment in public services and infrastructure. We therefore need to have that mature conversation in the coming months and years.

This Government promised to replace the regressive and inefficient council tax in 2007, but it is now encouraging the use of council tax-raising powers to offset the disproportionate cuts that it has imposed on local authorities. The people who are suffering most in all of this are our constituents, many of whom are vulnerable and unsure about how they will navigate the next few years. These income tax proposals will do very little to alleviate their concerns. I urge the Government to bring forward proposals for how we can shift the tax burden away from hard-working families and towards multinational corporations, the top 1 per cent of earners and the owners of large, rent-seeking assets such as land. We should also look towards future technological disruptions, with the transition to electric highways, the move away from internal combustion engines and petrol, and the development of local heat networks, which will move utility ownership to a more local level.

Today is not necessarily the time or place for those detailed discussions, but it is clear that timid and income-centric policies will not result in the revenue that is required to see Scotland prosper. It is therefore a conversation that needs to be had. For the purposes of today, Labour will not oppose the resolution. However, I again urge the Government to avoid taking that as any kind of endorsement of its policies more generally.

I call Douglas Lumsden to speak for up to four minutes, please.

17:02  

Last year, my colleague Maurice Golden closed the same debate for the Conservative Party. In that debate, he commented that:

“There are usually two certainties with a Scottish budget—taxes going up and a pantomime from the Greens, pretending that they might not support it.”—[Official Report, 25 February 2021; c 98.]

Last year, he was pleased that one of those traditions was broken. This year, I am pleased to see that the other one has also been broken. The Greens are no longer a pantomime; instead, they have been fully brought into the circus of this devolved Government, selling local government down the river for a couple of ministerial diesel cars.

As has been said many times, the fact that hard-working, middle-income Scots pay more tax than the rest of the UK is a disgrace. Why should our nurses, teachers, public servants and many more be penalised because of this devolved SNP-Green Government? However, the most disgraceful fact in all this is that all that extra tax that our vital workers are paying is for nothing—it is of no benefit at all for the Scottish budget.

At the Finance and Public Administration Committee on 14 December 2021, Professor Alasdair Smith of the Scottish Fiscal Commission told us that, if Scottish income tax had not been devolved, taxpayers would be better off by £800 million in 2022-23.

Douglas Lumsden said,

“if ... income tax had not been devolved”.

However, does he accept that, if we had not put the rates to what they were, there would be less money and we would have less money for public services and have to cut them?

I am tackling that point, Mr Mason. The whole point is that, if the tax had not been devolved, our taxpayers would have £800 million back in their pockets. That point was made not by me but by Professor Alasdair Smith. It is about having £800 million back in the pockets of hard-working taxpayers, back in our economy and back being spent on our high streets. Tomorrow, we have Labour’s debate on the cost of living. Think how much better it would be to have that money back with families right across Scotland.

Before anyone says that that £800 million is more for the Scottish Government to spend, I am afraid to report that that is not the case. Because our economic performance is lagging behind that of the rest of the UK, that extra taxation is simply to plug the gap in our economic divergence. Alex Cole-Hamilton pointed that out in his contribution.

To be fair, that is not the fault of devolved taxation; it is the fault of the devolved SNP Government and its economic incompetence. The SNP gambled that the Scottish economy would grow faster than the rest of the UK’s. It gambled that oil and gas would pay a pivotal role in economic growth, but then it got in bed with the Greens. The First Minister went for some selfies at the 26th United Nations climate change conference of the parties—COP26—and she turned her back on the oil and gas industry in the north-east. The SNP gambled with millions of taxpayers’ hard-earned cash—and lost.

In 2017, Nicola Sturgeon said:

“I have been very clear that the Government will not increase income tax rates. At a time of rising inflation and pressure on household incomes—especially low incomes—that would not be the right thing to do.”—[Official Report, 2 February 2017; c 10.]

Yet middle-income taxpayers right across Scotland are paying more—much more.

The minister said that he has been talking to businesses.

Will the member give way?

No, I am going to quote the minister first. He said that businesses want “certainty and stability”. I hope that the minister can listen to them. Maybe the threat of another divisive referendum will be taken off the table, to give businesses the certainty that they desire. I will give way.

Mr Lumsden, you are in your last five seconds. Would you like to conclude?

I thought that I had more time.

The Government should be focusing on investing in our local government and the preventative measures that it is at the forefront of delivering. The Government should be investing in infrastructure, not making cuts. It should be protecting the energy industry and helping it to make the transition to renewable energy. It should be levelling up and not levelling down. The SNP-Green Government should be focused on growing our economy.

Please conclude.

Instead, we are at risk of driving away talent, jobs and investment—all things that, post-pandemic, we desperately need in Scotland.

17:06  

I thank members for their contributions. I note that several members commented on the substance and tenor of the debate and said that it was a mature debate. As an MSP taking part in any debate, I am always conscious that there is an inverse relationship between the substance of a debate and its appeal to sketch writers, so I commend Mr Lumsden for trying to give them something to write about.

I want to say something very briefly to Mr Lumsden. We need a mature debate. One of the places where that has to start is on the definition of “middle-income earners”. The majority of people paying income tax in Scotland—

Will the member give way?

I will certainly give way if Mr Lumsden wants to give me the precise definition, from a Conservative perspective, of what a middle-income earner is.

On that point, the minister surely thinks that teachers and nurses should be higher-rate taxpayers, because they are paying more tax under the devolved tax system.

Does the member want another bite at the cherry? He should give me a number. What is the salary of a middle-income earner in Scotland? Does he want to stand up and tell us that?

I could do this all day. Once again, we hear that teachers should be higher-rate taxpayers. We have nurses paying more tax under this devolved Government.

Does that not reveal how out of touch the Conservative Party is? The reality is that the vast majority—54 per cent—of people in Scotland who pay income tax will be paying less income tax than they would elsewhere in the UK, and teachers, nurses and doctors here, unlike their UK counterparts, are not saddled with student loan debts of tens of thousands of pounds. I would just make that point very clear to the member.

In all seriousness, a range of points were made in the debate. One that many members kept coming back to was about SFC forecasts. If time allowed, I would be more than happy to raise some of the other points that members raised today, but I think that that was the central one. Members were absolutely right to express concerns about the SFC’s latest income tax forecasts. It is important to remember that they are independent forecasts and, of course, the SFC is best placed to explain its judgment in detail, but I would like to highlight a number of important factors that members should be aware of. Both the SFC and the Office for Budget Responsibility have previously warned that the continued uncertainty around the pandemic means that there is a significant risk that we will see greater volatility in the forecasts. Michelle Thomson picked up on that.

Furthermore, the negative net position forecast for income tax is partly driven by different judgments that the SFC and the Office for Budget Responsibility take on the outlook for the Scottish and UK economies. The OBR’s forecast of UK income tax receipts also includes the effects of the UK Government’s decision to freeze UK income tax bands until 2025-26, whereas the SFC assumes that Scottish income tax bands will increase in line with inflation.

The minister quotes the Scottish Fiscal Commission, and we could go on to talk about the Fraser of Allander Institute and other economic forecasters. The Finance and Public Administration Committee described the economic underperformance as “deeply worrying”. That is the biggest concern, and that is surely one of the issues that the Scottish Government has to address.

It is important to look at the reality of Scotland’s economic performance under this Government. Our gross domestic product is back to pre-pandemic levels—and the latest statistics show that that is broad based. In December, the Scottish Fiscal Commission forecast growth in the Scottish economy of 6.7 per cent in 2021 and 3.8 per cent in 2022.

On the labour market, Scotland’s unemployment rate is 3.6 per cent, which is lower than the UK rate, according to the latest data. On trade, Scotland is the only part of the UK with a positive trade balance in goods; it exported £4 billion more in goods than it imported in the past year. Scotland has been the top destination in the UK, outside London, for foreign direct investment over the past six years, with Edinburgh, Glasgow and Aberdeen appearing in the top 10 UK cities. We have made tremendous progress since coming to power on narrowing the productivity gap between Scotland and the rest of the UK, and we will build on that work through the national strategy for economic transformation.

I recognise that what we have from the SFC, ultimately, are forecasts, which are volatile. Of course we take them seriously, and we are working constructively with business and other partners to build Scotland’s recovery from the pandemic and ensure that we have growth that translates into earnings and increased income tax receipts in future.

That concludes the debate.

Rule 11.3.1 requires the question on the Scottish income tax rate resolution 2022-23 to be put immediately after the debate. The question is, that motion S6M-03019, in the name of Tom Arthur, on the Scottish income tax rate resolution 2022-23, be agreed to. Are we agreed?

Members: No.

There will be a division. I suspend the meeting to allow access to the digital voting system.

17:12 Meeting suspended.  

17:18 On resuming—  

The question is, that motion S6M-03019, in the name of Tom Arthur, on the Scottish income tax rate resolution 2022-23, be agreed to. Members should cast their votes now.

The vote is now closed.

On a point of order, Presiding Officer. Unfortunately, my voting app is not functioning. I would have voted yes.

Thank you, Mr Robertson. We will ensure that that is recorded.

For

Adam, George (Paisley) (SNP)
Adam, Karen (Banffshire and Buchan Coast) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Allan, Dr Alasdair (Na h-Eileanan an Iar) (SNP)
Arthur, Tom (Renfrewshire South) (SNP)
Baillie, Jackie (Dumbarton) (Lab)
Baker, Claire (Mid Scotland and Fife) (Lab)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Bibby, Neil (West Scotland) (Lab)
Boyack, Sarah (Lothian) (Lab)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Brown, Siobhian (Ayr) (SNP)
Burgess, Ariane (Highlands and Islands) (Green)
Callaghan, Stephanie (Uddingston and Bellshill) (SNP)
Chapman, Maggie (North East Scotland) (Green)
Choudhury, Foysol (Lothian) (Lab)
Clark, Katy (West Scotland) (Lab)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Cole-Hamilton, Alex (Edinburgh Western) (LD)
Constance, Angela (Almond Valley) (SNP)
Dey, Graeme (Angus South) (SNP)
Don, Natalie (Renfrewshire North and West) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dornan, James (Glasgow Cathcart) (SNP)
Dunbar, Jackie (Aberdeen Donside) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
Fairlie, Jim (Perthshire South and Kinross-shire) (SNP)
FitzPatrick, Joe (Dundee City West) (SNP)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Gougeon, Mairi (Angus North and Mearns) (SNP)
Grahame, Christine (Midlothian South, Tweeddale and Lauderdale) (SNP)
Grant, Rhoda (Highlands and Islands) (Lab)
Gray, Neil (Airdrie and Shotts) (SNP)
Greer, Ross (West Scotland) (Green)
Griffin, Mark (Central Scotland) (Lab)
Harper, Emma (South Scotland) (SNP)
Harvie, Patrick (Glasgow) (Green)
Haughey, Clare (Rutherglen) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Hyslop, Fiona (Linlithgow) (SNP)
Johnson, Daniel (Edinburgh Southern) (Lab)
Kidd, Bill (Glasgow Anniesland) (SNP)
Leonard, Richard (Central Scotland) (Lab)
Lochhead, Richard (Moray) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Mackay, Gillian (Central Scotland) (Green)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Marra, Michael (North East Scotland) (Lab)
Martin, Gillian (Aberdeenshire East) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
McAllan, Màiri (Clydesdale) (SNP)
McKee, Ivan (Glasgow Provan) (SNP)
McLennan, Paul (East Lothian) (SNP)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
McNair, Marie (Clydebank and Milngavie) (SNP)
McNeill, Pauline (Glasgow) (Lab)
Minto, Jenni (Argyll and Bute) (SNP)
Mochan, Carol (South Scotland) (Lab)
Nicoll, Audrey (Aberdeen South and North Kincardine) (SNP)
O’Kane, Paul (West Scotland) (Lab)
Regan, Ash (Edinburgh Eastern) (SNP)
Rennie, Willie (North East Fife) (LD)
Robertson, Angus (Edinburgh Central) (SNP)
Robison, Shona (Dundee City East) (SNP)
Roddick, Emma (Highlands and Islands) (SNP)
Rowley, Alex (Mid Scotland and Fife) (Lab)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Slater, Lorna (Lothian) (Green)
Smyth, Colin (South Scotland) (Lab)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Stevenson, Collette (East Kilbride) (SNP)
Stewart, Kaukab (Glasgow Kelvin) (SNP)
Stewart, Kevin (Aberdeen Central) (SNP)
Sweeney, Paul (Glasgow) (Lab)
Swinney, John (Perthshire North) (SNP)
Thomson, Michelle (Falkirk East) (SNP)
Todd, Maree (Caithness, Sutherland and Ross) (SNP)
Torrance, David (Kirkcaldy) (SNP)
Tweed, Evelyn (Stirling) (SNP)
Villalba, Mercedes (North East Scotland) (Lab)
Whitfield, Martin (South Scotland) (Lab)
Whitham, Elena (Carrick, Cumnock and Doon Valley) (SNP)
Wishart, Beatrice (Shetland Islands) (LD)

Abstentions

Balfour, Jeremy (Lothian) (Con)
Briggs, Miles (Lothian) (Con)
Burnett, Alexander (Aberdeenshire West) (Con)
Cameron, Donald (Highlands and Islands) (Con)
Carlaw, Jackson (Eastwood) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Dowey, Sharon (South Scotland) (Con)
Findlay, Russell (West Scotland) (Con)
Fraser, Murdo (Mid Scotland and Fife) (Con)
Gallacher, Meghan (Central Scotland) (Con)
Golden, Maurice (North East Scotland) (Con)
Gosal, Pam (West Scotland) (Con)
Greene, Jamie (West Scotland) (Con)
Gulhane, Sandesh (Glasgow) (Con)
Hamilton, Rachael (Ettrick, Roxburgh and Berwickshire) (Con)
Hoy, Craig (South Scotland) (Con)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Kerr, Liam (North East Scotland) (Con)
Kerr, Stephen (Central Scotland) (Con)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Lumsden, Douglas (North East Scotland) (Con)
Ross, Douglas (Highlands and Islands) (Con)
Simpson, Graham (Central Scotland) (Con)
Smith, Liz (Mid Scotland and Fife) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Webber, Sue (Lothian) (Con)
Wells, Annie (Glasgow) (Con)
White, Tess (North East Scotland) (Con)
Whittle, Brian (South Scotland) (Con)

The result of the division on motion S6M-03019, in the name of Tom Arthur, on the Scottish income tax rate resolution 2022-23, is: For 89, Against 0, Abstentions 29.

Motion agreed to,

That the Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2022-23 are as follows—

(a) a starter rate of 19%, charged on income up to a limit of £2,162, 

(b) the Scottish basic rate is 20%, charged on income above £2,162 and up to a limit of £13,118, 

(c) an intermediate rate of 21%, charged on income above £13,118 and up to a limit of £31,092, 

(d) a higher rate of 41%, charged on income above £31,092 and up to a limit of £150,000, and   

(e) a top rate of 46%, charged on income above £150,000.