The next item of business is a debate on motion S4M-10079, in the name of John Swinney, on the Revenue Scotland and Tax Powers Bill. I say to members that we are extremely tight for time all afternoon.
14:20
The Revenue Scotland and Tax Powers Bill is the third of three Scottish tax bills that have been introduced in this parliamentary session. The first two are now on the statute book: the Land and Buildings Transaction Tax (Scotland) Act 2013 and the Landfill Tax (Scotland) Act 2014.
The bill that we are considering has two main purposes. First, it establishes revenue Scotland as the tax authority that will be responsible for collecting and managing the two devolved taxes when they come into operation on 1 April 2015. Secondly, it sets out in one place the statutory framework in which revenue Scotland will operate. That includes revenue Scotland’s constitution, the relationship between the taxpayer and the tax authority, revenue Scotland’s investigation and enforcement powers, and the new two-tier Scottish tax tribunals, which will hear appeals against decisions that revenue Scotland has taken. It also includes a robust and distinctive approach to tackling tax avoidance, about which I will say more in a few moments.
All the provisions in the bill are designed to facilitate the collection and management of the two devolved taxes for which the Scottish Parliament will become responsible on 1 April 2015. In the process, we are also putting in place an overarching statutory framework that could readily be adapted if the Parliament took on responsibility for further tax powers in due course. It is therefore very important that we get the bill correct.
I am grateful for the detailed and thoughtful scrutiny that the Finance Committee has given the bill at stage 1. The committee took evidence from a wide range of expert witnesses from the legal and tax professions, among others, and from a number of eminent academics, such as Professor James Mirrlees. The committee’s report is extremely helpful. Its conclusions and recommendations will allow us to improve the bill at stage 2.
I am struck by the wide consensus across the political spectrum about the approach that we propose to adopt to the collection and management of the devolved taxes and to combating tax avoidance as vigorously and effectively as possible. With that in mind, I will address some of the issues that the committee highlighted in its report.
Part 2 of the bill provides for the establishment of revenue Scotland as an office-holder in the Scottish Administration, which means that it will be directly accountable to the Parliament, not ministers. The bill sets out revenue Scotland’s statutory functions and, in doing so, it emphasises the provision of a service to taxpayers as well as the collection of the devolved taxes.
The bill places a duty on revenue Scotland to prepare and publish a charter that sets out the standards of behaviour and values that will be expected of taxpayers and which taxpayers can expect of revenue Scotland. As recommended by the committee, I propose to lodge amendments at stage 2 that will require revenue Scotland to consult on the charter and any revisions that require to be made and will underline our intention for the obligations between the taxpayer and the tax authority to be matching and reciprocal.
A particular issue that the committee considered is whether revenue Scotland’s chief executive should be a member of its board. As the bill stands, the chief executive is not to be a board member, because it is the board’s responsibility to hold the chief executive to account. However, I know that views differ on that and that there are different models for operating such boards. If there was a consensus that the board would operate more effectively if the chief executive was a member of it, I would be happy to lodge amendments to that effect. I look forward to listening to members’ perspectives and points in today’s debate and at stage 2.
Part 4 establishes the tax tribunals, which will comprise a first tier and an upper tier under the leadership of a president. As colleagues will be aware, the Parliament recently passed the Tribunals (Scotland) Act 2014, which paves the way for the establishment of the new unified Scottish tribunals. The intention is that, in due course, the tax tribunals will become part of the new unified Scottish tribunals. However, it is necessary to have arrangements in place to hear appeals about the devolved taxes from 1 April 2015, so we need to establish self-standing tax tribunals for an interim period, until the new unified arrangements are fully operational.
Part 5 sets out a new general anti-avoidance rule—the GAAR. I have made it clear that we intend to take the toughest possible approach to tax avoidance in relation to any devolved taxes. I emphasise that I mean all tax avoidance, not just the more extreme cases of abuse, which are covered by the United Kingdom general anti-abuse rule. I am pleased that the robust approach that we have adopted was unanimously endorsed by the Finance Committee. It is important that the Parliament sends out the strongest signal possible that artificial tax avoidance is not acceptable behaviour and that effective action will be taken to counteract any such schemes.
With that in mind, the GAAR that is set out in part 5 provides revenue Scotland with power to take robust counteraction against artificial tax avoidance schemes. The bill provides two separate definitions of artificiality—condition A and condition B—to make sure that our approach is as wide ranging and as comprehensive as it can be.
In order that I can fully understand what is intended by the general anti-avoidance rule, will the cabinet secretary indicate whether a corporation that pretended not to be doing business in this country but simply to be providing services for its counterpart—one based in Luxembourg, for example—would fall foul of the general anti-avoidance rule?
Patrick Harvie will appreciate that it is impossible for me to give detailed tax advice in the chamber. However, I will set out for the Parliament’s benefit the definitions of artificiality that will be applied. I think that that will give him significant comfort that the Government has gone into the legislation with the intention, objective and aspiration of ensuring that we set the highest possible standards. As I have said to the Parliament before, if, in the detailed scrutiny of the bill, the Parliament believes that the Government could take further action to establish a more robust position in tackling tax avoidance, I will consider any measures of that type, make the appropriate judgments and advise the Parliament accordingly of the terms of my responses.
I want to press the cabinet secretary a bit further on that. Closer to home, we have Amazon in Dunfermline. Does he think that Amazon would pay more tax under his regime?
As Mr Rennie will be aware, the taxes for which I will have responsibility will be the land and buildings transaction tax and the landfill tax. If Amazon were to be responsible for any transactions involving the land and buildings transaction tax or any activities relating to the landfill tax, I would expect it to fully and comprehensively meet its obligations under the legislation that the Parliament has already passed and under the Revenue Scotland and Tax Powers Bill, which I hope that the Parliament will pass.
In my response to Patrick Harvie, I said that I would address the contents of conditions A and B. Under condition A, revenue Scotland will be able to take counteraction where a tax avoidance arrangement is not a reasonable course of action, having regard to the principles and policy objectives on which the relevant tax legislation is based, and having regard to whether the arrangement is intended to exploit any shortcomings in that legislation. That will allow revenue Scotland, the tax tribunals and the courts to look at the spirit and intention of tax legislation, not just the strict letter of the law, to defeat ingenious but artificial and contrived avoidance schemes. Those remarks are particularly relevant to the point that Patrick Harvie raised.
Condition B allows revenue Scotland to take counteraction where a tax avoidance arrangement lacks commercial substance. It also sets out a number of hallmarks of arrangements that lack commercial substance—for example, if they are carried out in a manner that would not normally be employed in reasonable business conduct or which consists of transactions that are circular in nature.
I have made it clear that I welcome any suggestions for toughening the GAAR still further. I am therefore happy to accept the Finance Committee’s recommendation that the test of commercial substance should be extended to tax avoidance arrangements that lack either economic or commercial substance. We will also provide that a further hallmark of arrangements that lack economic or commercial substance is where the arrangements result in a tax advantage that is not reflected in the business risks undertaken by the taxpayer.
I believe that the approach that we have adopted to tackling tax avoidance is based on a straightforward commonsense test that ordinary taxpayers would understand and endorse. I note that when Michael Clancy gave evidence to the Economy, Energy and Tourism Committee on behalf of the Law Society of Scotland, he commented that the GAAR provisions in the Revenue Scotland and Tax Powers Bill were
“much better ... less complex and should prove to be more effective”—[Official Report, Economy, Energy and Tourism Committee, 19 March 2014; c 4205.]
than the corresponding general anti-abuse rule in the UK Finance Act 2013.
Throughout the bill, we have tried to strike a balance between the taxpayer and the tax authority. The investigation and enforcement powers that the bill provides for revenue Scotland are therefore fair and proportionate, and they are accompanied by careful safeguards.
A particular feature of the arrangements that we are putting in place is that taxpayers will have various opportunities to challenge decisions taken by revenue Scotland without having to resort to expensive legal action.
First, taxpayers will be able to ask revenue Scotland to carry out an internal review that will be undertaken by a person not associated with the original decision. Secondly, if that does not resolve the dispute, revenue Scotland and the taxpayer will be able to enter independent, third-party mediation, if both parties agree to do so. Finally, there will be a right of access to the new, two-tier Scottish tax tribunals and ultimately, on a point of law, to the Court of Session. I believe that those arrangements are robust and credible and will provide taxpayers with confidence in the administration of devolved taxes.
Part 8 of the bill as introduced set out a penalties regime but left much of the detail to be put in place by secondary legislation. That approach was criticised by both the Finance Committee and the Delegated Powers and Law Reform Committee, as well as by a number of stakeholders. I will therefore bring forward amendments at stage 2 to set out on the face of the bill the detail of the penalties regime in full, including all penalty amounts. At the same time, I propose to provide flexibility to make by order subject to the affirmative procedure changes either to penalty amounts or to the detail of the penalties regime if that should prove necessary in the light of experience. I have already written to the Finance Committee to explain in detail what the purpose and effect of those amendments will be, and I have indicated that I aim to lodge them in good time before stage 2 gets under way.
The process of implementing the Revenue Scotland and Tax Powers Bill will involve putting in place a significant amount of subordinate legislation by 1 April 2015, when revenue Scotland comes into being. It is important that there should be ample opportunity for stakeholders, the Finance Committee and the Delegated Powers and Law Reform Committee to consider the proposed subordinate legislation. I therefore propose to publish a consultation paper later this year, accompanied by drafts of all the subordinate legislation that needs to be put in place by 1 April 2015, to provide that opportunity for consideration well before the relevant orders and regulations are laid before the Parliament in January 2015. We have already published consultation papers in which we set out the proposed subordinate legislation for the land and buildings transaction tax and the landfill tax.
The assumption of responsibility for the collection and management of devolved taxes is a significant opportunity for the Scottish Parliament. I believe that the approach that the Government and the Parliament alike have taken to developing the three tax bills demonstrates the seriousness and maturity of the process. I would like to record my thanks to the various bodies that have contributed to our thinking in assembling the approach that we have taken to the legislation.
I know that members of all parties share the same objective in relation to the bill: to make sure that it provides the best possible framework for the collection and management of the first two devolved taxes when they come in on 1 April 2015 and a solid foundation that can be built on in the event of this Parliament becoming responsible for a wider range of taxes. I am confident that the bill as introduced has got the fundamentals right, but in such a complex area there will certainly be scope to make improvements at stage 2. The Finance Committee has made a number of recommendations that will help us do that, and I look forward to today’s debate in that spirit. I invite the Parliament to approve the general principles of the Revenue Scotland and Tax Powers Bill.
I move,
That the Parliament agrees to the general principles of the Revenue Scotland and Tax Powers Bill.
I call Kenneth Gibson to speak on behalf of the Finance Committee. I inform members that we are tight for time today. You have up to 10 minutes, Mr Gibson.
14:35
I am pleased to speak in this debate and highlight some key areas that the Finance Committee considered during its scrutiny of the evidence at stage 1. As the Cabinet Secretary for Finance, Employment and Sustainable Growth mentioned, the Revenue Scotland and Tax Powers Bill is the third of three bills arising from the financial provisions of the Scotland Act 2012. The Finance Committee was designated lead committee for all three bills. [Interruption.]
Will you lift your microphone, please, Mr Gibson?
Both the Land and Buildings Transaction Tax (Scotland) Bill and the Landfill Tax (Scotland) Bill have now received royal assent and their provisions will come into force next April.
As its policy memorandum states, the purpose of the Revenue Scotland and Tax Powers Bill is to make provision for a tax system to enable the collection and management of devolved taxes. To that end, it establishes revenue Scotland on a statutory basis and puts in place a statutory framework for the devolved taxes, setting out the relationship between the tax authority and taxpayers in Scotland, including the relevant powers, rights and duties.
The committee received a range of useful written and oral evidence from a variety of stakeholders and interested parties, and we received expert advice and analysis of the bill from our adviser, Professor Gavin McEwen. I put on the record the committee’s gratitude to all those who helped us to focus on certain key aspects of the bill, particularly in light of its often complex and technical nature.
I will now address some of the key themes that we focused on in our consideration and highlight in our report. It seems that tax avoidance is never far from the headlines these days, and in an attempt to combat avoidance the bill introduces a general anti-avoidance rule, or GAAR, as we heard from the cabinet secretary. It is intended to grant revenue Scotland broader powers to combat artificial tax arrangements than those that are provided for in existing UK legislation. Given the continuing pressure on public finances, not to mention the notion of fairness to the majority who pay their taxes, the committee welcomes the bill’s approach to tax avoidance.
We reject the position of those who wish to have artificial arrangements. However, as with all such matters, it soon became apparent that there was no straightforward consensus on how best to define artificial arrangements. Several professional bodies, including the Institute of Chartered Accountants of Scotland, suggested that a broadly drawn GAAR might result in uncertainty for businesses and other taxpayers, with the potential to deter investment in Scotland. Others, including the First-tier Tribunal (Tax) member and tax law lecturer Dr Heidi Poon, suggested that a more narrowly drawn, rules-based GAAR would encourage some people to search for loopholes, and they advocated instead a principles-based approach.
Having considered the evidence in detail, the committee was not persuaded that a narrowly drawn GAAR would result in more certainty for taxpayers, and as such we support the approach that is taken in the bill. Nevertheless, we remain mindful of the need for as much additional certainty as possible for taxpayers, and we considered a number of proposals that witnesses put forward to achieve that. ICAS, the Law Society of Scotland and the low incomes tax reform group all highlighted the need for detailed and extensive guidance that sets out the circumstances in which tax arrangements would be considered artificial.
The committee was persuaded of the benefits of that suggestion for taxpayer certainty, and we therefore recommended that revenue Scotland be required to consult widely on the draft guidance on the GAAR before it is published, and on substantive future revisions. The Government expressed sympathy with the thinking behind that recommendation, but it has some practical concerns, such as the circumstance in which changes need to be made at short notice following a court judgment. The cabinet secretary has suggested a possible alternative, by way of including guidance to revenue Scotland in anticipation of such a consultation.
The committee also noted that the bill does not contain provisions that give the GAAR priority over other legislative measures. In order to reinforce the overriding importance of the GAAR, the committee recommended that the cabinet secretary consider introducing such a rule. In his response, he stated that he considered such a rule to be unnecessary in relation to LBTT and the Scottish landfill tax but that it could be considered in the event of the Parliament gaining further tax powers.
No legislation that is intended to deter those who might attempt to avoid paying their taxes in full would be complete without the imposition of a penalty regime for non-compliance. The bill is intended to provide a broad statutory framework to enable the imposition of different penalties depending on the seriousness of the non-compliance and the tax to which it may relate.
Several witnesses raised concerns about the appropriate balance between primary and secondary legislation in relation to the bill’s penalty provisions. Although certain administrative arrangements can be adequately provided for in secondary legislation, we agreed with our witnesses that the primary legislation should contain more detail on penalties.
That view was reflected in the Delegated Powers and Law Reform Committee’s consideration of the bill. The committee’s report recommended that there should be greater clarity on the circumstances that could result in a penalty and the amounts that would apply, along with further detail on enforcement and the right to appeal.
We therefore welcome the cabinet secretary’s commitment to lodge amendments at stage 2 to include
“more detail and greater consistency in relation to penalties on the face of the Bill.”
I look forward to considering those amendments in the coming weeks.
On the subject of penalties, the Finance Committee was mindful that the bill’s primary purpose should be to encourage timely payment of taxes rather than to implement inefficient, and at times costly, bureaucratic arrangements. We heard that, on occasion, penalties for minor or accidental transgressions can cost more to collect than they are worth. As such, we recommended that penalties should be proportionate and should not create unnecessary administrative burdens for revenue Scotland. The cabinet secretary stated in his response that he believes that the amendments that he plans to lodge are consistent with that recommendation. No doubt, the committee will wish to discuss the amendments with him in due course.
The requirement for the tax authority to produce a charter that sets out the standards of behaviour and the values that are expected of revenue Scotland and the taxpayer was welcomed by our witnesses, although concerns were raised. It was pointed out that there was a lack of reciprocity in the bill as drafted, with taxpayers being “expected” to aspire to those standards and values whereas revenue Scotland would simply aspire to them. Some witnesses felt that that form of words implied that more was expected of the taxpayer than of revenue Scotland. We therefore welcome the cabinet secretary’s commitment to amend the bill at stage 2 to ensure that there is “reciprocity of obligations” in the charter.
The issue of the discretion that is granted to revenue Scotland with regard to how and when the charter should be reviewed and republished was also raised, and the committee welcomes the Government’s commitment to amend the bill to oblige revenue Scotland to consult when it updates and republishes the charter.
I turn to the committee’s consideration of the bill’s provisions in respect of establishing revenue Scotland as the tax authority responsible collecting devolved taxes. We heard no criticism of revenue Scotland’s establishment as a non-ministerial department, and the fact that ministers would be prohibited from directing it was welcomed. However, some witnesses questioned whether it would be appropriate for ministerial guidance to remain unpublished in circumstances in which ministers decided that its publication might prejudice revenue Scotland in exercising its functions.
The cabinet secretary assured us that publication of ministerial guidance would be the default position but that he wants to retain the ability to provide confidential guidance in certain circumstances. In order to achieve an appropriate balance, we recommended that, where the Government does not consider publication of its guidance to be appropriate, ministers should be required to write to the committee explaining the reasons for that decision. I am pleased that the cabinet secretary has given an undertaking to that effect.
The rationale underpinning the delegation of powers from revenue Scotland to Registers of Scotland and the Scottish Environment Protection Agency for LBTT and the landfill tax respectively was recognised by our witnesses, although some expressed the view that such delegation should not extend to all powers. The head of revenue Scotland’s view was that a non-statutory formal scheme of delegation, to be laid before Parliament for consideration before the bill takes full effect, would address those concerns. We look forward to considering the scheme in due course.
The bill provides for two tribunals—a first-tier tribunal and an upper tribunal—to hear appeals against decisions that are made by revenue Scotland. The first-tier tribunal will consist of up to three members, and the upper tribunal would have only a single member. Several witnesses expressed doubts about the appropriateness of that arrangement, and the committee welcomes the cabinet secretary’s undertaking to amend the bill to allow more than one member to sit on the upper tribunal when required.
The subject of legal restrictions on the right to appeal a decision of the upper-tier tax tribunal to the Court of Session was also raised. In evidence to the committee, the cabinet secretary stated that
“the appeal mechanism must be fair and must be seen to be fair”.—[Official Report, Finance Committee, 2 April 2014; c 3948.]
We are therefore pleased that he has reconsidered eligibility to appeal to the Court of Session in light of the recently passed Tribunals (Scotland) Act 2014.
Before a dispute reaches the tribunal stage, it is important that attempts are first made to resolve it at a less formal level. The Government suggested informal mediation as a way of achieving that, and our witnesses broadly welcomed that suggestion. However, the independence of a revenue Scotland mediator is of paramount importance, and we have invited the Government to provide further details on how it intends to achieve that. We note that the Government is working with stakeholders to identify options to address the matter, and we await with interest the outcome of those discussions.
I am conscious of time and the need to let other members join the debate, so I will draw my remarks to a close. In summary, the committee has assessed and carefully reflected on the evidence, and—as we state in our report—we support the general principles of the bill. Work remains to be done at stage 2, when we will further consider issues around tribunals and penalties, among other matters.
Given the likelihood that many of the amendments will be of a complex and technical nature, we welcome the cabinet secretary’s undertaking to furnish us with the complete set in good time before stage 2. We also appreciate the efforts of the bill team in that regard.
Looking further ahead, the committee looks forward to considering secondary legislation relating to devolved taxes in the coming months. As members would expect, the Finance Committee will continue to closely monitor implementation and delivery in relation to those taxes as they become embedded in the Parliament’s annual budget scrutiny process.
I look forward to hearing from other members.
14:45
As far as legislation goes, this is more of a series than a one-off. It might not quite be a full box set, but today’s bill is the third in the series, following on from the legislation that we have already passed to introduce the land and buildings transaction tax and the landfill tax. Those taxes were devolved to the Parliament by the Scotland Act 2012, following the recommendations of the Calman commission.
Recently we noted, if we did not quite celebrate, the 15 years since we met as a Parliament for the first time. Those of us who had the privilege of being there on that day know that it felt very much like being part of history, because it was. The fact is that the Parliament still sometimes gets the chance to make a little history, and today is one of those days. Making legislative history can sometimes feel a little duller than it sounds and a little more complicated than is comfortable. I well remember, back in the early days of the Parliament, when we abolished 1,000 years of feudalism. Whatever exciting images of swashbuckling land rebellions that might conjure, it was also a series of very complicated bills, which, by the time that we got to the Tenements (Scotland) Act 2004, had rather lost its revolutionary glamour.
Nonetheless, the bill that is before us today is genuinely historic, creating as it does revenue Scotland, which is to be charged with collecting the first national taxes to be set and collected by the Parliament and the Government that we scrutinise. Einstein once commented that the hardest thing in the world to understand is the income tax. Although we are not dealing with income tax today, but rather landfill tax and the land and buildings transaction tax, they have given the Government and the Finance Committee tricky enough issues to deal with, and they are to be congratulated on their sterling work in that regard.
The cabinet secretary has told us before that his approach to taxation is to return to the first principles, or Adam Smith’s four maxims for a tax system, which are certainty, convenience, efficiency and proportionality to the ability to pay. That seems uncontroversial, but it is not always straightforward to apply those principles in reality. Their application always requires subjective social and political judgments and the conclusion is always open to interpretation and dispute.
What is more, the purpose of taxation has rather widened since Smith was elaborating those maxims. I quote from a particularly fine document—Labour’s devolution commission report:
“The tax system is at the centre of the state and its relationship with citizens, households and commercial organisations. It has evolved over many centuries and is now used for purposes that extend beyond its traditional function of raising revenue.”
A perfect example of that is the landfill tax—one of the two taxes that revenue Scotland is being created to collect—which has been explicitly created to reduce landfill rather than to raise income. That raises some interesting issues around proportionality to the ability to pay, which we debated when legislating for the landfill tax.
The four maxims are certainly the right and principled starting point for the creation of revenue Scotland, but they do not get us out of some of the complexities, difficulties and complications. That was largely illustrated by the considerable debate in pre-legislative scrutiny around the general anti-avoidance rule. The first thing to say is that we agree with the cabinet secretary that the bill requires a general anti-avoidance rule, and we agree that it should be more widely drawn than the equivalent general anti-abuse rule in UK tax legislation. However, that gets us into some of those complexities around the interpretation of a word or phrase. As the cabinet secretary said, we are clearly talking here about avoidance, because tax evasion, which is illegal, will continue to be dealt with under the criminal law.
Having gone for the term “anti-avoidance” rather than “anti-abuse”, as used in the UK legislation, the cabinet secretary had to define what he meant and that took up much of the Finance Committee’s consideration of the bill. The definition given is
“tax avoidance arrangements that are artificial”
and in which
“it would be reasonable to conclude that obtaining a tax advantage is the main purpose, or one of the main purposes, of the arrangement.”
That differs from existing definitions in three ways. It avoids the double reasonableness test—whether it is reasonable that something is reasonable—which seems pretty reasonable and much clearer to me; it uses artificiality rather than abusiveness; and it encompasses arrangements in which tax avoidance is one of the main reasons, not just the sole or main reason, for an arrangement. However, it is worth noting that the committee’s adviser did not think that the last of those was any different from the UK legislation.
In all this, the cabinet secretary has argued that he is trying to widen the net of the GAAR and that he is seeking greater clarity. Although we broadly support all that, we cannot simply ignore the many concerns that were raised in evidence to the committee that those definitions are not clear, and that the result is a lack of certainty for businesses, which is a breach of the first of the four maxims.
I agree with a huge amount of what Iain Gray says. Does he agree that there is a basic tension here? In one sense, if we provide a lot of certainty, we give people the opportunity to find loopholes.
I agree, but I would not want my remarks to imply that we accept that there is not certainty in the GAAR. Rather, as we take the bill through its stages, we are obliged to respond to those concerns as far as we can.
To be fair, the cabinet secretary has started to do that in his response to the committee. He has rejected some of the measures that were suggested to address those concerns, such as disclosure of tax avoidance schemes and pre-clearance of transactions. He quite rightly did that in the chamber today in his response to interventions from Willie Rennie and Patrick Harvie. That makes it all the more important that the amendments that the cabinet secretary intends to lodge at stage 2 are strong enough to provide some assurances on certainty. Those amendments will be welcome, especially those that put penalties on the face of the bill, and they will be subject to scrutiny at stage 2.
I note that the cabinet secretary has accepted the committee’s desire to see wide consultation on the draft guidance, to help with the concerns regarding certainty. I understand that he believes that revenue Scotland must keep the capacity to issue guidance urgently if required, which is reasonable on his part, but he must make clear that that should be the exception rather than the rule.
I return to the bill’s interaction with previous legislation on the landfill tax. In the debates on the Landfill Tax (Scotland) Bill, the Parliament welcomed the extension of SEPA’s powers to enforce tax liability on illegal dumping. That was seen as a major step forward, but concerns were expressed about SEPA’s capacity to enforce such collection. At the time, the cabinet secretary was perhaps a little dismissive of those concerns, but I am glad that he has had second thoughts and has provided for exactly that in the financial memorandum. That is welcome.
We look forward to continuing close examination of the bill as it evolves at stage 2, to see whether it can be made to reflect even more closely the four maxims of certainty, convenience, efficiency and proportionality. We will be pleased to support the general principles of the bill at decision time.
14:54
According to the policy memorandum, the bill
“puts in place a statutory framework which will apply to the devolved taxes and sets out the relationship between the tax authority and taxpayers in Scotland, including the relevant powers, rights and duties.”
There is broad consensus on the bill, and it commanded support across the committee during the stage 1 process. In particular, the bill team ought to be given credit, as it was by witnesses, for the way in which it pulled together the bill and for its attitude since then. Obviously, we will support the bill at decision time.
I will focus most of my remarks on two areas that deserve a bit more scrutiny. The first is the issue of penalties, which many witnesses brought up in evidence. Broadly, their view was that the circumstances, the amounts, the mitigation and other factors to be taken into account should all be set out in the bill. The witnesses were more relaxed about procedure and administration issues, which they felt could be left to secondary legislation. I acknowledge that, in a letter to the Finance Committee, the cabinet secretary said that stage 2 amendments will be lodged and gave a pretty good indication of what those amendments would be.
It is critical that that happens, because the initial approach was not consistent or clear. For some penalties, exact amounts were set out in the bill. For example, section 167 contains the exact amount of £300 and section 169 contains the exact amount of £3,000. However, for many other penalties—at least four of them, including for a failure to make a return or to pay tax—no amount at all is stated in the bill and there is very little information on how those penalties will be dealt with, other than that they could and should be dealt with by secondary legislation.
It is right that the circumstances, amounts, mitigation and other factors should be set out in the bill. It is important that the amendments, when they are lodged, reflect that. It is also important that a consistent approach is taken across the bill. If it is correct to have some amounts in the bill, that ought to be the case for all the penalties. There should not be amounts for some penalties and not even an indication of the magnitude of other penalties. All that said, the cabinet secretary, when he gave evidence prior to writing his letter, suggested that amendments might be forthcoming. The Government and the bill team have listened to the committee and to experts on that issue. We look forward to seeing those amendments when they are lodged in fairly short order.
The second area that I will focus on is one on which there has not yet been movement from the Government, and the cabinet secretary’s letter suggested that the door might be closed on the issue. Nevertheless, the issue was raised by a number of witnesses, so I certainly want to put it on the record. It is the issue of the safeguards that might be brought in along with the general anti-avoidance rule. The convener was right that the committee in its entirety supported the broad approach to the GAAR. However, in my view, if we are to bring in a wider rule, there are strong arguments that safeguards need to be introduced at the same time. The door might be closed, but I hope that the cabinet secretary has an open mind and will not lock it completely.
Broadly, such safeguards could involve an advisory panel, revenue Scotland guidance, the disclosure of tax avoidance schemes or pre-clearance transactions. On revenue Scotland guidance, the Government has listened and I think that an amendment will be forthcoming on the level of consultation that ought to take place. It is important that that guidance is available to and useful for everybody, including those who do not have professional advisers. That point was made particularly strongly by the low incomes tax reform group, which pointed out that not everybody who goes through a transaction will have professional advisers, so the guidance has to be useful to all.
On the other three safeguards, I do not think that the Government is minded to make any changes, but there are good arguments for doing so. On the disclosure of tax avoidance schemes, the Government was at one stage at least considering that, but it is not going to do that because of the resource implications. The DOTA schemes achieved broad support from a number of organisations, including Unison and the Scottish Trades Union Congress. There was a particularly good comment on the disclosure of tax avoidance schemes from Dr Heidi Poon, who gave compelling evidence to the committee. She said:
“If they know that something is there, they can take a look at it. If they do that sooner, less time is spent on it, and it is better for the authority because, if the scheme is discovered years later, time bars may apply.
For multiple reasons, the GAAR and DOTA schemes should go hand-in-hand.”—[Official Report, Finance Committee, 26 March 2014; c 3881.]
I ask the cabinet secretary to reflect on that compelling quotation from that witness. I wonder whether, even at this late stage, the Scottish Government can do something to ensure that there are sufficient safeguards for taxpayers at the same time as it introduces the GAAR.
15:00
I am pleased to be able to take part in the debate. I accept that taxation is not the most exciting topic for everyone, but I find it extremely interesting and the bill is particularly significant for a number of reasons, including the fact that, as some speakers have mentioned, it sets up our own revenue Scotland as an alternative to Her Majesty’s Revenue and Customs. It also sets out the broad framework for future tax legislation and starts to deal with the highly topical issue of tax avoidance.
One of the problems of UK legislation in general and UK tax legislation in particular has been that it overemphasises the letter of the law while almost completely ignoring the spirit of the law. I argue that that is jointly the fault of Westminster legislators and the wider courts and legal system in the UK. As a result of that overemphasis, there have been situations in which the wider public were clear that tax should have been paid, but the taxpayers escaped by using so-called legal loopholes. That is particularly galling for ordinary members of the public, who are subject to the pay-as-you-earn system and have no room for manoeuvre but see the rich and famous paying proportionately much less tax than they do.
Therefore, the aim to have a more principles-based approach is welcome. I accept that we are dealing with a scale of approaches, ranging from more to less principles based. It is not entirely the one or the other, but I welcome the attempt to move in the principles-based direction and, to be fair, the UK is starting to do that as well.
That leads on to some of the evidence that the committee received from witnesses. We heard a lot of evidence from professionals, such as accountants—of which I am one—lawyers and tax advisers. I have to say that, in some cases, it sounded like they were arguing the case for richer taxpayers who were trying to avoid tax. Perhaps that is not surprising as they are the people who pay the bills. All the professions claim to have public interest at the heart of their thinking, but it seems that there is at the very least a tension for them when the clients want one thing and the public interest might be different.
We did not hear many witnesses representing the general public, who might want taxes to be paid properly so that public services are funded properly so, to some extent, it was left to committee members to give that particular angle on the bill. Some witnesses argued that most taxpayers want to pay the correct amount of tax. However, I am slightly more sceptical and would say that most taxpayers want to pay less tax if they possibly can.
Certainty has already been raised and was a major part of the committee’s work. It came up a number of times and is one of Adam Smith’s maxims, which I think that we all support. However, the demand for certainty can also be a smokescreen to tilt matters in favour of those who want to avoid paying tax. We had examples of that.
There was a general request for more certainty but it sometimes seemed that we were being asked to give taxpayers a totally fixed and rigid system so that, if they could find loopholes in it, they would know that those could not be challenged. I do not agree with that argument.
The desire for an advisory panel was similar. It seemed that the intention might be that some richer taxpayers could try pushing the boundaries of what they could get away with and get it approved beforehand so that they would not face any repercussions later. Similarly, the request for definite tax rates a long way ahead seems to me often to be a request to give people more time to juggle their tax affairs so that they can avoid paying the tax that they should pay.
Therefore, broadly speaking, the committee is supportive—I certainly am—of the cabinet secretary’s insistence that we stick to the principles-based approach, including having a wider GAAR than the somewhat more timid one that the UK has.
Legal privilege was an issue that came up at committee, and I would like to touch on that. I am a member of ICAS, and it and the Chartered Institute of Taxation tended to argue for an extension of privilege to other professions, so that there would be more confidentiality for taxpayers, because those professions were, in effect, giving the same advice as people from the legal profession were. I think that there should be a level playing field for all the professions, while accepting that, on explicitly legal matters, there can continue to be professional confidentiality. My preference would be for legal privilege to be curtailed and for all tax advice that is given to be much more open.
Two relatively small taxes are currently being devolved. We have had the opportunity and time to start from scratch but, at the same time, we cannot stray too far away from what our friends and neighbours down south are doing. For example, with regard to landfill tax, we do not want to see waste travelling across the border to find cheaper tax rates.
When we take control of income tax and corporation tax, the challenges will inevitably be greater. We will be inheriting hugely complex rules-based systems that cost the UK more to administrate than is the case in many other countries. Presumably, we will start off having to modify the UK system but will keep the basics in place. However, at some stage, we will have the challenge and the opportunity to write our own legislation for those major taxes from scratch. I look forward to that exercise.
However, the great thing about what we are doing today is that we are setting out a direction of travel. It is not completely different from that of the UK, but neither is it exactly like that of the UK. We want to do things our way and in a way that fits Scotland’s needs. The bill is a good start, and I whole-heartedly support its approval.
15:06
I begin by thanking all those who gave evidence to the Finance Committee on what was a complex issue and by thanking the clerks and the bill team for assisting us as we moved through the complexities of the bill.
Over the past year or so, the Finance Committee has grappled with the outcomes of the Scotland Act 2012 as they relate to new tax powers. The debate around which powers should be devolved can be interesting at times, but for now we must address the legislation that is before us, which is required to bring about the new land and buildings transaction tax and the Scottish landfill tax. The bill will create the framework for establishing the new taxes.
In the debates that we had on the two separate tax bills, I have to say that I was dreading the possibility of becoming bogged down in tedious technicality and prosaic legalistic verbiage. To be fair, there was plenty of both, but there was also the fun of watching lawyers and accountants arguing against one another to see who should have the greater right to make money out of advising people on how not to pay as much tax as they might otherwise. Had we taken evidence on the bill from a librarian and added it to what we heard from the lawyers and accountants, we would certainly have had all the information that we needed, but we would not have understood a word of it.
In truth, though, all the witnesses we heard from recognised that the bill is well drafted and in general delivers what is expected of it, so great credit is due to the team that prepared it. The fact that the lawyers as well as the accountants were left slightly disappointed is the best indicator that I could see that the right balance has been struck.
It was probably inevitable that in our evidence sessions most of the attention focused on the general anti-avoidance rule. It appears to be sufficiently robust for us to have confidence in it but, as is ever the case, much will depend on the guidance and regulations that follow. Of course, there can be no guarantees that a good tax accountant could not still have a loophole named after them.
Mr Swinney has underlined again today the Scottish Government’s intention to take a tough stance on tax avoidance and there is a widespread welcome for that, and an acceptance that the approach must be robust. However, I remain uncertain that the cabinet secretary has clarified entirely that principles-based drafting of any future Scottish taxes will alleviate the need for a targeted anti-avoidance rule in respect of the taxes. We took plenty of evidence on that.
I understand that it is desirable to keep complexity out of reliefs and exemptions, and there is a strong view that that will minimise the scope for avoidance activity, but I remain sceptical that parliamentary statements and guidance on the intention behind tax legislation are sufficient to ensure that tax tribunals and the courts can impose the spirit as well as the letter of the law. That will depend on how the board and related bodies work with one another. The committee asked whether it could get further clarification and we still require to explore that issue further.
That is not to say that I believe that the bill is flawed; it was merely a comment on a difference of opinion on the desirability of relying solely on the GAAR rather than having a plan B, and a targeted anti-avoidance rule. If we had a TAAR from the outset, we could look forward to the devolution of more tax powers over time and be confident that a principles-based rather than a rules-based approach could be developed as we move forward.
There has been much discussion this afternoon about Adam Smith’s maxims and the principles-based approach. That leads me to a small point that I raise in order to bring something different to the debate. It is not a serious disagreement with the cabinet secretary, but he is aware that I think that he is wrong in his decision not to include the amount of tax that Scots will pay through the Scottish rate of income tax in their pay slips.
I appreciate that that information will be provided in someone’s P60, but all tax paid can be found on that form. Scots should not have to wait until the end of the tax year to know in respect of the SRIT what they know from week to week or month to month in respect of their income tax. I have no evidence to back up what is nothing more than a gut feeling that there is something inherently wrong in people not being able to see in their pay slip what they are paying in tax. A lot of people have worked on that principle. We all receive our P60s but we also see our pay slips.
Would the member agree that he is deviating somewhat from the subject? The SRIT could not be touched by the bill.
I did say that it was a small point, which was to emphasise the principles, which are accountability and how we know when and how much we are being taxed. I am trying to find something slightly different to say in the debate. I did make that clear.
If we had some consultation, those types of issues would come out. That is the point. We can hold Governments to account in many ways, one of which is by knowing how much we are being taxed. When we talk about a principles-based approach, it is only fair that we consider all of the principles, which includes knowing how much we are due to pay and what penalties we might face if we do not pay it. We have discussed that this afternoon. It is of little significance and it was probably not worth investing time and effort to consult on it, but it is a point of principle that we touched on in our discussions in the committee.
Overall, the bill is fine and will serve its purpose more than adequately. For that reason, we should have no hesitation in supporting its general principles this afternoon.
15:13
This is one of those debates that is, on occasion, rather technical in nature. However, we all know that it is about the precursor to what the Scottish National Party hopes will be an independent Scotland’s revenue-raising tax body. I hope the opposite. However, I am glad that the finance secretary has been converted to the benefits of the Scotland Act 2012. In his press statement today, he emphasises the 300-year historic event of the creation of a new tax body. That is similar to the language that he and others scoffed at when the UK Government signalled the most significant transfer of financial power, from Westminster to Holyrood, in 300 years. I am glad that he is converted to the new language and optimism about the benefits of the act.
I welcome the bill and the creation of revenue Scotland. There is relative consensus across the piece about the benefits of having this new tax body. I note, however, that even before it has been created, it is much more successful than the United Kingdom body. Before any employees are in place or any actions have been conducted, it is much more effective than the UK body.
I was quite interested when John Mason said that what we are doing is not completely different from the UK but we want to do things our way. That contrasts quite starkly with the rhetoric that has been used about aggressive tax avoidance in the UK, as if somehow HMRC is stuck in the past, unable to tackle aggressive tax avoidance by the likes of Amazon and Starbucks and many other companies that we have heard of. However, when John Mason gets down to the detail of exactly how we will implement this new tax body and the principles that will be established he says that it is not completely different, but our way.
In fact, he praised HMRC for making significant progress. He was right, because, with its general anti-abuse rule, the UK Government has managed to make significant progress. There have been 40 changes in tax law since 2010 and many loopholes have been closed. The general anti-abuse rule has meant significant progress and we have got in billions of pounds as a result of it. Often when we hear members in the chamber talk about HMRC, they talk as if it is some defunct body that is incapable of collecting tax. I like John Mason’s phrase, not completely different, but our way.
Will the member take an intervention?
Will the member give way?
I will take an intervention from John Mason, given that I referred to him.
I appreciate the member referring to me, but he slightly overstates my enthusiasm for HMRC. Does he accept that there is still a key difference between anti-abuse legislation at Westminster and our wider anti-avoidance legislation?
I accept that there is a difference and that our legislation goes further. The concerns of ICAS and the Law Society of Scotland need to be taken into account, because if we are to take a much more assertive approach to dealing with tax avoidance, we have to consider the potential consequences. There is no point going into this new measure blind, thinking that there will be no shift of investment from Scotland to elsewhere as a result of a less lucrative environment for some people who would like to invest. I would like the finance secretary to address that in his closing remarks. What does he think about the validity of the points that ICAS and others have made? I do not mean whether what they suggest will come to pass and whether they are right about uncertainty having an effect on investment but, rather, if they are right, what measures he has in place to deal with those consequences. There is a concern that if they are right in believing that the broader, inclusive approach to dealing with tax avoidance will create uncertainty, that will have an impact on the budget.
Again, this is about a precursor to the independent revenue body that the SNP is expecting to come about. A figure of £250 million has been arrived at. I would like to know from the finance secretary exactly how that figure was calculated. Who are the people who are not paying tax currently but who will pay as a result of the measure? I like to deal in practicalities. I like to see the examples of who these new measures will catch.
The reality is that, as we have seen in New Zealand, creating a new tax body would be expensive. Sometimes making something simple is more costly and, therefore, it would have an impact on our budgets, too. That is why it is important that we deal not just with the upsides of creating a new tax body and a new tax system that is much more simple and less complex but with the consequences for investors and people who are trying to avoid tax. What would be the impact on our budgetary system and, therefore, on the budget for an independent Scotland?
Those are the questions to which I would like to hear answers from the First Minister—sorry, the finance secretary; he is not the First Minister yet. I would like to get some answers to the concerns that ICAS has drawn to the attention of the committee and the Parliament.
15:19
I suppose that this bill is probably not viewed as the most exciting piece of legislation ever to come before the Parliament—certainly my mail bag has not been bursting at the seams with letters from constituents on the subject—but it is an important bill nonetheless, and I am very glad to have been part of the Finance Committee’s scrutiny of it at stage 1.
This is the third bill that relates to taxes that have been devolved to the Parliament, as has been said, and it complements the two previous parliamentary acts and is necessary in establishing the structure for revenue Scotland, which will be responsible for the collection of those devolved taxes.
I turn to a few specific points in the bill. The general anti-avoidance rule has already been mentioned. I am very supportive of the Scottish Government’s principles-based approach, which is the effective way forward. Although it probably cannot be said that most people relish paying their taxes, I think that most people accept and understand the need to do so, even more so when they feel that others are not avoiding paying their taxes. The approach is effective and the best way forward.
At stage 1, we received evidence that some perhaps did not agree with that. For example, ICAS argued that there is
“no certainty at the moment on the real impact of the GAAR”.
It felt that it failed Adam Smith’s maxim about certainty. Surely if the expectation of the Scottish Government and its agency, revenue Scotland, is that no individual organisation should engage in avoidance, I cannot see what is uncertain. The convener of the Finance Committee referred to Heidi Poon’s evidence to the committee, which was very illuminating. She suggested that
“A more principles-based approach would give more certainty”.—[Official Report, Finance Committee, 26 March 2014; c 3870.]
Therefore, I support the approach that is being taken.
I was quite relaxed about how many of the penalties were to be determined by secondary legislation. After all, such penalties would have the same effect in law and would be subject to parliamentary scrutiny in the same way as primary legislation is. However, I accept that many bodies that gave evidence to the committee felt that that was an issue. Again, they believed that it was an issue of certainty. I cannot see why, if penalties are in place in the tax system, their being in primary legislation, rather than secondary legislation, makes things more certain, but I recognise that organisations raised concerns. In that context, we should welcome the Scottish Government’s lodging of amendments to put more detail in the bill, which can be amended in future by affirmative instrument. That is a sensible compromise, and I look forward to reviewing the amendments at stage 2.
The charter that revenue Scotland will prepare will, of course, set out the standards that it will operate to and the standards that will be expected of taxpayers. Two issues were identified early on with the bill as drafted. It said that the charter would set out what revenue Scotland would aim to do, but what was expected of the taxpayer. I think that the committee as a whole and certainly a number of witnesses felt that that did not seem equal or reciprocal. To be fair, I think that the bill team accepted that the wording could have been better. I was glad that the cabinet secretary confirmed that an amendment will be lodged to ensure that that is changed. Witnesses also had a strong desire for consultation on the charter. Again, it is welcome that the cabinet secretary has confirmed that an amendment will be lodged to that effect.
The issue of revenue Scotland’s membership has been raised, particularly whether the chief executive should be on the board. The cabinet secretary mentioned that, and a few witnesses raised the issue during stage 1 scrutiny—I emphasise that a few witnesses raised it; most did not have anything to say about it. Those who raised it seemed to view it as important that the chief executive should be on the board to maintain contact with board members. It is clear and self-evident that it would be important for the chief executive to do that.
The cabinet secretary asked for views on the matter. My view is that the issue is a little overblown. It is clear that, in any organisation, it would be perfectly acceptable for the chief executive to attend any board meeting without their being a member of it. There are circumstances in which that could be an advantage. If the board had to discuss the chief executive’s position, that might be easier to do if they were not a member of the board. I think that the needs of those who said in evidence that the chief executive should be a member of the board can be achieved without the chief executive being a member of the board. Therefore, I support the bill’s present approach.
The last issue that I will raise very briefly is a minor one: the names of the tribunals. The Faculty of Advocates is concerned that the tribunals’ names are very similar to those of the UK tax tribunals and, understandably, it felt that that could cause some confusion. I hope that we can look at altering the names at stage 2.
Overall, I very much welcome the sensible approach taken in the bill. I look forward to further scrutinising the bill at stage 2 with Finance Committee colleagues.
15:25
As other members have reminded us, this is the third prong of a set of legislation that will see devolution of new revenue-raising powers to Scotland. The bill will give us our first body for management of taxation, and a statutory framework on which effective devolution of taxation will be based, whether or not that is under independence—as I know some members would want it to be. However, I note that ICAS has said today that an entirely independent taxation system would be a rather costly option.
The general anti-avoidance rule is at the heart of the bill and it should be informed by the principle of fairness. However, I want to make a few other points in relation to fairness before turning to the GAAR.
Section 10 of the bill requires revenue Scotland to prepare a charter that must include separate
“standards of behaviour and values”
for revenue Scotland and the same for taxpayers. It is not particularly fair that the bill includes separate obligations for revenue Scotland and for taxpayers, so I welcome the cabinet secretary’s announcement about reciprocal obligations, as well as his commitment to consult on the charter’s terms.
The issue of penalties is also important in respect of fairness. The committee recommended
“more detail and greater consistency in relation to penalties on the face of the Bill”.
I welcome the cabinet secretary’s announcement that he will set out the details of the penalties on the bill.
I will mention two other aspects that are related to fairness. First, a vigorous approach to tax avoidance must be balanced by a fair appeals system. I raised that issue with the cabinet secretary at committee; the committee recommended that he
“reconsider the restrictive rule governing appeals”
to the Court of Session, and the number of members of the upper tax tribunal for appeals. He has not mentioned those issues; perhaps he will do so when he winds up.
Finally, before I turn to the GAAR, I believe that if we are to found a taxation system on the principle of fairness—a lot of discussion took place on this, and I do not have a particular view about the extent to which advice should be privileged—the provision on what is and what is not privileged advice should apply equally to all advisers, whether or not they are lawyers.
The general anti-avoidance rule is widely accepted as being a more thorough approach to reducing the blight of tax avoidance than has been a feature of previous UK arrangements. The bill will allow revenue Scotland to counteract tax avoidance arrangements based on whether the arrangements pass a test of artificiality. The proposed Scottish GAAR will thus be wider than the UK general anti-abuse rule, which targets only abusive arrangements.
On the whole, the GAAR is a positive measure that the committee welcomed. However, its wide scope has also caused concerns for bodies including the Law Society of Scotland, which emphasised the need to protect taxpayers’ rights. It is among a number of voices that are calling for an independent advisory panel to take an informed view of individual disputed cases. It is interesting that the Scottish Trades Union Congress did not object in principle to such a panel, but it made the point that were such a panel established, the personnel on it would have to be very widely representative—more widely representative than those on the equivalent UK panel. The committee did not support the introduction of an advisory panel; I was happy to go along with that recommendation. However, it recognises the need for additional protection for taxpayers.
A further issue on the general anti-avoidance rule concerns clarity on the definition of what is reasonable and the test that is applied to measure that. For purposes of certainty, which is a guiding principle of an effective taxation system, the widely drawn GAAR requires the definition of reasonableness to be as clear and unambiguous as possible. However, what is reasonable to one person may not be reasonable to another. That is why HMRC applies a double or second reasonableness test. I found myself in committee saying that—perhaps to my own surprise—the double reasonableness test is quite reasonable. However, the committee did not go along with the idea of a double reasonableness test.
One way to provide certainty in that regard is to enshrine in the bill clear principles on what is considered reasonable. As Dr Poon told the committee:
“certainty is not conferred by whether the GAAR is widely or narrowly drawn”—[Official Report, Finance Committee, 26 March 2014; c 3870.]
The cabinet secretary’s indication that the bill will enshrine clear principles of tax compliance was broadly welcomed by the committee.
The inclusion of more targeted measures would simply create a build-up of rules that would allow opportunities for loopholes to develop, as Justine Riccomini and Heidi Poon agreed. That has been the case with the current United Kingdom system.
The committee said that, in the interests of fairness, revenue Scotland should
“consult widely on a draft of its guidance on the application of the GAAR”.
I think that the cabinet secretary has indicated that he will go along with that recommendation. In general, we should appreciate that he has responded positively to several of the committee’s recommendations.
We want to preserve revenue Scotland’s independence. The committee recommended that guidance from the Government to revenue Scotland should be published. I think that the cabinet secretary has accepted that, with some qualification.
This is an opportunity to create a mechanism that functions effectively, in relation to the taxes that we will receive in this Parliament and changes that take place in the future. It is the start of a long-term project, which will require watertight legislation that is built on clear and unambiguous values and principles. The bill is a reasonable start.
15:31
I welcome the opportunity to speak in this debate on the important—if slightly dull—subject of taxation.
The United Kingdom as a whole raises about 35 per cent of gross domestic product in taxation. In Scotland, council tax and non-domestic rates, which are the only fully devolved taxes, account for 6.9 per cent of tax revenues. Given the limited powers that we have, the Revenue Scotland and Tax Powers Bill represents an attempt to redress that state of affairs. The bill’s provisions on collection and management of the land and buildings transaction tax and the Scottish landfill tax will, I hope, raise the tax take to 7.5 per cent of revenues, which would be a small step in the right direction.
Taxation is fundamental to modern states and to provision of public goods and services. The Organisation for Economic Co-operation and Development average for tax revenues as a percentage of gross domestic product is about 34 per cent, which means that the UK’s 35 per cent is slightly above the average. We know that almost 70 per cent of Scotland’s revenue comes from income tax, VAT, national insurance contributions and North Sea revenue but, of course, that income is filtered through Westminster, and the Scottish Government has minimal flexibility in that regard. Only independence would enable us to take charge of our own tax affairs.
The land and buildings transaction tax is expected to improve significantly on the stamp duty system that it replaces. Each rate of LBTT will apply only to the part of the sale that is above the corresponding threshold. I hope that all members agree that that is much fairer than the stamp duty system, which applies to the entire sale price. The stamp duty system inevitably results in major discrepancies in relation to transactions on either side of the price threshold: an increase of just £1 on a house price can result in a tax bill that is thousands of pounds higher.
Furthermore, stamp duty has been criticised because it can lead to the bunching of house prices, given that buyers are understandably keen to avoid paying it. The end result is a skewed pricing structure. In 2007, more than 3,500 houses in the £125,000 band were sold, compared with just over 1,500 houses in the £135,000 band. It is clear that changes need to be made. I look forward to next year’s introduction of the land and buildings transaction tax, which is a progressive tax that will be fair for all.
The creation of a general anti-avoidance rule is an important step in our efforts to combat tax avoidance. Recent stories in the media demonstrate that the issue is not going away. It is the Scottish Government’s responsibility to ensure that all devolved tax is paid on time, fairly and in full, especially given that we cannot rely on the Westminster machinery to close loopholes on our behalf. The importance of tackling tax avoidance cannot be overstated. To put it simply, tax avoidance reduces our public revenues and can fundamentally undermine public confidence in our tax system.
The bill will see the introduction of a 10 percentage point Scottish rate of income tax, which will reduce the budget by 10 per cent, but will allow the Scottish Government to decide whether to replace the lost revenue via that income tax. Although that measure will allow some flexibility, it has been criticised by the Institute for Fiscal Studies, which said:
“while the Scottish parliament will be able to decide that income tax ought to be higher or lower overall, it will not be able to change the balance of liabilities between taxpayers at different income levels or with different types of income ... The SRIT will also prevent Scotland from reducing just the higher or additional rate of income tax as a form of tax competition to attract high-income people (and the revenue that accompanies them) from the rest of the UK. The SRIT is far from giving Scotland full autonomy over income tax policy.”
That raises a critical issue with the bill, which is that the Scottish Government is working within the confines of the Scotland Act 2012.
Has income tax got anything to do with the bill?
As the bill is about devolution of tax powers, it is reasonable to make the point that I made.
I said that the amount of fully devolved tax that we can raise will increase by only 0.6 of a percentage point, which is a drop in the ocean in comparison with what we could do in an independent Scotland. As the Institute for Fiscal Studies notes, the bill is rigid and inflexible and will not allow the Scottish Government to create a balanced tax regime. We cannot fully benefit if we lack control over revenue and expenditure.
We can take positives from the bill. The land and buildings transaction tax will implement a much fairer system for home buyers. The establishment of revenue Scotland as its own department with legal status will provide the basis of a tax collection agency in an independent Scotland. We should therefore regard the bill as a beginning and we should look forward to what can be achieved under independence.
At the moment, we rely on the UK tax system, which features more than 10,000 pages of legislation. That makes it one of the world’s longest tax codes. Numerous commentators have noted that an independent Scotland would have the opportunity to create a simpler and more lucid tax system. Another benefit of such a system would be reduced administration costs, which would bring Scotland into line with comparable countries including Finland, Sweden and Denmark.
You should draw to a close.
Alongside the introduction of the Scottish general anti-avoidance rule, a simplification of the tax system would—through streamlined reliefs and reduction of compliance costs—reduce the potential for avoidance. The Scottish Government aims to increase revenue by £250 million a year by the end of the first session in which it operates through simplifying and streamlining the tax process. That is a substantial sum of money that will add considerably to the Scottish Exchequer.
You should close, please.
I broadly welcome the introduction of the bill, which has some measures that will be of undoubted benefit. However, the only way in which we can truly progress our tax system is under independence.
15:37
Like most members, I welcome the debate and will support the bill at stage 1. I am not sure that all my SNP colleagues will agree with me, but I believe that the bill is yet another example of devolution’s success, both in principle and in practice.
I will make a couple of observations about the context in which the bill will operate and will ask questions about whether it fully fulfils our intentions or objectives. Several witnesses who gave evidence to the Finance Committee talked about the importance of getting our tax regime right. Any tax system has huge potential not just to reflect but to shape our economy, our Government and our country.
The SNP Administration often talks grandly about its radicalism and the transformational change that independence would supposedly bring, and ministers constantly hold up the examples of our Scandinavian cousins—Colin Beattie gave such an example a few minutes ago—and cite their approach to welfare reform. The picture is attractive to many of us, but as many of us know, it is based on an equally radical and different approach to taxation.
However, in practice, the SNP’s approach has mostly been conservative with a small “c”. Its guiding principle appears to be not so much to grasp the opportunity to make a difference as not to rock the boat. I am not saying that it is wrong in taking that approach in this or the two preceding tax bills, but there is a stark contrast between ministers’ words and their actions in the Government. Even with the Revenue Scotland and Tax Powers Bill, ministers’ predominant concern seems to have been about how to devolve the taxes from the UK to Scotland without really changing anything.
Does Ken Macintosh accept that we are considering two very small bills and that, especially with landfill tax, our scope for manoeuvre is quite limited?
John Mason took the words right out of my mouth. I admit that revenue Scotland will be responsible only for the landfill tax and the land and buildings transaction tax, but what happened to the SNP’s plans for a local income tax? That was an election promise, was it not? I would welcome clarification from the cabinet secretary on exactly where we are with the local income tax. Is it officially ditched, or is the SNP maintaining the pretence that it is official policy and will be introduced at some as yet undefined stage?
The cabinet secretary has made much of the Government’s principles-based approach to the establishment of revenue Scotland. The legacy of Adam Smith has been invoked, as have his four maxims: certainty, convenience, efficiency and proportionality. However, as my colleague Iain Gray described in his opening speech—several other members also commented on this—there remain a number of questions about whether the bill could do more on the first of those principles. Certainty matters in taxation.
I will digress for a moment. In the 1960s, Zero Mostel starred in a funny film called “The Producers”, which was remade in 2005. The plot centres on the premise that, with some dodgy accounting, more money can be made from producing a flop show on Broadway than can be made from producing a hit. The film is very funny.
However, as Gary Barlow and other members of Take That have discovered, in reality the public opprobrium that is attracted by taking a similar approach to taxation is not funny at all. The difficulty in such cases comes in distinguishing between tax evasion, tax avoidance and tax management. Just as it is the duty of individuals and companies to pay taxes, so it is the duty of Government to make it absolutely clear exactly how much tax is expected. I do not need to remind members of this, but most Scots were totally shocked when it was revealed last week that Amazon paid only £4.2 million in tax in the United Kingdom last year despite selling goods worth £4.3 billion. The company’s defence—of course—is that that was entirely legal.
I do not want to be morally outraged by the behaviour of those who are not willing to pay their share for the provision of public services; I want to be legally certain of whether they are in the right or in the wrong. The danger with the bill is that it does not necessarily provide that certainty. The issue proved to be the focus of evidence to the committee and, like Iain Gray, Michael McMahon and Willie Rennie, I want to hear from the cabinet secretary how he can address the concerns that were raised by the Chartered Institute of Taxation, the Institute of Chartered Accountants in Scotland and others. It is worth emphasising that Labour members—in fact, the whole Parliament—entirely support the Scottish Government in taking a robust approach to tax avoidance.
To continue the theme of lack of certainty, I note that other aspects of the bill involve subsequent expected actions rather than detailed actions that are set out in the bill. In its submission at stage 1, Audit Scotland highlighted that there are no explicit provisions to cover auditing or accounting of revenue Scotland, although it is crucial that the work of revenue Scotland be open and transparent. I welcome the fact that it will be independent of ministers, but I would like to know what requirements ministers expect to place on revenue Scotland in terms of performance information and reporting arrangements, particularly regarding its record on collection and enforcement.
I support the bill.
15:43
I am grateful for the opportunity to speak in the debate. The Revenue Scotland and Tax Powers Bill is an important bill. Its title may be dull—I do not think that anyone would deny that—but the bill serves a serious purpose, which is to fulfil the requirements of transferring the financial powers that are outlined in the Scotland Act 2012, to set out a positive framework that will allow the Scottish Parliament to assume responsibility for further tax powers in the future, and to address tax avoidance in the widest sense. We should all welcome those developments.
The cabinet secretary has made it clear this afternoon and in his evidence to the committee that the Government intends to take the toughest possible line on all tax avoidance—not on just the most extreme forms of abuse. That theme has been picked up by several members.
Iain Gray sought to explain the double reasonableness test. Until Malcolm Chisholm spoke, I thought that I understood it; I then realised that the issue is even more complex than I had thought. However, I think that in its general anti-avoidance rule the bill provides power for revenue Scotland to take the robust action that is required against artificial tax avoidance schemes, and to provide the definitions of artificiality that will ensure that the approach that is adopted is as comprehensive as possible.
The general anti-avoidance rule is broader than the UK general abuse rule, as has been said this afternoon. The greater breadth of the bill’s GAAR lies in the introduction of the test for artificiality, as opposed to the narrower UK test for abuse. The cabinet secretary quoted Mr Michael Clancy, who is the director of reform at the Law Society of Scotland, and who cannot be quoted enough in the chamber. I am therefore going to return to the wise words that he said in evidence to the Economy, Energy and Tourism Committee:
“We have compared those provisions with the current general anti-abuse provisions in the Finance Act 2013 and we think that the Scottish GAAR provisions are much better. They are less complex and should prove to be more effective.”—[Official Report, Economy, Energy and Tourism Committee, 19 March 2014; c 4205.]
I was intrigued by Michael McMahon’s account of the deliberations in the committee, with accountants and lawyers competing with each other. I therefore feel compelled to quote from the Law Society of Scotland, which stated that
“It would be misleading to suggest that most of the work of lawyers is involved in advising taxpayers on tax avoidance schemes”—[Official Report, Finance Committee, 12 March 2014; c 3810.]
rather than on helping clients to comply with their tax obligations. I think that all of us in the chamber will be grateful for that reassurance and clarification.
An important issue during committee consideration of the bill was professional privilege. Both the Faculty of Advocates and the Law Society of Scotland stated that they saw no reason to extend legal professional privilege beyond its current boundaries and took issue with the suggestion that the legal profession was benefiting from an unfair advantage. The Law Society stated in evidence to the committee:
“We are not aware of people flooding to lawyers’ offices rather than accountants’ offices to take tax advice because legal privilege exists. Accountants get more than their fair share of tax advisory work.” —[Official Report, Finance Committee, 12 March 2014; c 3811.]
The legislation is, of course, a direct consequence of the fact that this Parliament and the UK Parliament passed the Scotland Act 2012. However, even after that act comes into force, the Scottish Parliament will be responsible for only 15 per cent of Scotland’s tax revenues. That reminded me of the piece of work that was undertaken by Sir James Mirrlees, who has been mentioned already this afternoon, in his report on the UK tax system entitled “Tax By Design; the Mirrlees Review”, in which he stated:
“The UK system is ... unnecessarily complex and distorting. Tax policy has for a long time been driven more by short-term expedience than by any long-term strategy. Policymakers seem continually to underestimate the extent to which individuals and companies will respond to the financial opportunities presented to them by the tax system. They seem unable to comprehend the importance of dealing with the system as a whole.”
Those wise words are reinforced by the work of the fiscal commission working group, which has looked at a number of the issues in the round and has concluded that, in relation to personal taxes, under the current system employed and self-employed individuals who undertake similar work are treated differently in terms of their national insurance contributions and that, more generally, income tax and national insurance contributions, which are effectively two separate taxes on the same income stream, are measured on different bases. The variations in rates, time periods, thresholds and applicability seem to underline the fact that the system is not fit for purpose.
The fiscal commission has stated:
“With regard to links to the wider welfare system, the current system comprises a range of tax credits and benefits, with a mixture of means tested and universal provision. All of these can impact on the effective rate of taxation, especially at the margin, leading to often conflicting incentives with regard to certain activities such as participation in the labour market.”
In his book “Money for Everyone. Why We Need a Citizen’s Income”, Malcolm Torry has argued that the criteria for a benefits system should be coherence and administrative simplicity. It is clear to me—as, I am sure, it must be to many members—that neither the current UK tax system nor the UK benefits system meet the criteria of coherence and simplicity. I believe that we can do better with further powers of financial responsibility, which are coming to this Parliament, and with independence, which will surely follow a yes vote in the referendum.
17:49
Like others, I welcome the Revenue Scotland and Tax Powers Bill and the approach that the Government is setting out in seeking to build in anti-avoidance as a principle from the word go.
Iain Gray described the bill as part of a series of pieces of legislation on tax, saying that we have a series but not the full box set. It may be that some of us on my side of the independence debate interpret that phrase a little differently. I would like Scotland to have the full box set of tax powers. However, even if others only see us getting one or perhaps two more series, the bill is clearly part of a transition towards Scotland needing an organisation that exercises more than just the tax powers in the bill. It is therefore really important that we get that organisation and its culture right from the outset.
I argue that the bill is also part of a series of debates that we are having that relate to inequality. That is a far cry from the speech that Margaret Curran has given today suggesting that debate on inequality in Scotland has been shut down by the referendum. We are having a series of debates about the tax system, we will debate the welfare system when the Government’s commission reports back on that, and we have been debating the structure of the economy as well. All those things are necessary if we are to address the inequality problem that our society suffers from.
It is crucial that we get the organisational culture right from the start. People have been talking about the long-standing principles of certainty, efficiency, convenience and proportionality, but I wonder whether there is one missing, because we do not really talk about the principle of progressive outcomes. Whether in relation to the initial, small tax powers or the wider tax powers that we may get, whether they are to raise all our own revenue or 40 or 50 per cent of it, we should be looking for a progressive outcome and ensuring that we close the gap between rich and poor.
There are also some assumptions that inform this debate, which are sometimes unspoken. For example, there are assumptions about greed. It may well be in some people’s nature always to seek advantage and to seek to minimise what they pay and maximise what they can extract from any engagement with the economy or wider society, but I do not think that that is human nature. It is much more a cultural norm or a cultural expectation, and it can and should be challenged. When Governments and Parliaments pass legislation, they do not set cultural norms unilaterally. We do not establish them when we pass bills or establish new systems such as revenue Scotland. However, we contribute to them.
As Jim Eadie suggested in some of his comments, a comparison between our approach to taxation and our approach to welfare is instructive. It is almost as though, when we debate taxation, the expectation that wealthy people and businesses will always seek to minimise what they pay cannot even be challenged, but we would not accept the same principle in relation to the welfare state. We do not accept that people seeking to maximise false or unfair claims on the welfare system is just something that we have to expect and live with. In fact, the UK’s welfare system is far harsher on people who misclaim benefits than our tax system is on those who underpay on their taxation—those who seek to wriggle through every loophole, whether legally or by skirting around the edges of what is legal.
Given that both systems—taxation and welfare—are necessary if we are to achieve progress towards a more equal society, we should be looking to be as ruthless on cutting down on tax avoidance—or perhaps more so—as we are in relation to those who might seek to gain what is a much smaller advantage, in reality, from the welfare system. The penalties and sanctions that we have are quite disproportionate.
In debating the welfare system we also discuss a benefits cap, yet in debating the taxation system we do not discuss a principle that wealthy people must always pay a higher proportion of their income and wealth than poorer people. In fact, as I think we all know, our taxation system does not achieve that and has not for a long time. The expectation of pure self-interest in relation to tax systems and the way in which we operate them should be challenged.
I support the Government’s suggested broad approach to the anti-avoidance rule. To those who are worried about the lack of clarity, I would just ask why. If someone’s aim in constructing a tax arrangement is not to avoid tax or to seek a tax advantage, the worst that will happen, from my reading of the bill, is that the tax advantage that they have accidentally achieved will be corrected. If their aim is not to achieve tax avoidance, why should they worry? It is no big deal for them to lose a tax advantage that they had not intended to achieve.
I ask the member to draw to a close, please.
In conclusion, legal tax avoidance is not the only driver of inequality in our system. We also need a fair welfare system that does not bully people into low-paid work, and we need to address the structure of our economy. However, tax avoidance has been one of the drivers of inequality in our society for decades, and it must be tackled.
15:56
The debate has been pretty good, following a pretty interesting committee report and investigation. I will pick up on a couple of points from the debate before coming to a couple of themes that I want to cover.
The cabinet secretary said in his opening speech that he was interested in Parliament’s view on whether or not the chief executive of revenue Scotland should sit on the board. The committee considered that issue in detail, and many witnesses were asked the question. I am afraid that the result of our consideration on that point is not terribly helpful to the cabinet secretary in enabling him to reach a decision.
There were good arguments put forward for why the chief executive should be on the board of revenue Scotland, and good arguments for why he should not. I, and the rest of the committee, found it difficult to decide which argument was more powerful and, as a consequence, we felt that leaving the provision in the bill as it was drafted was fair enough. It was difficult to say that one argument was better than the other.
Jamie Hepburn spoke about penalties and suggested that he was a bit more relaxed about whether penalties should be in secondary or primary legislation. He is correct to say that, whichever it is, they would still have the force of law and would still have to be applied. Ultimately, the taxpayer may not be bothered about whether penalties are in primary or secondary legislation, but I believe that the Government’s change of approach to include penalties in primary legislation is right. Primary legislation, by its very nature, receives considerably more scrutiny than secondary legislation. The committee can look at the amendments carefully at stage 2 and, if we have not got it right by stage 2, there are still opportunities to amend the provisions formally at stage 3. That is why it is important in getting the regime right that we deal with penalties through primary legislation.
In my earlier speech I touched on the safeguards that I thought ought to be considered in relation to the general anti-avoidance rule. I accept the thrust of what the Government is doing, but it needs to introduce greater safeguards. I talked about the guidance that it is giving to a degree, and I touched on the disclosure of tax avoidance schemes. I repeat that the Government’s reason for not progressing such a scheme at present—at least as it appears from the cabinet secretary’s letter to the committee—is down to the revenue Scotland resource implications. I ask the cabinet secretary to confirm whether that is the case. If Dr Heidi Poon’s reading is correct, which is a matter of interpretation, the longer-term resource implications would be greater in the absence of a DOTAS mechanism. Perhaps the Government can reflect on that.
One other concern in relation to safeguards for the GAAR concerns pre-clearance transactions. Those happen elsewhere, in certain instances, and again the Government may want to give some thought to that approach, particularly with regard to LBTT, for which it is probably more of an issue than it is for the landfill tax.
Three obvious approaches can be taken by any Government. There could be no system whatsoever, which is the current case; there could be an informal system in which there are discussions with the tax authority and a steer is given, but that steer is ultimately not binding; and the third option is to take a formal approach in which pre-clearance is signed off by the tax authority, which means that no challenge can be made later.
I put that specific question to Sir James Mirrlees, who is highly regarded by the Government and who has been quoted by a number of members for his expertise and by the cabinet secretary in his opening remarks. When I put those three approaches to Sir James Mirrlees, his response was:
“The second of your three approaches makes sense to me. It violates certainty a bit, so I can see why there is a case for the third approach but, on balance, that is what I would call for.”—[Official Report, Finance Committee, 5 February 2014; c 3626.]
I therefore suggest that a number of organisations argued for a pre-clearance scheme, and I think that there is some merit in it. I quoted Sir James Mirrlees because some experts out there can see the merit in having pre-clearance. It gives a degree of certainty, and it ought to be considered.
The other area I wanted to discuss was some form of advisory panel. The idea here is ensuring that the GAAR is applied with a degree of commercial experience, particularly given condition B in the legislation. The idea got support from a number of organisations that we might have expected to support it, but it also had support from Unison and the STUC, although that support would depend on who the members of the advisory panel are to be.
That is a point worth making in response to John Mason, who was pretty strongly against the advisory panel. However, the strength of such a panel would be that it would give independent expert advice; it would not just be revenue Scotland giving its take on things. One could argue about who ought to be on such an advisory panel—and different groups had different views—but its strength would be in its independence.
There ought to be some more safeguards in the bill but, as I said at the start, we agree with the Government’s approach and will support the bill come decision time.
16:02
This has been a debate of broad agreement. It started off after the cabinet secretary with what was a very convenerly contribution from Kenneth Gibson, who summarised the committee’s deliberations very effectively. He said that he was looking forward to stage 2 and further scrutiny. Gavin Brown rather jumped ahead to stage 2 by scrutinising the proposals on penalties, for example, that the cabinet secretary suggested he would make. That is good; it shows that there is an appetite for developing the legislation.
Interestingly, Mr Mason brought his inside knowledge of the accountancy profession to bear in the form of scepticism about his former colleagues’ motives in seeking certainty. He spoke up very effectively for the honest tax-paying citizen. Michael McMahon picked up that baton when he made the point that, if we are leaving lawyers and accountants disappointed, we are probably doing the right thing.
We were some way into the debate before somebody spoke up for the lawyers. Mr Eadie quoted them by pointing out that some of their representatives—Mr Clancy, for example—had strongly supported the GAAR and the Scottish Government’s approach as being better than that of the UK. There was, however, overall general agreement that tax avoidance is a bad thing, and it is a good starting point to ensure that we minimise it.
We should remind ourselves that tax avoidance is not new. I have a quote here from John Maynard Keynes, an economist who Mr Swinney often follows when it comes to capital investment. Many years ago, Keynes said:
“The avoidance of taxes is the only intellectual pursuit that carries any reward.”
I presume that he was still thinking of those lawyers and accountants. We should not therefore be naive about our capacity to end tax avoidance, but it is good to start from the right principles.
This has been a debate of widespread agreement. However, before we get too misty eyed about that and join hands across the chamber, I will make some remarks about two dogs in the debate that by and large did not bark, although there was some reference to them from Willie Rennie and Malcolm Chisholm, for example. One of them is looking back at where revenue Scotland has come from and the other is looking at where the cabinet secretary perhaps fondly imagines that revenue Scotland is going.
One or two members have made the point that revenue Scotland is a manifestation—an outcome—of the process of the Calman commission and the Scotland Act 2012: the latest enhancement of the devolution settlement. It is worth saying that, although it is the latest and perhaps one of the biggest enhancements of the devolution settlement, it is far from being the only one. It rather gives the lie to the idea that devolution is somehow fixed and unchangeable and cannot match itself to new and developing circumstances.
Indeed, since the very beginning of devolution we have seen changes in the powers and responsibilities of this Parliament, such as responsibilities for new technologies and renewable energies—things that were not really known or understood at the time that the Parliament was set up. For example, some of the responsibilities around consenting to offshore developments have passed to this Parliament.
Some of the changes have been driven by the logic of responsibilities that we already have. During the three years that I spent as an adviser in the Scotland Office, one of the biggest things that we did was devolve responsibility for rail infrastructure to this Parliament, which was a logical development of the fact that we had responsibility for rail services and the franchise. That was a significant piece of devolution, because it brought with it investment of around £300 million every year. Of course, the amount each year has become rather more than that as time has gone on.
The changes have encompassed all Administrations. The current UK Government—not that I am in any way an apologist for it—has enhanced the devolution settlement when it felt it appropriate. For example, it has devolved some parts of the welfare system to the Parliament. The responsibility for community care grants and crisis loans is one example, and the most recent example is the agreement that control over discretionary housing payment caps will be devolved to the Parliament.
Devolution has changed over time, but there is no doubt that the Scotland Act 2012 and the Calman process that preceded it have provided one of the biggest enhancements. The driver for that was to rebalance the Parliament and give it more fiscal powers to match its very high level of legislative responsibility. All that demonstrates that devolution is dynamic and flexible: a powerful democratic system that we can use to our best advantage. It will continue to be so.
It is no secret that I and my party want more devolution of welfare—such as housing benefit—and taxation. That is the actual meaning of the old phrase,
“devolution is a process, not an event,”
which was said not by Donald Dewar but by Rhodri Morgan.
Independence, of course, would be an event, and it would not enhance but destroy devolution, because we would give up the powerful combination of the ability to pool risk, reward, resources and opportunities with the ability to make strong democratic choices over a wide range of sectors in public and private life.
Nonetheless, that is where the cabinet secretary wants to take us. I think that he has said in the past—and certainly Colin Beattie said today—that revenue Scotland would become our equivalent of HMRC were Scotland to become independent. I am a little puzzled by that because, when I was in a debate last week, one of Mr Beattie’s colleagues thought that we would contract out responsibility to, for example, HMRC—although that option was not favoured in the relatively small case of the two taxes that we are discussing today.
ICAS is puzzled as well. The paper that it produced today demonstrates that the cost of independence on taxation is not clear but could be anything up to £3.25 billion. There would be a staffing cost as well: 2,500 HMRC staff in Scotland would not be required. There would be problems of a lack of specialist staff. For example, staff who deal with oil and gas are based not here in Scotland but in London, and those who deal with national insurance are based in Newcastle.
There are therefore still big questions about revenue Scotland and its future but, with regard to the bill, there is a widespread welcome for the body and general support for the cabinet secretary’s approach. The bill will go on to stage 2 with a fair wind from those of us in the Labour Party and, I rather suspect, members from right across the chamber.
16:10
I thank members of the Finance Committee and other members of the Parliament for the way in which they have engaged with the bill, which sets foundations in which all of us must have confidence. My guiding principle in working through the bill process is to give clear leadership but to ensure that the bill commands wide political agreement, because there has to be contentment across the political spectrum with the approach that we take.
It was particularly kind of members to record their thanks to my bill team. That is important, because the individuals who work in that team have to convey to the Parliament in their evidence and in the steps that they take the clear guidance that I give on the formulation of the bill, and they have to deal with the fact that the bill has to meet that high test of being able to command broad parliamentary agreement. It is in that spirit that I respond to the debate.
I will deal with a couple of issues before I come to the heart of the debate, which has been on issues to do with the GAAR and issues of certainty. Ken Macintosh talked about issues that Audit Scotland raised. As an office-holder in the Scottish Administration, revenue Scotland will automatically be subject to audit by Audit Scotland. Under sections 11 and 12, revenue Scotland will be required to prepare and publish a corporate plan and an annual report, both of which will be laid before the Parliament. Thereafter, it will be up to the Parliament to exercise the scrutiny that it determines to be appropriate for those issues.
Audit Scotland is of the view that the Government will have to introduce an order, possibly to coincide with the day of implementation of the bill. Is that correct?
I cannot confirm that that is the precise approach, although I suspect that it will be. We are working on the assumption that, as an office-holder in the Scottish Administration, those arrangements will apply to revenue Scotland.
Malcolm Chisholm asked about the number of members of the upper tax tribunal. I will lodge an amendment at stage 2 to allow the president of the tax tribunals to appoint additional members of the upper tribunal in cases that are particularly important or complex and to provide the flexibility to apply that.
John Mason raised the issue of professional privilege, as he did in the committee, if I recall correctly. There is a difference in treatment between the accountancy profession and the legal profession. The arrangements that we have in place are part of long-standing legislative arrangements on legal privilege and I do not propose to revisit them as part of the bill. However, I will say that it is important that the standards and methods of operation in handling all business in relation to privilege must be within the spirit of the legislation. We expect that of the legal profession and the accountancy profession.
I turn to the issues that have been raised about the general anti-avoidance rule. I am happy to give Mr Gibson, the convener of the Finance Committee, an undertaking that I will exercise my power to issue guidance to revenue Scotland to make it clear that I expect it to consult in advance on all guidance that it proposes to publish, and not merely the GAAR guidance, except where there are good operational reasons for not doing so.
I will try to tackle some of the issues that Mr Brown and others raised about the alternatives to a GAAR that we could put in place—I suppose that I should say the complements of additional tests that could be applied. I am generally pretty unsympathetic to those alternatives for a number of reasons.
Mr Brown suggested a DOTAS approach. In my formal response to the committee, I said that I gave careful consideration to that but, on balance, decided that the disadvantages—particularly the potential resource implications for revenue Scotland—outweigh the arguments for putting in place such arrangements, at least for the present. It is not only about resources; it is about the fact that, with the bill, I am trying to create the clearest possible culture of responsible tax paying, in which the burden of tax is shared fairly by individuals and companies paying their taxes in full as the Parliament intended.
I think that that is the spirit in which Patrick Harvie makes his contribution to the debate. It is also the tone set by John Mason in his speech, in which he made the point that not only the letter but the spirit of the law is important in paying taxes. That is the tone that I tried to set in the bill’s design and, if we apply the bill with that approach, we will minimise the need to have a DOTAS approach, some further review mechanisms or other provisions because the general anti-avoidance rule will signify that we expect individuals to comply with the legislation in full.
That is the heart of my response to Mr Gray’s and Mr Rennie’s points on certainty. If individuals or businesses are prepared to pay taxes within a culture of responsible tax paying as we expect, I do not see what need there is to put in place any mechanisms other than the general anti-avoidance rule, because it signals to people the standards by which we intend to operate.
Mr McMahon also explored some of that territory in his speech, in which he suggested that there can be a place for targeted anti-avoidance rules. Of course there can be a place for such rules if they are required, but the style that I am trying to bring to the bill is to establish all our direction based on the creation of a clear and simple set of arrangements for paying tax. Those arrangements are designed to work within the spirit of the general anti-avoidance rule and to give us the robust framework within which individuals and organisations should operate to comply with the legislation. That has been done because we have tried to translate into legislation Adam Smith’s four principles on certainty, proportionality to the ability to pay, convenience for the taxpayer and efficiency. I will continue to apply those tests as we continue to scrutinise the bill as it passes through the Parliament.
In the last part of his speech, Mr Gray talked about where revenue Scotland had come from and where it was going. Yes, revenue Scotland has emerged out of the Scotland Act 2012. I do not think that I could ever be identified as someone who signs up to what Mr Rennie described as the new optimism of the Scotland Act 2012. If that act is all that captures our country’s new optimism, heaven help us. I am determined to be infinitely more optimistic and ambitious than anything that it could produce for us. I simply and gently point out that the Scotland Act 2012 did not even give us all the powers that the Calman commission envisaged coming to the Scottish Parliament, so for it to be used as an example of the unionist parties’ pioneering, ambitious approach to devolving further powers to the Parliament is well misplaced.
My final point concerns the comments that were made today about the ICAS paper. I simply point out that Scotland participates in an existing tax system. I want that system to be a great deal simpler and more efficient. I have demonstrated how that can be undertaken by the approach that we have adopted to this legislation as we take it through the Parliament. That will be the approach that we continue to take as the Parliament acquires more responsibilities. This legislation demonstrates that it is perfectly possible for us to undertake effective and strong tax legislation in the Scottish Parliament, and the independence referendum in September gives us the opportunity to do a great deal more of that, in the interests of the people of our country.