Official Report 1030KB pdf
The next item of business is a debate on motion S7M-01377, in the name of Craig Hoy, on protecting Scots from income tax rises. Members who wish to speak should press their request-to-speak button now.
16:24
Each and every day, another analyst, watchdog or business group warns of the fiscal peril that Scotland faces. Audit Scotland, the Institute for Fiscal Studies and the Scottish Fiscal Commission have all sounded alarm bells because, under Labour and the Scottish National Party, we are locked in an economic doom loop.
As growth slows, taxes rise, and as taxes rise, growth slows. That is why the net contribution from Scottish income tax fell by £39 million in 2024-25 despite the new advanced rate of income tax and an increase in the top rate of tax. It is crystal clear that the SNP’s fiscal experiment has failed. As Scotland’s budget black hole mounts, it is clear that this is a present danger to Scottish taxpayers, as our motion makes clear.
SNP ministers will seek to blame someone else for their present predicament. They will say that inflation, Donald Trump and the war in Iran are to blame. They will say that the fiscal formula and the previous Conservative Government are to blame. They will say that it is the fault of the union, as if independence will somehow balance the Scottish Government’s own spending plans. Ministers will even claim that they are fixing the problem through public service reform and £1.5 billion in planned efficiencies, but where are they? We found out today that those plans are “off course”.
Is it not the truth that, after 20 years in office, blaming others simply will not work? A Government that wants to take responsibility for decisions on the Scottish economy will not take responsibility for the economic decisions that it has already taken. Scotland now faces a £5 billion budget deficit. To plug that gap, taxpayers could face increases of up to £5,000 per year. That is the true cost of John Swinney’s income tax bombshell.
Our analysis shows that, if the SNP sought to plug that gap through income tax increases, every single Scottish taxpayer would be hit by an additional bill of £1,400 per year. The SNP loves to say that Scotland has the fairest tax system in the world—so much so that it engineered what one of its tax advisers described as the
“smallest income tax cut in history”.
It looks likely that filling the black hole is set to be pushed on to those who earn more than £43,000 a year. By 2030, that will be the majority of full-time workers—nurses, teachers and heavy goods vehicle drivers. To raise the amount that is required, nearly 1 million higher-rate Scottish taxpayers would have to pay an additional £4,900 per year. That is a 5 grand bill for the SNP’s repeated failure to realise that it cannot tax its way to economic growth.
However, it does not have to be like that. It was a political choice for the Government to spend more on social security. It was a political choice to employ more civil servants than the rest of the UK and to pay them more. It was a political choice to distract from growth with the pipe dream of another independence referendum. Our motion confirms that we would reduce the size of the state and the size of the benefits bill by ensuring that we get back to a balanced budget.
On the Reform motion, I have to say that imitation is the best form of flattery. I refer members to a BBC report from 7 April 2026, in which my colleague Russell Findlay and I proposed a zero-rate tax cut to uprate the personal allowance. That said, our costed proposals were set out clearly in pounds and pence and not in dodgy cryptocurrency, so perhaps Malcolm Offord and his colleagues could not equate them.
The Conservatives’ proposals to balance the budget and close the £5 billion gap that the Scottish Government faces rest on substantial cuts to social security. When the Conservatives were in office at Westminster, they made substantial cuts to social security. A study in the BMJ estimated that that resulted in more than 300,000 people dying earlier than they otherwise would have. What impact assessment have the Conservatives made of the changes they would make to Scotland’s social security system, and how many people’s lives would be ended earlier as a result of those changes?
The member will be well aware that that study is highly contested. The best thing that we can do for people who are at home is get them treatment through the national health service to get them back out to work. That is the best solution for their health and the wealth of the nation.
To return to our motion, we are simply asking for the SNP and its ministers to remain true to their word and to confirm what was in their manifesto. That is why, today, we say that the SNP must rule out new income tax bands and rate rises, shrink the size of the state and get Scotland growing again. However, I doubt that the SNP Government can do so, because it will not slash welfare spending, and social security spending continues to rise. It will not get real about public sector reform, because recent headcount data show that things are going in the wrong direction, and it will not take the decisions that are needed to prioritise economic growth.
Will the member take an intervention?
I will take an intervention.
You do not have time for an intervention, unfortunately.
It is not—[Interruption.]
I thought that we did not have time for an intervention. I cannot hear the minister.
I indicated that we do not have time for an intervention, unfortunately. Mr Hoy had only five minutes and needs to bring his remarks to a close.
The minister appears to be “off course” for the second time today.
It is not too late to stop John Swinney’s £5 billion tax bombshell detonating on Scottish workers, but we do not have much time left. If we do not act now, it will be hard-working Scots who will be left to pick up the pieces.
In a final appeal, and in an urgent economic reality check, I move,
That the Parliament notes with concern the Scottish Government’s projected £4.77 billion funding gap by 2029-30; warns that, on the current trajectory, Scots risk facing further income tax rises to balance the budget, and calls on the Scottish Government to reaffirm its commitment not to introduce new income tax bands or increase income tax rates.
I call Jenny Gilruth to speak to and move amendment S7M-01377.4. You have up to seven minutes.
16:31
I very much welcome the opportunity that the Conservative Party presents this afternoon to debate the Government’s approach to public finances. I spent the morning giving evidence to the Finance and Public Administration Committee, and I did not shy away from the need for tough decisions or from being clear with the public about what is achievable.
The public deserve to know where each party stands on taxation. The SNP’s manifesto set out our clear aims on income tax. The Government has committed not to increase income tax rates or the number of bands during the lifetime of this Parliament. We also commit to ensuring that the majority of income taxpayers pay less than they would if they lived in the rest of the United Kingdom. Those are policy choices that recognise the fiscal challenges that lie ahead in this new parliamentary session. Incidentally, I accept Mr Hoy’s points and his contribution.
Our manifesto reiterated our commitment to fair taxation because we believe that it is right that those who are better off pay a little more so that we can all benefit from higher-quality public services. That is why we have committed to introducing a mansion tax on those who live in properties worth more than £1 million. We think that that is the right approach to improving fairness at the top end of the council tax system. In addition, we will introduce a specific rate of air departure tax for private jets, to ensure that those who can afford to do so pay their fair share.
Does the minister accept that, in a place such as Edinburgh, there might be an old lady who lives in a house that is worth more than £1 million? If she does not have that capital—that cash—to hand over, how does the minister suggest that she proceed?
There will always be local mitigations that would be a matter for the local authority. This is a broader point to Ms McDade’s question, but it is the case that the Government has taken a progressive approach to taxation, which has been reflected in the changes that we have introduced on council tax. There may be an opportunity in this Parliament to revisit more substantive changes to the council tax system through public service reform, for example.
It is generally the case that parties that win elections can implement their manifestos in a democracy. I would observe that the Conservatives have gone from leading the Opposition to fifth place, and from 31 to just 12 MSPs. They have gone from being the defenders of the union to being the smallest party in Holyrood. We ought to interrogate how it is that the Tories now find themselves so far away from power, at the back of the chamber. Could it be their own uncosted tax promises, such as the manifesto commitment to cut taxes, which the Institute for Fiscal Studies estimated would cost around £3.7 billion by 2032, or could it be the fact that they wanted to bring back the two-child limit for universal credit by targeting it at recipients of the Scottish child payment and those on disability benefits?
The minister should apologise to Willie Rennie.
Ultimately, if the minister wants to level with the Scottish people, why is she running away and not coming to Parliament with an autumn statement, as she promised when she said that there would be no medium-term fiscal strategy? She committed to coming to Parliament to tell us the state of the finances. Why will she not do that?
I apologise to Willie Rennie and to Mr Hoy.
On the wider statement, I was before the Finance and Public Administration Committee this morning. There will be a Government debate in Government time tomorrow, and I intend to give an update at that opportune moment. I hope that Mr Hoy will be there to contribute his views.
Those are the Conservative Party’s policy choices: uncosted tax cuts and taking benefits away from some of the most vulnerable. The people of Scotland roundly rejected those proposals in the most recent election. The Institute for Fiscal Studies was very clear that it is
“not credible that additional savings of the scale proposed by the Scottish Conservatives could be made without cuts to the range and quality of services provided to the residents of Scotland”
whom we all serve. Let me be clear with the Parliament what paying for tax cuts would have meant for taxpayers. It would have meant fewer nurses, fewer doctors, fewer police officers and fewer teachers.
Will the cabinet secretary take an intervention?
I would like to make some progress, because I am mindful of the time.
I am proud that Scotland has the most progressive income tax system in the United Kingdom. I would like to pick up on the point that I think that Mr McKee was trying to make in response to Mr Hoy earlier. The Scottish Fiscal Council estimates that income tax will raise £21.5 billion in the Scottish budget in 2026-27—more than £1.2 billion more than was the case in 2025-26. That additionality is being used to support our vital public services, and I am proud that the Government has taken that approach.
How much time left do I have, Deputy Presiding Officer?
You have seven minutes.
Thank you, Deputy Presiding Officer. I want to make some progress on what we are doing with that additionality.
The social contract—
Murdo Fraser rose—
I am mindful that Mr Fraser is on his feet. I will take his intervention.
The cabinet secretary is concerned about unfunded tax cuts, but I noticed that yesterday she was backing the campaign to reduce value added tax in hospitality to 10 per cent. How would that tax cut be funded?
You will get time back for interventions.
To respond to Mr Fraser’s point, VAT is a reserved matter. We would like powers over VAT to flow to this Parliament so that we could take decisions that would impact on the sector here. I would have thought that Mr Fraser would be in the same place as this Government in supporting such approaches to alleviating pressures on businesses. [Interruption.] Given the heckling, I am not sure that the Conservatives do support that additional support flowing to businesses. I am not sure whether they are now positioning themselves as anti-business. However, I will return to focusing on the content of today’s debate. There might be fewer Tories, but they are—[Interruption.]
We need to hear the cabinet secretary.
The social contract that the people of Scotland benefit from can be evidenced in things such as the Scottish child payment, our approach to funded prescriptions, higher education, free personal care for the elderly and the abolition of peak rail fares. As a Government, we are proud to stand by those policies. More broadly, the programme for government sets out a range of different measures that we will propose to support our people. IFS estimates suggest that the lowest-income households have benefited to the tune of around £2,700 a year per person because of some of the interventions that we, as a Government, have made in relation to income tax and benefits.
Scotland’s fiscal outlook is not immune to pressures. The situation mirrors those that are being felt across the United Kingdom and globally. We have the impacts of the middle east conflict, rising energy prices—the news today comes at a very challenging time, as we approach winter—long-term demographic pressures and rising demand for our public services. That demand means that there is much more reliance on our public services, with more families needing support, and the cost of public services is significantly higher than it was only a few years ago. It is against that backdrop that a key priority for this Government has been to maximise the impact of every pound of spending and to continue to deliver on our priorities. That is exactly why the programme for government is so targeted on rewiring the Scottish state so that our services meet the needs of our constituents across the country.
The Scottish Government’s approach is responsible, progressive and deliverable. It protects services, supports families and is based on what Scotland can realistically afford. The Conservative alternative is the opposite of that approach: it is expensive and cruel, and it targets the poorest in our society by harming public services for those who need them most. This SNP Government will continue to get on with the day job of growing our economy and supporting the people of this nation.
I move amendment S7M-01377.4, to leave out from “notes” to end and insert:
“recognises that Scotland’s income tax system is the fairest and the most progressive in the UK; notes that the majority of income taxpayers in Scotland continue to pay less tax than in the rest of the UK; recognises that, in a time of economic volatility, Scotland’s income tax policy should be founded, as far as possible, on stability and certainty, and understands the Scottish Government has previously stated that it has no plans to increase the number of bands or their rates over the lifetime of this Parliament.”
16:38
Let me start with where I agree with the Scottish Conservatives. The £4.77 billion funding gap is real, not an accident. Audit Scotland has told this Government plainly that it is the product of policy choices and rising workforce costs. It is a spending problem dressed up as a revenue problem.
However, that is where we part company. The Conservative motion looks at a Government that has given Scotland six income tax bands, a 42p higher rate that starts at £43,663 and a 50 per cent marginal rate for nurses and police sergeants and it asks the Government to promise not to make things worse. That is not ambition; it is capitulation.
The pledge that the motion asks be reaffirmed still lets frozen thresholds pull more Scots into higher bands every year. It is a promise not to raise the rate while the drag does the work of a tax rise through the back door. Let me be clear, before anyone on the Government benches tries it, that Reform opposes any rise in any rate of income tax. Our amendment would remove that line not to weaken the pledge but because it is not enough. We are not asking the Government to stand still; we are asking it to move. Our amendment calls for a new 0 per cent band above the personal allowance, so that the first slice of what Scots earn stays in their pockets.
Will the member take an intervention?
No—not this afternoon, thank you.
However, we are aware that ever-changing tax brackets are not good for our economy. They do not help businesses to plan and cause an undue administrative burden for those who are processing tax. We ask that, when the mansion tax and private jet departure tax come into force, on 1 April 2028, the Government give something back and introduce the nil rate up to a £15,000 threshold. That would cost around £1.1 billion. However, as we are told by the Scottish Government that public service reform will save billions, the Government can afford it—if it is being honest, of course.
Will the member take an intervention from a colleague on the Finance and Public Administration Committee?
I am not taking any interventions today, thank you.
So, why start at £15,000? It is because a 0 per cent band would give every taxpayer the same cash, and that means that it matters most to those who have least—the care worker in Castlemilk, the shop assistant in Springburn, the mum in Pollock juggling two part-time jobs, and the caretaker in Possilpark working late nights to ensure that his community hall stays in profit. They are all real people to me.
Will the member take an intervention?
No, thank you.
Today, the SNP’s great gift to those people—the 19 per cent starter rate—is worth, at most, about £40 a year. That is the prize for living under the most progressive tax system in the UK. The first £1 that someone earns above the allowance does not belong to the state; it belongs to the person who got up in the dark and earned it. Government should have to justify every claim that it makes on that £1, but, in Scotland, it has stopped trying.
The Conservatives will say that that proposal was in their manifesto. It was, but it was for inflation-based rises to the current band, and they left that out of their motion today.
To those who say that we cannot afford it, I again point to the First Minister’s programme for government, under which 14 health boards are to be cut to two, 32 councils are to be replaced by regional and community authorities, and quangos are to be merged. None of that was in the SNP’s manifesto, and the First Minister promises to do all of it without reducing the number of people on the payroll. If the same people do the same jobs at the same cost under a new letterhead, that is not reform; it is rearranging the pillars that are propping up an oversized state. We will hold the Scottish Government to its savings promises.
The Scottish Government also promises economic growth and a broadening of the tax base, so it must be confident of its revenue-raising powers.
Will the member give way?
The member will need to wind up. She has not taken any interventions, so she has no added time.
Reform supports real reform, with fewer layers, fewer managers and fewer quangos, technology instead of paperwork, and a smaller public payroll. That is what pays for a tax cut.
The member will need to wind up and move her amendment.
The people of Glasgow do not want a Parliament that argues about how fast their taxes should rise—
The member will need to wind up now.
—they want one that, for once, asks how and when taxes will fall.
I move amendment S7M-01377.1, to leave out from “reaffirm” to end and insert:
“introduce a new 0% rate of income tax to increase the amount that taxpayers in Scotland can earn before having to pay income tax.”
I call Joe Fagan to speak to and move amendment S7M-01377.3.
16:43
I refer members to my entry in the register of interests, which shows that I am a serving councillor.
The scale of the fiscal gap that the Scottish Government faces by the end of this decade underlines the need for three things: candour about why Scotland’s public finances are in the position that they are in, a coherent public service reform agenda that will achieve the system-wide shift towards prevention that Scotland has long aspired to, and good growth in Scotland’s economy to improve Scotland’s economic position and our financial position under the fiscal framework.
I will come to each of those three points, but let me start with taxation. Scottish Labour believes in the principle of progressive taxation—that those with more taxable income should pay a higher rate than those with less. However, at the heart of the debate about tax and spend in Scotland—and, indeed, in any democracy—lies a compact with the people. That compact is strained by the relatively high marginal tax rates that some earners face, and it is undermined when public services do not function as they should and when outcomes do not reflect the commitment that taxpayers feel that they are asked to make.
Labour ruled out supporting income tax rises over the course of the current parliamentary session. As Scotland’s economic position improves, our ambition is to help earners who face those high marginal tax rates and who feel that the compact does not work for them. The income tax system must be fair for working people.
However, if we are collectively prepared to show the leadership and make the compromises that are needed now to sustain and improve our public services, the Parliament must seize on a wider tax reform agenda. Council tax reform has been delayed for too long. There has been an undertaking to review council tax, which has been endorsed by the Parliament, and Labour is prepared to engage constructively with the Government to reform the council tax system in this country. There is also a welcome consensus that business rates should be revamped. I urge the Scottish Government to seriously consider how online retailers and warehouses can pay a fairer share and to future proof the system so that hyperscale data centres are fairly taxed, too.
As I said, this debate underlines the need for candour about the public finances, coherence in public service reform and good growth to strengthen our economy and fiscal position. Here in Scotland, there is a Scottish Government and certainly a cabinet secretary that are agitating to rewire our public services and the finances that underpin them. Their proposals should and will face intense scrutiny, but we can all agree that there is a case for reform. Here in Scotland, too—as across the UK—there is a new Prime Minister who is calling for rewiring of the economy and the forging of a new economic consensus. Those big rewiring jobs are connected.
Scotland faces such a large fiscal gap because, as the Deputy First Minister said, there have been shocks to the world economy, but also because demand for public services is rising. The Improvement Service has said that, if spending had kept pace with demand and demographic pressures in local government, council expenditure would have risen by £10 billion since 2010, and that is just in local government. Spending has not kept pace with demand, but nor have services been reformed to mainstream better outcomes, which means that there is unmet need and failure demand in the system. I warn members that austerity casts a long shadow that costs us all more in the long run.
There is also a deeper challenge: to address our sustained failure to turn the Christie commission principles into action. That is why a real progressive public service reform agenda is so crucial now, and it is also why we need to get the economy moving again. The fiscal framework demands that we improve Scotland’s economic performance relative to the rest of the UK and grow median salaries. We need to change the fiscal trajectory that Scotland is on. Too often, it feels that growth has been deprioritised.
I therefore urge the Scottish Government to use all the levers at its disposal to drive good growth; build shared prosperity; get real household incomes rising, as promised in the programme for Government; drive down economic inactivity—
The member will need to bring his comments to a close.
This is my final point, Deputy Presiding Officer. I urge the Scottish Government to unlock regional growth with a new generation of devolution deals that are aligned with skills policy and a renewed focus on economic and industrial strategy.
I move amendment S7M-01377.3, to insert at end:
“; believes that addressing the pressures on Scotland’s public finances requires reform of the wider devolved tax system, including council tax and non-domestic rates; notes that the Parliament has previously supported the immediate convening of cross-party talks on council tax reform, and calls on the Scottish Government to respect the will of the Parliament and convene those talks without further delay."
16:48
The fiscal situation that faces Scotland is dire. We all recognise that, and it is incumbent on us all to take it seriously. We come from different ideological traditions and we will have different solutions to tackle the crisis, but our solutions should be credible.
What I find frustrating about the Conservative position is the unwillingness to use tax powers to help to tackle the crisis and a default to cuts to our public services. Since the financial crash of 2008, and certainly during the years of the Conservative UK Government, we have heard about the need for us to make difficult choices and difficult decisions. Difficult for whom? The choices that the Conservatives made were not difficult for them or their party’s donors. The choices that they made were not only difficult for the most vulnerable people we represent; they have been devastating for the most vulnerable people in our communities.
The options that the Conservatives do not raise are telling. If we are talking about where in our public sector we could make savings, what about the small business bonus scheme? Each year, almost a quarter of a billion pounds of Government money is spent on a tax break scheme despite the Government’s own review finding no evidence of economic benefit. I have absolutely no issue with using the tax system to support small businesses, but we have evidence that we are spending a quarter of a billion pounds a year on that scheme and it is not working. If the Conservatives are determined not to use our tax powers but instead to reduce public expenditure, why is that not on the list of suggested savings that we should be talking about? Why is the amount of money that will be spent on Scotland’s two freeports over the coming years not on that list?
We know that the fiscal situation is challenging and that the way out of it is cuts to public spending, tax reform or—and this is likely, given the composition of the Parliament—some combination of both. However, let us imagine that we were facing not a £5 billion gap but a £7 billion gap because we had followed the Conservatives’ advice and not used our powers over income tax over the past decade. Let us imagine the situation that we would be in if we did not have that additional £1.8 billion to spend on our public services this year alone.
Craig Hoy has heard me say before that there are very limited options still available to us when it comes to income tax, certainly if we want to raise substantial amounts of additional revenue. The only way to do that would be to impose tax rises on low and average earners, and none of us wants to do that.
I do not want us in the Scottish Parliament and the Scottish Government to collectively box ourselves in in the way that the Labour Party has done at UK level. The Labour Party headed into Government in 2024 knowing what the UK’s fiscal situation was, but it made manifesto commitments that have bound its hands so much that it now faces a situation in which it is impossible to reconcile its manifesto with the situation that it is faced with in the Treasury.
I want to attempt to find some common ground. As I said a moment ago, the Greens are not proposing substantial further changes to the income tax system. I suggest that that is because it is largely the system that we have spent the past 10 years designing, and we are quite happy with the result. However, we want there to be a shift in tax away from work and towards wealth. The top 2 per cent of households in this country have more wealth than half of the population combined. That level of wealth inequality is bad not only for our society and for families on the sharp end of it, but for our economy as well. More equal economies are more prosperous and successful economies.
On a UK-wide level, that can be tackled through more effective use of a straightforward wealth tax, but we know that we have existing devolved powers to tax wealth more effectively. That is why the Greens support the Labour amendment.
An overhaul of council tax is long overdue. I will say more about that in my closing speech, but members who were here in the previous parliamentary session and the one before that will be sick of me pointing out that our council tax system is older than I am. It has not been in date and has not worked in my lifetime. Most people in this country pay the wrong rate of council tax. The Parliament should regard that as a collective humiliation. It is a problem that we have failed to solve and one that we must solve in this session.
If we are serious about tackling Scotland’s fiscal challenges, we need to be serious about tax reform. We should not back ourselves into a corner in the way that the motion suggests, because we have ample warning from the current UK Government that that results in a series of unintended consequences that are ultimately devastating for our public services.
I move amendment S7M-01377.5, to leave out from “with concern” to end and insert:
“that the top 2% of households in Scotland hold more wealth than half of the population combined; believes that, having already made substantial progress in delivering a fairer income tax system in Scotland, there is now a need to shift the balance of taxation from work to wealth in order to promote economic prosperity and fairly fund public services; calls on the UK Government to devolve the fiscal powers necessary to develop a robust wealth tax system; further calls on the Scottish Government to improve the taxation of wealth through existing devolved powers, in light of the conclusion in its own literature review of wealth taxation in Scotland that 'reform of existing taxes on wealth may offer a more practical route to improving the taxation of wealth in Scotland' than a Scotland-wide wealth tax.”
16:52
I echo the sentiments that Ross Greer expressed in relation to council tax. I have heard him make the point before, but I very much echo it.
I welcome today’s debate on a topic that sits at the heart of the key challenge that the Government and, indeed, the Parliament as a whole must meet and match during this session. We all recognise the acute pressures that arise from the current dire fiscal position and the inevitability of our having to take difficult decisions at a time when businesses and households are crying out for help, but those decisions must be rooted in the long-term need of our economy and our society for fairness, sustainability and opportunities for all.
When it comes to taxation policy, Scottish Liberal Democrats have always been pragmatic about using the Parliament’s powers, but we have also recognised the importance of maintaining confidence in the tax system. The Government’s amendment repeats its claims about Scotland’s tax regime, but, as the Finance and Public Administration Committee has heard over recent weeks, recent changes have stretched that confidence. One of the witnesses, Sandy Begbie from Scottish Financial Enterprise, pointed to behavioural responses to income tax changes that were introduced without a clear commitment on the future direction of tax policy.
Most witnesses have agreed that, as the Labour amendment clearly suggests, non-domestic rates, land and buildings transaction tax and council tax are all crying out for reform. Some of that reform is under way, but it is long overdue and there is no clarity on what it might look like. That being said, however, I welcome the recognition in the Government’s amendment of the importance of stability and certainty.
As for the black hole that is identified in the medium-term financial strategy and referred to in the motion, ministers will point—very fairly, I think—to the influence of pressures that are very much outwith their control, yet they must also acknowledge the part that their decisions, and often indecision, have played in contributing to the fiscal gap.
The warnings have been mounting for years. In 2018, the Auditor General warned that the NHS was
“not in a financially sustainable position”.
In 2022, Audit Scotland warned that the Government’s
“ability to achieve financial sustainability in the years ahead”
was at risk and that
“Failure to make the necessary changes to how public services are delivered”
would likely mean
“further budget pressures in the future”.
Audit Scotland returned to the issue in 2023, warning that
“public services in their current”
form were
“not affordable”
and saying that ministers urgently needed to
“develop a clear roadmap”
laying out how public services would be reformed to make them financially sustainable.
Ministers will argue that that reform is under way, but the details to date have been sketchy, and stated intentions have often been contradictory. Stephen Boyd of the Institute for Public Policy Research Scotland told the Finance and Public Administration Committee:
“the policy framework … does not provide a credible and coherent plan for dealing with the fiscal challenge”.—[Official Report, Finance and Public Administration Committee, 9 September 2026; c 27.]
Most witnesses have been quick to point out that major reorganisation of this kind inevitably involves up-front costs—a point that I think the cabinet secretary acknowledged this morning. Early signs are not encouraging. The commitment to reduce public sector head count each year over the four-year period has seen numbers actually increase in the first year, raising the prospect of even more pain further down the line.
Many witnesses have been consistent in making the case for tax policy to be developed with sustainable economic growth in mind. Key to sustainability will be expanding the tax base, which will require improvements to economic performance, increased investment and productivity, and higher employment. That was reflected in the amendment that I sought to lodge for this debate. By breaking down barriers that prevent people from participating fully in the workforce and by supporting people into work, we can achieve better outcomes for individuals and businesses while also boosting the public finances.
The rising number of those who are economically inactive due to long-term health conditions should concern us all, too, as should the increased rates of economic inactivity among young people. Willie Rennie and Alex Cole-Hamilton have frequently raised the need for neurodevelopmental support to allow individuals to reach their potential, and the same is true for those with musculoskeletal conditions and, indeed, the hundreds of thousands of people who are on NHS waiting lists.
I want to touch on another issue that was flagged in the amendment that I sought to lodge, namely the critical role of colleges in meeting the skills needs of businesses, providing routes into skilled employment and, ultimately, contributing to the fiscal sustainability of public services. So many colleges are still in a precarious position at the moment when we need them to do what they do best—that is, helping individuals, businesses and communities to fulfil their potential.
The challenges that we face are significant, and fundamental changes are needed to meet them, yet the Government’s track record in delivering instead of simply talking about change is not promising. We now need ministers to match words with deeds, to set out the detail and then to gather the evidence to demonstrate the impact of reforms, so that we can begin to lift Scotland out of the financial hole that ministers have helped to dig.
We move to the open debate.
16:58
I draw members’ attention to my entry in the register of interests as I am a councillor in Renfrewshire and a nurse in the NHS.
At first glance, the Conservative motion sounds straightforward, yet behind the headline lies the familiar spectacle of a party whose own record on public finances raises serious questions now seeking to present itself as a voice of fiscal responsibility. However, before we take lectures from the Conservative Party on economic management, it is worth reflecting on its own record.
Many of the challenges facing public services today are the result of years of Conservative mismanagement and catastrophic decisions taken at Westminster. Austerity-squeezed local government budgets placed increasing pressure on public services and left many communities dealing with the consequences long after the headlines disappeared. And who could forget the economic chaos that was unleashed by Liz Truss’s disastrous mini-budget? It was an episode that undermined confidence, increased borrowing costs and demonstrated precisely what happens when ideology triumphs over sound economic judgment. When the Conservatives stand in this chamber presenting themselves as guardians of fiscal responsibility, the irony will not be lost on the Scottish public. After the economic consequences of their years in government, such claims are more laughable than credible.
The central flaw in the motion is that it presents Scotland’s financial future as a debate that is solely about taxation. It is not. The answer to long-term financial pressures is economic growth and public service reform. That is why the Scottish Government is not simply standing still and hoping that circumstances will change. Through its programme for government and the ongoing programme of public service reform, the Government is already taking forward measures that are designed to improve productivity, drive efficiency and ensure that public services remain sustainable for the future.
The public understand that maintaining the status quo is not an option. They want to see services modernised, duplication reduced and public money used as effectively as possible. They want earlier intervention, rather than more expensive crisis responses. They want innovation, prevention and better outcomes. That means recognising that meaningful reform requires partnership. It requires collaboration between national and local government, public sector organisations, front-line workers, businesses, communities and the third sector. Frankly, people are fed up with political point scoring. They want Governments and Parliaments to get on with the job of improving public services and delivering for the people they serve.
Alongside the work on reform, we must continue our focus on growing Scotland’s economy. A stronger economy is the most sustainable route to stronger public finances. That is why the commitment to building a wellbeing economy matters. It is an approach that recognises that economic success should not be measured solely by the size of our economy but by whether prosperity is being shared, whether people have opportunities to succeed and whether communities are able to thrive.
Investment in skills, innovation, infrastructure and the industries of the future will create the conditions for long-term growth. It strengthens our economy, supports jobs and helps to generate the revenues that are needed to sustain the public services on which people depend. That is the serious work of Government.
The Conservatives want to debate the focus of hypothetical future taxation decisions. I believe that the public are far more interested in what Governments are doing today to improve services, strengthen the economy and ensure that public money is spent effectively. The Scottish Government is already delivering a programme of reform to improve productivity and efficiency. Rather than another exercise in political posturing from a party with a deeply questionable record on economic management, let us focus on the real task that is before us: reforming public services, growing the economy and working collaboratively to deliver better outcomes for the people of Scotland.
17:02
It is posturing to refuse to take an intervention on the basis that you do not want to have a debate because you are so insecure in the argument that you are putting forward. I would love to know where the detailed programme for increasing Scotland’s productivity is. I would love to see the detail on that.
The motion asks a simple question: will the SNP Government rule out another raid on working Scots? [Interruption.] Was that a yes? That is good. Let us move on. Ladies and gentlemen, the Conservative motion has been passed without any further debate. [Laughter.]
[Made a request to intervene.]
I am willing to take an intervention from Lloyd Melville so that he can elaborate on that.
It is in our amendment. Perhaps the member should read it before he next stands up.
Excellent. I presume that members on the SNP benches will be supporting the Conservative motion.
Let us move on and talk about the £4.77 billion gap by 2029-30. That is not a Conservative Party claim and it is not an exercise in political point scoring—Michelle Campbell is an expert at that. It is in the Scottish Government’s financial strategy. There will be a resource gap of £2.64 billion and a capital gap of £2.146 billion. Scots are entitled to ask how ministers intend to close that gap, but we have heard nothing about that. The whole country is very confused about its public sector reform proposals, because they seem to have no specific vision, objectives, or end product outcome in mind. That sounds like a pretty naff approach to reform anything.
We have seen this pattern before. First comes the funding gap, then comes the lecture about fairness, and then comes the income tax rise—because that is inevitably what will happen.
Scotland already has the most complicated income tax system imaginable in any part of the United Kingdom.
As a former Conservative MP, does Stephen Kerr regret that Britain hit a peacetime tax burden high in 2024 under a Conservative Government?
I absolutely regret high taxes. That is why I am a Conservative. My whole political outlook is that we have lower taxes. We certainly do not have lower taxes on the horizon from this SNP Government. We have 48p as an income tax rate, and we have a massive fiscal hole to be filled.
Audit Scotland has warned that short-term fixes are not delivering fiscal sustainability. All the fidgeting and faffing about that the SNP engages in is not reform and does not change anything about the trajectory of our public finances.
The Scottish Fiscal Commission and the IFS have warned that taxpayer behaviour matters.
Please wind up.
If people work less, move income, leave, avoid promotion or choose not to come to Scotland, the tax yield disappears. The answer cannot be to turn the tax screw again.
Thank you, Mr Kerr.
The motion asks ministers to reaffirm their own commitment. If they mean it, they should vote for the motion. I think that they will, according to Lloyd Melville.
17:06
I am glad to speak to the amendment in the name of the Deputy First Minister, Jenny Gilruth.
Let us be clear what this debate is really all about. Conservatives, as per usual, want to manufacture fear about income tax. They want Scots to believe that higher taxes are inevitable and that the only answer is their tired, failed ideology of cuts and austerity. It is not the Scottish way—the Scottish electorate rejected them just a few months ago—and it is not the SNP way.
Let us be clear: Scotland’s income tax system is the fairest and most progressive in the United Kingdom. That is not a slogan; it is a fact.
Paul McLennan is referring to the Government amendment to the motion, so I will also refer to it. It states:
“the Scottish Government has previously stated that it has no plans to increase the number of bands or their rates”.
Last night, I had no plans to go to the pub. I then bumped into Douglas Ross and I went to the pub. Does Paul McLennan agree that plans can change based on circumstances and that, if the Government wanted to be explicit, it would say that it would rule out tax increases for the duration of this session of Parliament?
That would turn anyone to drink.
I will take you up on that, Presiding Officer.
Let us look at the facts. Lloyd Melville talked about that point in an intervention on Stephen Kerr. I will not take any lessons from the Tories. When the Tories came into power in 2010, the national debt was £1 trillion. When they left power in 2024, it was £3 trillion. That is a fact.
We had to pay for Covid.
The national debt tripled.
Will the member give way on that point?
The majority of income taxpayers in Scotland continue to pay less tax than they would if they lived elsewhere in the UK.
Press your button if you want to intervene, Mr Kerr.
Will Paul McLennan give way on that point?
If I will get the time back, I will give way.
Of course you will get your time back.
I sat in this chamber, as well as in the House of Commons chamber, listening to SNP members call for more Government spending, more borrowing, more extensive furlough, more grants—more this, more that, more the next thing. Paul McLennan has the nerve to stand up in here and talk about borrowing and debt. In all honesty, he must have the brass neck of all brass necks.
Again, I will come back to the point: national debt tripled from £1 billion to £3 trillion. UK national debt is 94 per cent of GDP. The last 14 years, from 2010 to 2024, were under the Conservative Government. The Conservatives are to blame for that.
The Scottish Government has designed a system that asks for those with the broadest shoulders to contribute a little bit more, so that it can protect the public services that every community relies on—our NHS, our schools, our social care and, of course, support for the most vulnerable. That is not something that the Tories like to hear.
In terms of economic volatility, stability and certainty matter. That is why the Scottish Government has been clear that there are no plans to introduce new income tax bands or to increase existing rates over the lifetime of this Parliament. The Deputy First Minister’s amendment simply restates that commitment. It provides the reassurance that households and businesses need.
Of course, there is a projected funding gap in the medium term. The Scottish Government has been transparent about the challenges, which are set out in the medium-term financial strategy. The pressures are real. They are driven by an ageing population, rising demand for public services, workforce costs and decisions taken at Westminster that constrain Scotland’s funding—indeed, Scotland’s fiscal framework is not sufficient. The UK Government has the same funding issues as most European Governments, but the Conservative response, as per usual, is to wave the gap around as a threat of tax rises while offering no credible alternative. That is political opportunism.
What the Conservatives will not admit is that our progressive approach is already delivering, as Ross Greer touched on previously. It is expected to raise significant additional revenue—£1.8 billion in 2026-27 alone—to support vital public services. That money is going into the NHS, education and housing, and into the services that my constituents in East Lothian Coast and Lammermuirs rely on every day. The alternative that the Conservatives offer is the same old story: to cut taxes for the better-off and cut the services that ordinary people depend on. What they will not talk about is the fact that cutting taxes would automatically lower the block grant—I have never heard that debate in the chamber on the Tory side. We have seen where their approach leads—to longer wait times, underfunded schools and communities that are left behind. Year after year, election after election, Scotland has rejected that approach.
Instead, the Government is focused on growth, reform and efficiency. We are investing in the green economy—which East Lothian, with our renewables potential and net zero jobs, is perfectly placed to lead on—as well as driving public sector reform and managing public finances responsibly within the limited powers that we have, and we will continue to make the case for full fiscal powers that will give Scotland real control over its economic destiny. I agree with Joe Fagan on the need to progress council tax reform; we need to have that debate as wider public service reform discussions continue, and the Deputy First Minister mentioned that in her remarks.
The people of Scotland did not vote for a race to the bottom on tax—they rejected that in the last election several months ago. They voted for a progressive, fair system that protects public services and asks the wealthiest to contribute fairly and for stability. The Government’s position delivers that stability, so I urge members to reject the Conservative motion and support the amendment in the name of the Deputy First Minister. Let us back the fairest tax system in the UK, protect the majority of taxpayers who already pay less and get on with the job of growing our economy and reforming our public services so that Scotland’s finances are sustainable for the longer term. That is a responsible and progressive path, and it is the path that the Government will continue to follow.
17:12
I will set Scotland’s tax position in context, and I hope that I can do so on a consensual basis. When our Parliament agrees a budget, and any relevant tax rates, the income that will be generated for the year in question is estimated by the Scottish Fiscal Commission. As part of the overall budget process, the Scottish Government must spend to the predicted tax take. However, as with any economy and tax base, we only know the actual tax take some time later.
The complexities and interaction between Scottish and UK tax policies and our fiscal framework mean that there is a significant lag—up to three years in the budget cycle—between when the tax take is predicted and the actual tax take is known. In 2026-27, which I will look at shortly, we estimate that Scotland will have to repay £720 million to the UK Exchequer as the actual tax take in 2024-25 was lower than had been estimated at the time. That cuts both ways: in 2025-26 and 2024-25, Scotland secured returns of £351 million and £492 million respectively, as our tax take outperformed what had been predicted.
Why do I highlight that in this debate? It is because the Scottish Government does not have adequate borrowing powers or fiscal levers to smooth out tax volatility. Let me give an example. If the UK Government were to increase its base tax rate by only 2 per cent, Scotland’s block grant would immediately be cut by around £1 billion, with real-time, direct consequences for the budget, for all parties in this place. As the fiscal framework is about to be reviewed, that point matters.
Will the member take an intervention?
Let me finish the point, then I absolutely will.
Despite our political differences, we should make common cause and ensure that the new fiscal framework works better for this place, no matter which party is in government.
If the Scottish economy had grown at the same pace as that of the rest of the United Kingdom, the SNP Government would have had £1 billion more to spend over the past 20 years. Does Bob Doris not accept that fact?
I am really disappointed that, when I asked for common cause to be found in the Parliament in order to protect our finances, Rachael Hamilton singularly failed to step up to that challenge.
Let me illustrate a further point. Although there can be great volatility in tax performance, we must offer stability and certainty to the taxpayer. That is precisely what the SNP Government plans to do in maintaining the number of tax bands—that is its plan—and the rates for this parliamentary session.
With any tax system, there will be so-called winners and losers. I do not like that terminology, but that is the reality. My Government rightly highlights that 55 per cent of people here in Scotland pay less tax than people in the rest of the UK; however, the converse is that others, including us in this chamber, will be in the remaining 45 per cent—some folk will pay about the same as people in the rest of the UK, and others will be the so-called losers.
We must recast the whole debate. In practice, what it really means is that we will raise an estimated £1.8 billion more in the coming financial year compared with what the tax take would have been if we had stuck to UK tax policies. That is a factual, real-life number. Rather than talk about the concept of winners and losers, I would rather talk about how we fulfil our social contract with the people of Scotland with that £1.8 billion.
We use that tax take to help our Scottish Government to maintain many aspects of that social contract. It pays for prescriptions, it means that there are no tuition fees and it ensures school meals for those on low incomes and for all children in primary 1 to primary 5—that provision is universal, irrespective of their household income. That money will be used to build on our childcare offer of 1,140 hours and to provide affordable wraparound care, which will be transformational over this parliamentary session.
I could go on, and talk about free bus passes, the £2 bus fare cap and the Scottish child payment, but, in the interests of time, I will not do that.
Any proposal to reduce taxes more widely will reduce the tax take, which will erode our social contract. That is what the Conservatives really want to do—that is their agenda. If the Parliament wishes to do that, the Conservatives and others should be honest about the consequences for the social contract that we have with the people of Scotland.
However, I recognise that there will always be a tipping point in relation to taxation policy, where tax regimes are either too imposing on family budgets or the tax take is too low and the social contract is undermined. That is why we are looking at public service reform—to make sure that the predicted budgets that are coming to this place align with fulfilling the social contract. I hope that everyone in the chamber will come together on a non-partisan basis to look at what public service reform will mean for the people of Scotland.
I convene the Public Service Reform Committee, and I say to my Government that public service reform must start with improving Scotland’s public services, not with saving cash. Getting it right will allow cash to be saved and reinvested in the social protections that I outlined earlier, alongside improving public services.
I want to put this point on the record before I conclude. We talk about the tax take, and the Government talks about stability and certainty. Scotland’s third sector is vital when it comes to public service reform, and it needs stability and certainty in its income for the long term if we are to be successful in delivering public service reform.
We move to winding-up speeches.
17:18
I do not think that there is any harm in our debating income tax this afternoon, but as a number of members have said, the real need for a debate in this Parliament, and in this country, is on local taxation. Joe Fagan and Liam McArthur made that point, and I made it earlier in relation to council tax.
To build on that, I will give an example of how broken our council tax system is. This is a shared problem for Scotland and England, but not for Wales—its system is not perfect, but it has made important changes to it over the years. Buckingham palace pays just over £1,800 in council tax. I pay more than that for a two-bed flat with a leaky roof. That should not be the case. My flat is clearly in the wrong band, but it shows the scale of inequity that is built into the council tax system.
On a scale of one to 10, how confident is Ross Greer that the SNP Government will embrace his plans and his vision for reform of the council tax?
It is always tempting to offer a score. To be fair to the Government, it embraced the Greens’ vision for the income tax system—over the past 10 years, Patrick Harvie and I have had more to do with Scotland’s income tax system than most members. I say to Mr Rennie that I will give it an optimistic seven out of 10.
If we are going to engage in a cross-party process on this—I agree with Joe Fagan on that—we need to start with a revaluation exercise. We cannot possibly decide what the end goal is on a property tax for Scotland until we know what property values in Scotland are this century—we have not had a revaluation exercise since 1991, so that is essential.
There are other steps that we can take in the interim, such as introducing a multiplier effect on additional homes. We have taken a step in relation to second homes, but no steps for a third, fourth or fifth home. One local member of the House of Lords bragged to me recently about his six properties. We might want a multiplier for individuals such as that.
There is a clear need for reform of non-domestic rates. We talk about them as being business rates, but they are nothing to do with the business; they are a rate on the property, on its rateable value. We have businesses in this country whose bill bears absolutely no relation to their ability to pay it. There is a need for non-domestic rates reform, so I would certainly agree to that. That process might start off as separate to council tax reform, but the two would need to come together.
On that point, the Greens have a desired end goal in mind: land value tax. However, we are open to discussion, compromise and agreement on that, because, after decades of failure, there must be progress on reform of our local taxes. The Conservatives are trying to force the Government into a position in which it will inevitably have to make cuts that Conservative MSPs will then object to in this Parliament. We have the opportunity to reject that this afternoon.
Fundamentally, the only way in which we can close the fiscal gap, build the more prosperous society that we want to see and defend our public services is with a redistribution of wealth. This is a wealthy country, but the wealth is still held incredibly unequally. The solutions are available to us. We do not have the full range of tax powers that my party and I would want us to have, but we certainly have not exhausted the powers that are available to us. Some of them are horrendously out of date and outright broken. We have an opportunity in this parliamentary session to begin the process of fixing that.
17:21
It is a pleasure to sum up the debate on behalf of Scottish Labour.
Craig Hoy began with a bit of Conservative Party bingo, perhaps forgetting that it was the Tories who, in 2024, left the UK with the highest tax burden since the second world war.
Jenny Gilruth made a fair point about the principle that those who earn more should pay a bit more, which we on the Labour benches certainly agree with. However, my point is that that relates to higher-quality public services: if people are contributing more and more, which might be necessary, we need an improvement in public services. When people are waiting years for NHS treatment, and when we see a decline in public services, they question the value for money.
Kim Schmulian really wanted us to think of the private jet owners. I will not spend too much time doing that or shedding too many tears for them. She was not willing to take my intervention, but I had just wondered whether it was her friend Nigel who had been beseeching her on behalf of his crypto friends.
Joe Fagan and Ross Greer made lots of fair points about the taxes that the Parliament can reform, particularly council tax and non-domestic rates, to which I will return in a moment.
Liam McArthur was right to say that the big black hole in our finances was both predictable and, indeed, predicted for many years. The Scottish Parliament and, in particular, the Scottish Government have to reckon with that. I would gently say that removing reference to that through its amendment suggests that the Government is not taking it as seriously as it should be.
I was interested in what Michelle Campbell had to say when she warned about what happens when ideology triumphs over sound economic judgment. That is surely the best case against Scottish independence, but we will leave that there.
Much has been said in the debate about taxes. Before we look at further taxes or powers to be devolved to the Parliament, could we first prove that it is using the full range of taxes and powers at its disposal well? I can tell members that, just now, it is not.
Does Jenny Young agree that it has been discussed a great deal today that the Parliament has not been functioning well with the parties that, until now, have been elected? Despite the constant barrage of comments towards Reform UK, it seems as though a lot of our ideas are really shaking up the Parliament, and we are starting to talk about things that those parties have had two decades to deal with.
I guess that I am just waiting to hear what the constructive and credible ideas are.
Returning to my point about the powers and the taxes that this Parliament does have responsibility for, it took the Government the best part of a decade to set up the aggregates tax, which was devolved following the Smith commission and which, to a large extent, mirrored the UK aggregates levy that it replaced. The Government is still to sort out air passenger duty, which is finally due to come into effect next April, 11 years after it was devolved.
As others have said, there are a number of taxes in the control of the Parliament that could be reformed, so perhaps the Government could turn its new zeal for reform to council tax or non-domestic rates. Ross Greer and I must be a similar age, because I was in primary school when Alex Salmond came to power on a promise to scrap and replace council tax, but I am still paying it.
As others have said and as Joe Fagan made clear, the Parliament has previously supported the convening of cross-party talks on council tax reform. I urge the Scottish Government to press on with those, and it will certainly find a willing partner in the Scottish Labour Party in that discussion.
On business rates, there have been some tweaks around the edges and some moves in the right direction, but there are fundamental challenges in the way that the system operates that place high street businesses at a competitive disadvantage, while online retailers get away with paying a fraction of the rates. There were hints in the right direction in the SNP’s manifesto, but vague language really is not enough. We need to see clear proposals on that, and I hope that that will be in the upcoming budget.
Land and buildings transaction tax was also not mentioned in the SNP’s manifesto, and the IFS said that that is arguably the tax most in need of reform and that it has been made
“even bigger and more damaging”
under the SNP Government.
We are heading for a difficult period in Scotland’s public finances. That was entirely predictable and predicted, but, nevertheless, here we are. We urge the Government to be honest about what it is planning to do and to urgently address the many taxes for which it is responsible.
17:26
This is an important debate, because income tax is one of the things that we have control of. However, it is not a lever for growth unless it is lowered. I agree with Craig Hoy that we need to protect it from being increased. I do not agree with Ross Greer that we need a wealth tax, but we need to find a way forward.
I have archaeology in my past, and, if I may take a moment, I would like to look back three centuries. We set sail from Scotland to Darien in Panama, and we were seeking to build and create wealth and to expand commerce in that area. We wanted a secure and brighter future for Scotland, much as most of us want today. Back then, we tried to trade, but it resulted in disaster and fortunes were lost. We found ourselves facing profound economic hardship, much like today. We are now facing a near-£5 billion black hole and, according to “Government Expenditure and Revenue Scotland”, an accounting gap of £25 billion.
Angela Ross will understand that, if the zero tax rate policy were implemented, it would lead to a cut in the block grant, which would increase the tax gap. How much would her party’s proposals cost because of that adjustment to the block grant?
I am always looking for ways to create efficiency, and it is really important that we allow the economy to actually grow. The SNP has not done a good job of that in the past two decades. Let us look for things that actually work.
I go back to the Darien experiment and the fact that we were in deep economic difficulty. We face similar challenges now. What followed back then was remarkable. In 1707, we joined the union and we had access to markets that ensured that we established financial security. We were able to focus on discourse and academia because society became dynamic and traditional authority backed off.
Will the member take an intervention?
I will continue, because we are short of time.
The Government took its hands off the public’s money. [Interruption.] Scotland became a nation of thinkers, inventors, entrepreneurs and industrialists. The Scottish enlightenment that ensued is something that we should be very jealous of today. It helped reshape economics, philosophy, engineering and science. Scottish ideas, Scottish innovation and Scottish enterprise helped to change the world and sparked the industrial revolution. [Interruption.]
There is too much muttering. Can we listen to the speech, please?
Thank you, Presiding Officer.
From the depths of economic difficulty came a period of prosperity and influence that was hard to imagine at the time of that deep and difficult economic division. We now need to focus. There is a lesson here: when the conditions are right, prosperity can be generated again. When people have the freedom to innovate, invest, trade and build, remarkable things can happen. Economic growth cannot simply be commanded into existence by a Government; it must be enabled. Higher income tax is not the answer. Lower income tax rates empower people.
Too often, in debates such as this, we focus on how wealth is distributed before we consider how it is created. Without growth there is less investment, fewer opportunities, lower wages and, ultimately, less revenue available for the public services on which we all depend.
Our focus today is on income tax. It was introduced during the Napoleonic war as a temporary measure to address a crisis of immediate financial need. It was never conceived as a tool for economic growth, but still we have it.
Every additional burden that is placed on people, work, enterprise and investment acts as a brake on growth, not a facilitator of it. If we want a stronger economy, better wages and better public services, we must first create the conditions that allow businesses to succeed, entrepreneurs to invest and workers to keep more of what they earn.
17:31
I was going to start by acknowledging the contributions from across the chamber but, to be honest, they have been quite varied in their quality and relevance, so I might leave that there.
I urge the minister to express his regret about the Darien scheme right here and now.
Well, Reform members are probably well versed in the politics of the 17th century or early 18th century.
We all recognise that public sector finances are under pressure in Scotland, as they are across the UK and more widely across the world. Against that backdrop, it is more important than ever that we engage in constructive and serious debate about our nation’s future. Failing to take action now will only push problems down the road and undermine the ability of members in the Parliament to take meaningful action in the future to improve people’s lives.
The Conservative Party motion recognises the pressures but offers no solutions. Instead, it resorts to fearmongering about tax rises that are plainly not on the table. That has already been stated, but I will reaffirm it now: in our manifesto, we ruled out increases to income tax rates. [Interruption.] I have already ruled that out three times, but I can rule it out again.
I thank the cabinet secretary for ruling that out. Of course, that is exactly what his party said in the previous parliamentary session—it ruled out tax increases—but it broke its promise. Should we not judge him on his past performance? [Interruption.]
As my colleague has just reminded me, Liz Truss might have had something to do with what happened in the previous parliamentary session, given what she did to the UK economy more generally.
We are delivering a clear plan to address the pressures that our budget is facing. I can contrast that with the approach of the Conservatives, who offered the electorate almost £4 billion of tax cuts ahead of the election—an election in which they did not fare particularly well—and expected that, by a sleight of hand, the impact on public services would be ignored. Of the Conservative Party’s manifesto, the IFS said:
“this may be a costed plan on paper but whether it would survive contact with reality is far from clear.”
I cannot be the only one in the chamber who hears those words and thinks back to the turmoil that was caused by the Liz Truss mini-budget, which promised tax cuts but did not include a clear plan to pay for them. Put simply, such approaches are not serious or credible, so it falls on all responsible parliamentarians to plot a different course.
Will the cabinet secretary take an intervention?
Will I get the time back, Presiding Officer?
Yes.
I will give way
Until the election this year, there was a Scottish tax advisory group, on which the cabinet secretary sat, with broad representation from academics, professors and business representatives. For some reason, the Scottish Government got rid of that group. Was that because the Government did not like the advice that it was getting—it might have been the wrong advice—or was it just an example of the SNP’s arrogance writ large?
That tax group was set up during the previous parliamentary session so that we could engage with those who could contribute to the generation of the tax strategy. That work has been done, so we have moved on.
In the limited time that I have left, I will refer to some of the contributions that we have heard. Bob Doris’s contribution was valuable. It clearly positioned public service reform as being about saving money—yes—but, more importantly, about improving service delivery. We should remain conscious that that is the primary objective of our public service reform agenda. If we get it right, savings will flow from it. He also highlighted the key role that the third sector has to play, which I reinforce.
The Government is taking action to ensure that we have sustainable public finances. That will allow us to make progress against our priorities for this parliamentary session without the need for tax rises.
Public service reform is at the heart of our fiscal strategy. Fundamentally, it is about service improvement and delivering for people while ensuring that services are fiscally sustainable, whether that is through prioritising prevention to reduce demand for crisis services, better joined-up services to improve outcomes and reduce cost, or delivering more efficient services. Public service reform has a hugely important role to play in ensuring our fiscal sustainability.
There has been a range in the seriousness of contributions this afternoon, as there always is. As we move into the budget process, I am sure that we will hear constructive suggestions. However, based on today’s debate, I am not sure that the Deputy First Minister, who is leading that process, will hear much of those from many of the parties in the chamber, which, unfortunately, is a bit disappointing.
In conclusion, I ask members to support the Government’s amendment.
I call on Murdo Fraser to wind up the debate. You have a rollicking four minutes.
17:36
I fear that, in four minutes, I will not get round every single contribution made in the debate. I will therefore pick only the most egregious contributions and respond to those.
I will start with the cabinet secretary for finance. She was very clear that tax cuts had to be paid for. Of course, she was rather wrong-footed when I mentioned that, only yesterday, I saw in the media that she had been backing a very worthy campaign to cut the VAT on hospitality to 10 per cent, but she could not answer when I challenged how that would be funded.
However, she should not be disappointed, because she is not alone. I have a long list of senior SNP ministers who similarly called for tax cuts. We might remember Alex Salmond. I do not know whether we are allowed to mention Alex Salmond in the chamber anymore; he seems to have been airbrushed from SNP history. Alex Salmond called for corporation tax cuts, and he had no idea how they would be paid for.
When Fiona Hyslop was culture secretary, she called for a cut in VAT on building repairs, with no idea how that would be paid for. When Fergus Ewing was the minister for tourism, he came to the chamber week after week demanding cuts in air passenger duty to give Scotland a competitive advantage. He had no idea how they would be paid for, either. Even the current First Minister, John Swinney, was recently in the media saying that the chancellor should cut spirits duty in his budget to help the Scotch whisky industry.
I do not disagree with any of those proposed tax cuts. All of them would be good for the economy and all of them would help to grow our economy. However, all those cuts were called for by the SNP when it had no idea how they would be funded. The SNP says that tax cuts have to be affordable. It is interesting that all those other tax cuts would have to be funded by other people—other Governments. The SNP does not apply the same principles to itself, here in the chamber.
Will the member take an intervention?
Oh, yes. Perhaps Mr McLennan can explain how all the tax cuts will be funded.
What the member failed to explain is that, under the current fiscal framework, a tax cut would result in the block grant being cut straight away. What does he say to that? If there is a cut in income tax, that would result in a cut to the block grant straight away. How does he deal with that?
Mr McLennan did not answer my point. It is all very well for the SNP to call for others to cut taxes, but it does not want to cut taxes itself.
Every single tax that has been devolved has gone up—
Will the member take an intervention?
I will, in a second.
Income tax has gone up, land and buildings transaction tax has gone up, additional dwelling supplement has gone up and council tax has gone up. We are now getting a mansion tax and a new tax on private jets instead of tax cuts. Mr McLennan needs to explain why it is all right for another Government to be called on to cut taxes, but the SNP does not want to cut taxes itself.
Under the current fiscal framework, a cut in tax will result in an immediate cut to the block grant. If that is the point that the member is seeking to make, he should be looking to change the existing fiscal framework. It is not fit for purpose.
We have just had a review of the fiscal framework, which was agreed by the current Scottish Government. If Mr McLennan has a problem with the fiscal framework, he should not come moaning to me. He should raise the issue with his SNP Government.
Talking of egregious examples, let me move to Ross Greer. There was a bit of old-style socialism from Ross Greer. Eat your heart out, Andy Burnham. The real socialists are here in the Scottish Parliament.
The whole approach of the Greens seems to be that wealth is something that the state is there to help itself to. Ross Greer wants to squeeze the rich until the pips squeak. The problem with that is that, if we squeeze the rich too much, they will simply go somewhere else. They will take all their wealth and tax revenue with them.
Will the member give way?
If I have time to do so, I will give way.
I call Ross Greer.
Given that we are debating income tax, can Mr Fraser, if he believes in this theory of capital flight, explain why there are more higher-rate income tax payers in Scotland today than there were when we started making the reforms to income tax? That is not due to fiscal drag; it is because we have been able to attract more high-salaried individuals to Scotland due to the services that we provide with the taxes that we raise.
Mr Greer needs to look more closely at the data. The reality is that growth in the number of taxpayers in the rest of the United Kingdom is higher than growth in Scotland. Scotland is underperforming the rest of the UK in terms of growth in the number of taxpayers.
The reality is that, if we tax the rich too heavily, they will simply go somewhere else, and then there will be nobody left to fund all the fancy wine bars that members of the Green Party want to spend their money in when they should be here in the chamber doing their work.
Craig Hoy was right. We have a £5 billion fiscal gap. Higher taxes simply are not working, because we see a tax performance gap between Scotland and the rest of the United Kingdom.
Bob Doris referred to negative reconciliation. The Scottish economy and the Scottish tax base have underperformed the UK as a whole. That will cost the Scottish budget £720 million next year. More than two thirds of a billion pounds must be found because of our underperformance.
Will the member give way?
If I have time, I will give way.
Of course.
Murdo Fraser will also recognise that I said that, in the two preceding years, the Scottish tax take had overperformed. It is not reasonable to airbrush that out of existence.
We will conclude the next fiscal framework review in 2028. Will Murdo Fraser get on board and bat for Scotland to get the best deal for this Parliament?
I have dealt with that point. We have just had a review of the fiscal framework, and the Scottish Government agreed its terms. If SNP members do not like the position, they should take it up with their Government, not us.
We now know that the Scottish Government’s increase in the top rate of income tax to 48p cost money, resulting in a loss of £22 million a year. If we increase taxes too much, the result is that we lose money rather than raise it.
Will the member take an intervention?
If I have time.
You are actually over your time, but I will let you take this intervention.
Oh, go on, then. Thank you, Presiding Officer.
I am glad that Murdo Fraser has raised that point, because that is the suggestion of one economist, Dan Neidle. When commenting on that, Laurie Macfarlane, a Scottish economist, said:
“At most, it presents a plausible but highly uncertain guesstimate, built on assumptions that are not well supported by the historic data. Given these methodological concerns, no major policy decision should be taken based on this analysis alone until further data is available.”
Does the member acknowledge that it is a theory by one economist that is far from proven? Even Dan Neidle has distanced himself from the media coverage that Mr Fraser seems to be quoting.
I call Murdo Fraser to respond and to wind up.
Ross Greer is wrong, because Dan Neidle is a very well-respected economist. The individual that the member is quoting is no more respected than Dan Neidle.
The simple fact is, as Arthur Laffer, the famous American economist, said,
“You cannot tax your way to prosperity”.
If we want to have money to pay for public services, the way to achieve that is through stronger economic growth. Using tax as a lever to support stronger economic growth is exactly what this Government has not been doing and what it should be doing. That is why it should support Craig Hoy’s motion.
That concludes the debate on protecting Scots from income tax rises.
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