Meeting date: Thursday, February 25, 2021
Meeting of the Parliament (Hybrid) 25 February 2021
Agenda: First Minister’s Question Time, Portfolio Question Time, Budget (Scotland) (No 5) Bill: Stage 1, Scottish Income Tax Rate Resolution 2021-22, Scottish Fiscal Commission Appointment, Parliamentary Bureau Motion, Decision Time
- First Minister’s Question Time
- Portfolio Question Time
- Budget (Scotland) (No 5) Bill: Stage 1
- Scottish Income Tax Rate Resolution 2021-22
- Scottish Fiscal Commission Appointment
- Parliamentary Bureau Motion
- Decision Time
Scottish Income Tax Rate Resolution 2021-22
The next item of business is a debate on motion S5M-24225, in the name of Kate Forbes, on the Scottish income tax rate resolution. Members should note that the question on the motion will be put immediately following the conclusion of the debate. I invite members who wish to speak in the debate to press their request-to-speak button. I call Ivan McKee to speak to and move the motion.
I am happy to be corrected. I am only reading what is written for me; I am not in charge. I call the Cabinet Secretary for Finance, Kate Forbes, to move the motion, which will be spoken to by Ivan McKee. Have I got that right now?
That the Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2021-22 are as follows—
(a) a starter rate of 19%, charged on income up to a limit of £2,097,
(b) the Scottish basic rate is 20%, charged on income above £2,097 and up to a limit of £12,726,
(c) an intermediate rate of 21%, charged on income above £12,726 and up to a limit of £31,092,
(d) a higher rate of 41%, charged on income above £31,092 and up to a limit of £150,000, and
(e) a top rate of 46%, charged on income above £150,000.
That is excellent—off we go.16:37
I had checked the choreography with my officials earlier. The process is apparently that the cabinet secretary moves then I speak to the motion. I am delighted to open part 2 of this afternoon’s fiscal double header, for those who are gluttons for punishment.
First, I draw Parliament’s attention to the procedural connection between the debate and rule 9.16.7 of the standing orders, which states that a rate resolution must be agreed before stage 3 of the budget bill is able to proceed. As members will be aware, the debate on the rate resolution normally takes place following stage 2 of the budget bill, but today’s debate is taking place after stage 1.
Any further delay would have left business and payroll operators with insufficient time to ensure that their systems would be ready ahead of the start of the new tax year on 6 April. We have brought forward today’s debate to alleviate any further disruption to them and in recognition that people need stability from the tax system now more than ever before.
The fact remains that had the United Kingdom Government been able to set its budget in timely fashion, businesses and employers would not have faced this uncertainty in the first place. In contrast with the indecision of the UK Government, our budget offers Scotland’s people and businesses certainty and stability in times that are anything but certain. On every page of the budget can be seen decisions that have been taken with the coronavirus pandemic to the fore: spending prioritised for the industries hardest hit, support for our national health service and investment in the future of our economy. Those decisions have been taken without our having the full picture of funding available to us.
We have been clear that this budget supports Scotland’s people and the economic recovery for this year and beyond; it will provide certainty and stability in the face of the disarray that is caused by Brexit, at the hands of the UK Government.
In 2017, the Scottish Government set out its vision for a fairer and more progressive income tax system in Scotland. At the time, a commitment was made that the new five-band system would remain in place for the duration of this parliamentary session. The proposals that we are debating today deliver on that commitment and maintain our fairer and progressive tax system. Under those proposals, all income tax rates will remain unchanged; the starter and basic rate bands, as well as the higher rate threshold, will increase by inflation; and the top-rate threshold will remain frozen at £150,000.
During our pre-budget engagement, we heard a clear message from stakeholders across the country that now is not the time to make significant changes to taxes and that, instead, we should focus on supporting the people and businesses that are hardest hit by the pandemic.
Leading fiscal commentators, such as the International Monetary Fund and the Organisation for Economic Co-operation and Development, agree that now is not the time to balance the books. We, too, have been clear that now is not the time for fiscal consolidation. This budget is about striking the right balance between raising the revenue that is required to fund our public services and providing certainty for all Scottish taxpayers.
Our proposed tax package has been supported by key stakeholders. David Lonsdale of the Scottish Retail Consortium wrote that
“decisions to protect ordinary taxpayers from rises in income tax rates…are spot on”.
Professor Graeme Roy from the Fraser of Allander institute said that this wise package provides certainty and stability to households and families who are living in very uncertain times. Our proposals for income tax deliver that certainty and stability.
This Government is committed to ensuring that tax policy is understood and informed by a diverse range of views and perspectives. We have committed to delivering a transparent and outward-focused tax policy making process. We embrace a collaborative approach to tax policy development, which is characterised by regular consultation with taxpayers, industry representatives and professional bodies.
Ahead of the budget, we engaged with a diverse range of stakeholders on tax policy. That engagement included a pre-budget consultation, which showed a broad-ranging interest in the devolution of further tax powers and an appetite for broader engagement on tax.
We listened to the interest in further devolution of tax powers that has been expressed by stakeholders and, as part of the medium-term financial strategy, we called for the UK Government to use the upcoming fiscal framework review to consider that. That call includes devolving a package of taxes, encompassing full income tax powers and full value added tax devolution, as well as consideration of other tax powers, such as capital gains tax and national insurance. Those powers would enable the Scottish Government to shape a recovery that is best suited to Scotland. We believe that broad-based engagement of that kind should not be limited to the annual budget cycle, but should form part of a wider conversation about the purpose of tax in our society, and what tax is designed to achieve.
Members will know that the Finance and Constitution Committee, in its “Report on Scottish Government Budget 2021-22” this week, called for
“a national conversation jointly led by the Government and Parliament and which includes a wide range of voices across Scotland.”
Although I believe that he may be back for stage 3, I pay tribute to Bruce Crawford and the efforts that he made to encourage me when I first came into this Parliament and sat on his esteemed committee.
We welcome that call from the committee and will work constructively with its successor committee to ensure that the conversation is well-grounded and valuable to the public of Scotland.
The findings of that conversation will be considered as part of the pre-budget scrutiny of future years, but we want that national engagement on taxes to broaden understanding of the links between tax and spend, and the central role of taxes in Scotland’s finances.
We want to look afresh at the social contract that underpins tax and spend and allows Scotland’s taxpayers to continue to have access to a wider and better-funded range of free-to-access public services than in the rest of UK, making Scotland an attractive place to live, work, study and do business. Those taxes support our national health service and the industries that are hardest hit by the pandemic and they deliver for Scotland.
As this parliamentary session draws to an end, it is a good opportunity to reflect on what our decisions on income tax have delivered for Scotland. People in Scotland pay their income tax in the most progressive and fair tax system anywhere in the UK; it protects low-income earners and raises additional revenue to fund public services.
Our decisions mean that, for the fourth consecutive year, Scotland will be the lowest taxed part of the UK for the majority of income tax payers. We continue to ask those with the broadest shoulders to contribute more but, in return, people who live in Scotland continue to have access to the widest range of public services available anywhere in the UK. That is progressive tax policy in action.
Members will be aware that income tax outturn data is available only after a significant time lag. Therefore it was not until September last year that we got the first insight into the results of our income tax reform in 2018-19. That data showed that Scottish tax receipts grew faster between 2017-18 and 2018-19 than those in the rest of the UK. As a result, Scotland raised £119 million over and above the corresponding block grant adjustment, largely thanks to our policy changes. That positive outlook has continued into 2019-20. Data published recently by HM Revenue and Customs suggests that Scottish receipts between 2018-19 and 2019-20 continued to grow faster than those in the rest of the UK.
If we look across this parliamentary session, the latest forecasts from the Scottish Fiscal Commission and the Office for Budget Responsibility tell us that, over the five years following 2017-18, Scottish income tax is expected to raise around £930 million more than the corresponding block grant adjustments. That is extra money that we have been able to invest in our national health service and our education system and in tackling the climate emergency. There can be no firmer evidence that our tax policies are delivering for the people of Scotland.
I recognise that people across the country are dealing with the significant economic and social impacts brought on by the pandemic. They need certainty and stability from their tax system. This policy delivers just that.16:46
It is a peculiarity of the budget process that we have to set the rate resolution before our final vote on the budget. We do not yet know the final overall size of the budget, or how it will be allocated.
However, this is an important part of the process: if we did not agree on a rate resolution, no income tax would be collected at all in Scotland. Some of my colleagues might welcome that prospect. It might give an interesting foretaste of what an independent Scotland might look like, with a large black hole in the public finances, but it is probably not a responsible way in which to proceed, at present.
As we consider our approach to the rate resolution, let us not forget that the Scottish National Party was elected on a manifesto promise not to raise taxes. In its 2016 manifesto it pledged to
“freeze the basic rate of income tax throughout the next Parliament to protect those on low and middle incomes”.
Nicola Sturgeon herself has said:
“I have been very clear that the government will not increase income tax”.—[Official Report, 2 February 2017; c 10.]
I could bore the chamber for hours with similar quotations from SNP figures, perhaps even from the finance secretary herself, making similar pledges, all of which have now been broken.
Everyone who earns more than around £27,000 pays more tax than their equivalent south of the border. Many of those who are paying much more are basic-rate taxpayers. There is also, as we have often raised, particular concern about those who earn between £43,000 and £50,000, who pay tax at a marginal rate of more than 50 per cent. That is a disincentive to people in that tax bracket to work harder.
That is not the only tax promise that the SNP has broken. It also promised at election time to raise the personal allowance to £12,750. That is another pledge that the SNP has broken: we have had two broken tax promises in the course of one session of Parliament.
That said, I welcome the fact that we will not have further tax increases in the current year. Although that does not narrow the gap between Scotland and the rest of the UK, at least it does not make matters worse.
It is classic Keynesian economics to increase spending and reduce taxation at a time of economic downturn. The Scottish Government is not choosing to reduce taxation; we will see what the Chancellor of the Exchequer decides to do for the other parts of the UK in his budget next week. To increase taxes at this time would go against all orthodox economic thinking. The minister gave a nod to that idea in his remarks. This is not the time for fiscal consolidation. That might be different in the long run. We await what the chancellor announces in the UK Budget next week, but I would be very surprised if he took any steps to increase personal taxation at this time.
In subsequent years, the story might be different. There might be a need to increase taxes in order to reduce borrowing and then to start to make repayments, but now is not the time to do that. In that respect, the minister and I are in the same place; we agree with that general approach. It remains to be seen whether that meeting of minds will last much longer. For now, we agree that that is a sensible approach to taxation.
However, we would prefer it if we were going further towards meeting tax rates in the rest of the UK, because we have to be very careful about increasing tax divergence between Scotland and down south. Scotland needs to be a competitive place to live, work and do business. Our aspiration as a party is for taxes in Scotland to be competitive relative to those in the rest of the UK. That is how we will attract people to come to live in Scotland, and that ambition is as important now as it ever was.
Will the member give way?
If I have time, I will give way.
You will get your time back, Mr Fraser.
Does Murdo Fraser accept that people are attracted to Scotland for a range of reasons? For most people, the tax rate is not the dominant reason. They come here for the quality of education, the quality of the health service and the friendly people.
Mr Mason is right that there are all sorts of factors that lead to people coming to and leaving Scotland. However, if I were him, I would be very nervous about praising the quality of Scotland’s education system, given what we have heard from all the academics and experts who have compared the recent performance of Scotland’s education system with performance in other parts of the world. We seem to be slipping down international league tables. There is a lot of work to do if we are to make Scotland as attractive as it should be to people who want to come here to educate their children.
I will say a little bit about the fiscal framework, which was mentioned in the previous debate but is also relevant to this one. The fiscal framework protects public spending in Scotland, provided that tax revenues in Scotland remain similar to those in other parts of the UK. That is important, and will be particularly important if we end up with a shrinking economy and a falling set of tax revenues. The finance secretary would not have to worry about a falling budget in that scenario, because her budget is protected from reductions, unlike the budgets in all the other countries that she likes to talk about, which face a squeeze on their income. The fiscal framework—which, of course, the Deputy First Minister negotiated on behalf of the Scottish Government—protects the levels of spending in Scotland, and we should welcome that.
In the current year’s budget, the finance secretary has had to account for £300 million of negative reconciliations arising from overestimation of taxes raised during the 2018-19 budget period. The fiscal framework allows the Scottish Government to borrow money in order to fill that hole, which is a very welcome initiative.
We know that the tax changes that the SNP Government introduced have not raised as much money as it predicted they would. I remember, when the tax changes were introduced by the finance secretary’s predecessor, his claims that they would raise up to £600 million—more than half a billion pounds. In his opening remarks, however, the minister gave the game away. In the past year, the tax changes raised only £119 million, which is much less than was originally claimed. That suggests that raising taxes is not a one-way bet in raising additional revenue, as the minister seemed to suggest.
Will the member take an intervention?
I will, if I have time.
The minister must be very brief.
I will clarify the point that I made. I said that the £119 million reflects the better performance of income tax raising in Scotland than that in the rest of the UK, which adds up to a total of £930 million over this parliamentary session. That is a positive reflection of the Government’s tax policies over the period.
That was a very long intervention. If the minister checks the record, he will see that he said—I listened to him very carefully—that the £119 million included the revenue from the tax changes that were made.
We cannot support the rate resolution that is before us, because it does not go far enough, but we will not oppose it. Governments have a duty to levy taxes to pay for public services. Without the rate resolution being passed, that would not be possible. We will therefore abstain in order to let the rate resolution pass.
There is some time for interventions.16:54
Since the Government took charge of Scottish income tax rates, Labour members have been critical of how it has used the powers. For years, the SNP demanded that income tax rates should be devolved so that it could introduce more progressive policies. However, since the SNP has taken charge, we have not seen much more than tinkering around the edges.
I know that the finance secretary will probably tell me that the most well-off taxpayers in Scotland will be paying more than they would in England. I know that she will probably also say that the Government has introduced additional rates and bands. However, in the application of those powers, year after year, it has failed to make the most of them. This year, we see the conclusion of that timid approach, with the lowest earners being given a tax cut that is effectively worth 12p, while the top earners—those bringing in more than £150,000 per year—get a cut worth £33. How is that progressive? How can it be that the Government is proposing income tax rates that provide so little help to those on the lowest pay? Many of them are the very workers whom the Government applauded during the pandemic.
We know that this year’s tax rates are a holding position in advance of an election that is just weeks away, as the Government anticipates more money coming from the UK Treasury to fill the gap. The budget proposals therefore tell us very little about how the Government might approach the recovery from coronavirus in the years ahead.
It would be unacceptable for the burden of the crisis to fall on those with lowest incomes. Although many people on higher incomes have managed to save more over the past year, that is not true for those on low incomes, many of whom have struggled to make ends meet. In the coming years, the Government cannot replicate this year’s approach and hand a larger saving to those who already have far more to fall back on. I therefore welcome the fact that low earners will not see a tax rise next year, and that is why Labour has also welcomed the council tax freeze. When people are facing such a strain on their family finances, we cannot—and should not—ask them to pay more, particularly at a time when the Scottish Government is benefiting from UK Government borrowing at historically low levels.
However, I ask the finance secretary to consider carefully in future how she matches her words about progressive taxation with action. It is only because of the significant increases in spending available from UK Government borrowing that she can meet all her commitments this year. In future years that may not be as readily available and, at that time, the burden cannot fall other than on those with the broadest shoulders.
The coming years will challenge the Government to be more radical and more innovative with public finances. If it wants to maintain all the commitments that it has made, money will have to be found somewhere. We know that the Government already plans to borrow in order to deal with negative income tax reconciliations in future years. We also know that the cabinet secretary has been seeking additional borrowing powers from the UK Government as part of the fiscal framework review.
However, if we are to have sustainable public finances that can provide the basis for economic growth in Scotland, borrowing and taxation will not go far enough. The finance secretary needs to take action to restart our economy and, at the very least, catch us up with the rest of the UK. The medium-term financial strategy makes it abundantly clear that the Scottish Government is overreliant on tax receipts from sectors that are disproportionately affected by Covid-19.
Recovery will mean redressing that balance. It will also mean planning for an economy that is going to look very different from the one that we had before coronavirus. The Government cannot make the same mistakes that it did after the last financial crisis, such that Scotland was still trying to catch up more than 10 years on from that shock. We cannot afford another anaemic recovery.
Labour will not vote against the rates resolution today. However, we do so with a warning that the Government cannot continue with a piecemeal approach to taxation and our overall economy. For future prosperity, we must grow our tax base, help low earners and small businesses, and ask those with the broadest shoulders to contribute a fair share.16:59
This is like a blast from the past—the debates of yesteryear, when we used to argue about tax rises and whether we would get extra revenues or whether there would be a massive cut to public services as a result. It is great to be back in such an atmosphere—we often forget about the debates that we used to have.
However, we should remember that, at the last election, the SNP did not propose a tax rise but then went on to increase it—unlike the Scottish Liberal Democrats, who were honest about the election. We said that we should put a penny on income tax, which would be a modest rise for a colossal return that we could invest in education, and we followed through on that view later.
We should also remember that the Conservatives were dead against any tax rise. Murdo Fraser corroborated that today. However, it is quite interesting that he is not proposing to reverse the tax rise. So appalled is he by it that he has decided to leave it alone. I have seen no proposal from the Conservatives to reverse the tax rise. In fact, I remember having a debate with Jamie Greene during the election campaign in which he was unable to say whether he would cut the tax or reverse it. That is how confused the Conservatives are about whether they support it or not.
Nevertheless, we have moved on slightly. This year, it is important that we have stability. I do not think that the public have any appetite at all for tax increases at this time. Consumer confidence is really fragile and we need to make sure that, in the middle of the pandemic, when people’s personal finances are tight, we give them the support that they need. To be frank, when we are borrowing such colossal sums of money, any tax rise would be just a drop in the ocean in comparison. There is no appetite for tax rises, and that is why we will support the Scottish rate resolution today.
There is also a wider lesson that we need to learn. Budget debates in the Parliament have changed. In previous years, we debated with the thought in our minds about who would benefit from extra funds or be affected by a cut in services. That was almost our sole interest. Now, we are at least thinking about the taxpayer’s pocket and we have to balance those two considerations much more effectively. That is why our debates on budgets and rate resolutions are much more rounded and considered. We think about all the different interest groups in our considerations, which makes this a much healthier place. In the past, we just argued about where the extra money would go or where the cuts would be made. That has changed, and it is a healthy change.
There is another argument, although it will take longer for us to make the proper assessments in this area. When we introduce tax rises, we need to make sure that their intended effects follow. We need to measure the impact and the outcomes for individuals and examine any behavioural change. Many claims are made about changes that would result from a tax rise, and we need to measure all that. That will be difficult because the pandemic has intervened, but I believe that, as a discipline, we should test the impacts and examine the claims that are made about behavioural change.
As far as I saw, we did not have mass behavioural change in the pre-pandemic period. We did not have people exiting Scotland to go somewhere else because of modest tax rises. However, that trust is fragile. We need to be careful when we make decisions about taxes so that we maintain the taxpayer’s trust and confidence.17:03
The current session of the Parliament has seen the only substantial tax reform since devolution, with a new, five-band system of income tax that is closely modelled on what the Scottish Greens proposed at the previous election. It is worth recalling, as some other speakers have done, what the other parties proposed at that point. Labour and the Lib Dems wanted to raise income tax at the basic rate, increasing what low earners—those who can least afford it—would pay. The Conservatives, naturally, wanted big tax cuts for the richest, which would be funded by cuts to the public services that everybody else depends on.
The SNP, meanwhile, proposed only the most timid possible change by not copying the UK Government’s ideas. It also wanted a new, extra personal tax allowance for Scotland, which would have mostly benefited high-income households and would have given nothing at all to those who are in most need. I am very pleased that we not only blocked that damaging proposal but shifted the debate on tax completely and won through with the Green proposal to raise more revenue from those who can afford it while protecting everybody on low or middle incomes.
Has that change gone as far as it could or as far as we would like? It has not, and the SNP’s return to threshold increases that benefit high earners is not something that we support. However, in the middle of the pandemic, I have to accept that this is not the time for a further radical shake-up of the system. We will not vote for the rate resolution motion, but we will allow it to go through to prevent the budget as a whole from falling.
Let me say something about the future. As the Finance and Constitution Committee has agreed, we need to re-examine the persistent structural inequalities in our society, which have been exacerbated by the current crisis. As Bruce Crawford said in the stage 1 budget debate, that means redistribution. It means closing the wealth and income inequality gap in our society. If we are going to do that, yes, we need a national conversation, but we need a deep re-examination of the role of tax policy. We need that in Scotland and in the UK but, actually, all Governments are going to have to look creatively at the role of tax in the coming fiscal consolidation, instead of returning to the brutality of austerity.
That must mean dropping the silly, shallow rhetoric that we keep on hearing in claims about being the highest or lowest-taxed part of the UK. That kind of language is grounded in the idea of tax competition—the idea that each jurisdiction must compete to be the lowest-taxed area. Tax competition is one of the things that have led to the growth of inequality and the hoarding of wealth by the few. The implication of that kind of language is that tax is a bad thing in principle, and we are going to have to reject that.
The deep re-examination of tax policy that we need must mean looking again at income tax for high earners, and it must mean finally addressing the long-overdue reform of local taxation. It should also kill off the SNP’s absurd decision to back Tory free-market extremism with free ports—a system that is designed to remove economic activity from the tax base. Finally, it must mean raising revenues from the Covid profiteers and tackling the legal tax avoidance that takes place on such a huge scale by vastly profitable businesses and bringing corporate profits back into the scope of taxation after decades of tax cuts for those who need them the least.
We will make a case for radical proposals in the next session. For the time being, we will abstain on the rate resolution motion today.
We move to the open debate. There is a little time in hand for interventions.17:07
We now move on to the other side of the budget equation: where the money is to come from to pay for the expenditure that we need and want. I have to say that I agree with quite a lot of what Patrick Harvie said. As a country, we need to become more comfortable talking about tax and not just in the sense that it is a bad thing and that we all want all taxes to be as low as possible.
I regularly receive campaign emails from various sources, which have recently included Unite the union, which has been campaigning about caring for carers, and Unison, which has been calling for an NHS pay rise. Both are seeking better pay and conditions for low-paid workers, and I have a lot of sympathy for those campaigns, but neither suggested raising tax to pay for such increased expenditure. It was as if the money could somehow appear without there being an impact anywhere else.
Will the member take an intervention?
I will not, after Mr Findlay’s insult to the cabinet secretary.
The section on tax policy in the Finance and Constitution Committee’s report—paragraphs 167 to 178—which has been referred to, is well worth reading. It calls for an inquiry into and a debate on a Scottish approach to taxation.
I accept that today we are specifically looking at income tax rates, but this seems like a good time to start thinking of the way ahead: the recovery from the pandemic and how tax fits as part of that. I think that there is an appetite among the public to support the NHS and pay more for care workers and care homes, and perhaps to pay more tax in order to fund those things. Even Scottish Chambers of Commerce agreed that it would support a debate on tax reform. After all, many businesses that have traditionally argued for lower taxes across the board have been very keen to receive funding from the public purse, which of course is funded by all of our taxes.
We have had a Citizens Assembly of Scotland report, and we had a debate on that last week. A key theme of that was the lack of understanding of taxation among the public. However, we know that 99 per cent of the public understand budgeting perfectly well. They have to juggle income and expenditure to get a balance, and they know that we in Parliament need to do so as well.
I very much support the call for the incoming members of Parliament and the incoming finance committee to consider an inquiry and a wider debate during 2021-22 so that the results can impact on the budget in 2023-24.
I turn to income tax more specifically. We heard from witnesses, including the Office for Budget Responsibility, that fiscal consolidation will be necessary in the medium term, particularly if interest rates rise and the cost of borrowing increases. I do not want to see public spending cut in either the UK or Scotland. At some point, we need to look at taxes, including income tax.
I take the point that we do not want to damage the recovery by raising taxes too soon and taking away money that might be better spent with businesses that are struggling. The Government makes the point that it wants to give certainty and stability, and I very much support that.
Thanks to an increase in the number of bands a while back—I accept that the Greens were part of that discussion—we have a more progressive system than the UK has. Some people are clearly struggling financially, with the hospitality sector and much of retail still closed. Workers’ hours are being reduced and, in particular, it is clear that women and low-paid workers have been suffering most. However, some people are better off because of Covid—that probably includes most members. People on fixed salaries have saved on commuting, meals, nights out, childcare and a range of other expenditure. Some people could therefore afford to pay a bit more tax.
I refer back to the previous debate and the importance of the differential social and economic impact of Covid. I believe that we need to look at increasing equality by targeting our expenditure at those who are most in need and by expecting those who are most able to contribute more to do so.
Overall, I am happy to support the Scottish rate resolution, but we need to look more closely at taxation in the medium to longer term.17:12
The SNP is seeking members’ agreement to the proposed rates and bands for Scottish income tax. The Scottish Conservatives believe that it is unfair to burden hard-working Scots with more taxes or to widen the tax gap between Scotland and the rest of Britain, as the SNP has done in previous years.
Willie Rennie mentioned trust. I will repeat Murdo Fraser’s point. The 2016 SNP manifesto said:
“We will freeze the Basic Rate of Income Tax throughout the next Parliament to protect those on low and middle incomes.”
The SNP Government broke a manifesto promise and raised taxes for more than a million Scots. The transition point at which Scots begin to pay more tax than they would if they lived in the rest of the UK is £27,393, which would have come under the UK Government’s basic rate.
Nicola Sturgeon said in the Parliament:
“I have been very clear that the Government will not increase income tax rates.”—[Official Report, 2 February 2017; c 10.]
The Government was elected on a manifesto promise not to increase income tax rates, but it broke that promise.
In 2016, almost two thirds of Scots—64.6 per cent—voted in the Scottish Parliament election for parties that promised not to raise taxes. The Deputy First Minister declared:
“I want to say to teachers and public service workers the length and breadth of the country ... that the last thing that I am going to do is put up their taxes.”—[Official Report, 3 February 2016; c 19-20.]
The former Cabinet Secretary for Finance and the Constitution—remember him?—said:
“A Government’s first point of reference is surely the manifesto on which it was elected … our first position is to look at the manifesto.”—[Official Report, Finance and Constitution Committee, 11 January 2017; c 40.]
Will the member give way on that point?
On which point?
That was a very good riposte.
Can Mr Bowman confirm that it is still Conservative Party policy that there should be parity between the income tax rates in Scotland and those in the rest of the UK? Will he confirm whether he intends to run on that manifesto in the coming election?
I will not, because I am not running in the election. I think that Murdo Fraser said that our aim is that we should reach a parity position at least in due course. [Interruption.] May I continue?
Mr Bowman, through me, please.
Thank you, Presiding Officer.
We say to the Scottish people that there is at least one party in this chamber that is on their side, that does not want to see the income tax gap between Scotland and the rest of the UK grow and that opposes that happening: the Scottish Conservatives.
The saddest aspect of all this is that the attack on Scottish income tax is being exacted willingly. Inflicting economic hardship on Scottish workers and risking the Scottish economy is a political choice by the SNP. Although the SNP might be content to view hard-working Scots as a golden goose, the Scottish Conservatives stand up for public services, for hard-pressed Scots and families and for fair taxation, and in support of Scotland’s economy.
Our armed forces have never been more visible in Scotland during peacetime, and they have given our vaccine and testing regime a real shot in the arm. I think that we all appreciate their contributions. However, in return, members of the forces in Scotland will continue to be taxed more than their colleagues in England.
Will the member take an intervention?
I will finish this point first. The armed forces tax tab will continue to be picked up by the UK Government. Will the cabinet secretary fix that major error by her predecessor and restore fairness to the armed forces? I am particularly concerned about the issue because the Royal Marines are located at the fantastic RM Condor base in Arbroath in my region of North East Scotland.
Is the member pushing his UK Government to ensure that lower-paid armed forces personnel in England get taxed less, so that there is parity with the armed forces in Scotland?
Perhaps I should have listened more carefully, but are we discussing the situation in Scotland or the rest of the UK?
Lower-paid taxpayers in Scotland pay less tax, and the equivalent applies to the armed forces. My question is whether the member is pressing the UK Government to ensure that those in the armed forces who earn less pay less tax.
I think that those are apples and pears, and the cabinet secretary is trying to get away from the issue. She does not recognise an unfairness unless it is pointed out to her. I am pointing one out to her—in Scotland.
Although we welcome the SNP’s decision to listen to the Scottish Conservatives and freeze income tax this year, that does not change the fact that, in its budget, the SNP chooses to prioritise another independence referendum. The Scottish Conservatives have managed to stop the SNP hiking taxes this year, but the cabinet secretary referred to her Government being a minority Government and if the SNP has a majority, there will be nothing to stop taxes skyrocketing to pay for its political priorities.
The SNP has promised and failed to deliver on local tax reform for more than a decade. We might have a different finance secretary now, but the same problems exist. It is time that the SNP is held to account—and it will be. The only way to stop the SNP and get the Scottish Parliament 100 per cent focused on rebuilding Scotland from this crisis is to vote for the Scottish Conservatives today and in May.17:18
I welcome the debate and the Scottish Government’s proposals on the rate resolution for the next financial year. Most people understand the challenges that we face and will continue to go through. Certainty and stability in the approach to reopening the economy and society are absolutely vital, bearing in mind the instability that we are going to face over the coming 12 months. Moreover, some of the questions that were raised at the COVID-19 Committee this morning centred on dealing with Covid next winter, never mind the coming months. That is indicative of the challenges that we all will face as a country and a society in the next year.
The Scottish Government’s income tax policy proposals maintain its commitment to a fairer and more progressive tax system that protects lower and middle-income taxpayers while raising additional revenue to invest in public services and Scotland’s economy. At a time when people across our country are dealing with the economic and social impacts that the pandemic has brought us, the policy that we are discussing delivers a certainty and a stability that our constituents need from the tax system.
Even with the challenges ahead, income tax is forecast to raise an additional £475 million for the 2021-22 Scottish budget. That is money that every single MSP in the next session of Parliament will welcome and which every current MSP should welcome, because it will be reinvested in our public services and the economy as part of the Covid recovery.
The next 12 months will be the most challenging that we have ever faced, and it is crucial that we continue to support households and families during that time. That is why the Scottish Government will ensure that no Scottish taxpayer will pay more income tax in 2021-22 than they pay now on their current income. Further, for a fourth consecutive year, more than half of Scottish income tax payers—54 per cent—will pay less tax than they would if they lived anywhere else in the UK.
It is therefore vital that we do not delay taking important decisions on income tax. The much delayed UK budget has already had an impact on the setting of the Scottish Government’s budget, as the finance secretary discussed in the budget debate and as has been highlighted in this debate, too. The people of Scotland are looking for some certainty over the next 12 months.
I listened to Jackie Baillie’s comments about fair pay in the budget debate and wondered what she did when she was a minister in the Scottish Executive, when Labour councils throughout Scotland were paying women a lot less than male colleagues for doing jobs that were similar or the same. The issue of equal pay existed for decades, but the Labour Party did not do anything about it. Clearly, equal pay and treating female workers fairly were not priorities for the Labour Party then.
In September 2020, the Scottish Government published a consultation on devolved tax policy choices for the 2021-22 budget and the fiscal framework. in line with its commitment to engage on tax policy. Such policy is fundamental to any country’s ability to support its economy and rebuild after a period of crisis—and we know that, because of Covid, we will have to do a lot of rebuilding.
The time is right to consider the devolution of additional tax powers to Scotland. However, those of us of an SNP persuasion, as well as the Greens, ask why we should limit ourselves in that way. I believe that it is vital that the powers of independence come to the Scottish Parliament if we are to deliver the country that we should all want to see for the people of Scotland.17:22
I welcome the motion, which I believe delivers on the Government’s commitment to a fairer and more progressive tax system that will continue to protect lower and middle-income taxpayers while raising additional revenue for essential public services and the economy. I also welcome the announcement that, in order to deliver certainty for taxpayers and stability for revenues, there will be no changes to income tax rates this year.
As we recover from the pandemic, it is important that households and families are supported at a difficult time. Today’s rates resolution will ensure that no Scottish taxpayer will pay more income tax in 2021-22 than they do now on their current income. That will be welcome news to households across Scotland who have been struggling with the effects of Covid-19 on their incomes. Recent analysis from the office of the chief economist of the distributional impact of the Government’s income tax policy choices over this parliamentary session has shown that the Scottish Government’s decisions have been redistributive and have protected low-income taxpayers. Overall, 77 per cent of Scottish income tax payers will pay less tax in 2021-22; taxpayers in the middle of the income distribution will pay £135 less in tax in 2021-22; and the lowest-earning 20 per cent of income tax payers will see the largest decrease in tax, while the highest earning 10 per cent of taxpayers will see the largest increase in tax, which is how it should be.
On the 2021-22 budget, the rates that have been set out today are forecast to raise an additional £475 million in revenue. We can use that money to support our health service and invest in a greener and fairer economy as part of our recovery from Covid-19.
Of course, we are making tax policy decisions in an incredibly challenging economic, health and social landscape, with unprecedented uncertainty, particularly due to the impacts of Covid-19 and European Union exit. The challenge is made only harder by the delay to the UK budget, which means that we will not know what the full suite of UK tax, fiscal and economic policies will be before we make our policy decisions. That is very challenging indeed. However, the Scottish Government has tried to be as open as possible about our policies in order to provide certainly and stability, and I urge the UK Government to do the same.
The Scottish Government’s approach to setting policy is to be commended and should serve as a good example—certainly, the UK Government could learn from it. In September, the Scottish Government published a consultation on its tax policy and sought the views of individuals and organisations on their tax priorities and the challenges for the future. That initiative is hugely important, and we need to build on it if we are to effectively reflect and incorporate the hopes and aspirations of the people of Scotland in our planning for what a future Scotland should look like. I look forward to learning more about how we can ensure that their voice is at the centre of our policy decision-making process.
I welcome today’s announcements, which build on our commitment to a fairer and more progressive tax system in very difficult times. The approach provides certainty and stability for taxpayers, and I look forward to hearing how the Scottish Government plans to strengthen the contribution that individuals and organisations can make on its taxation priorities.17:26
In recent weeks, we have had several debates in the chamber about the economic priorities that will be required when Scotland emerges from the pandemic. Although there are undoubtedly different policy priorities across the political parties, as we have seen this afternoon, there is a genuine desire for the main focus to be on people’s jobs, investment and economic growth.
Crucial to that is the question of tax, as almost every economic briefing to members by the business community has highlighted. Businesses are naturally desperate for increased consumer spending as soon as possible, to boost the Scottish economy. It is therefore good news that the Scottish National Party has, for once, listened to the Scottish Conservatives and frozen income tax this year—although, as Murdo Fraser rightly said, it is to be hoped that this time, unlike with the pledges that the SNP made in 2016, it keeps its promises. To raise taxes at any time does not sit easily with the Scottish Conservatives, but that is especially the case now, when so many families and businesses are so hard up. We therefore welcome the SNP’s announcement that there is to be an income tax freeze for 2021-22.
Mr McKee read out comments from the business community. He is right that, in the circumstances, with jobs being lost all the time, a further move to hit take-home pay would be serious and would jeopardise economic recovery. Of course, the recent evidence is that raising taxes has not worked in drawing in sufficient additional revenue. We all know what happens in circumstances when the resulting borrowing has to increase: we end up saddled with more debt. If that happens at the same time as increasing unemployment and reduced employment, that clearly diminishes the tax base and is not a good thing.
I will turn to a few of the themes that I spoke about when the Parliament debated the Environment, Climate Change and Land Reform Committee’s report on the green recovery, just a few weeks ago. That was a good debate in that it flushed out where each party thinks the main economic impetus should be. For me, there were two aspects to that. First, stakeholders are asking the Parliament to undertake careful consideration of where Government—at Westminster and at Holyrood—should invest public money to deliver best value and what incentives are needed to stimulate sectors to invest in key infrastructure projects, because that investment will be absolutely crucial for jobs.
Just about every witness from whom we have heard at the ECCLR Committee in recent months has pushed for accelerated investment in infrastructure and greater commitment to that in the Scottish budget. In that respect, effective procurement is essential, and the committee’s report clearly identifies that as being critical when it comes to aligning funding with infrastructure development and capital investment. The role of the new Scottish National Investment Bank is welcome, but it can succeed only if there is willing co-operation between the private, public and, indeed, third sectors, with full focus on delivering best value for money on a regional basis as well as on a national basis.
Time is short in this debate, so I will conclude my remarks by addressing the importance of tax policy in creating the necessary incentives to ensure that there is a boost in consumer spending and an increase in optimism for the business sector, which, in many ways, has been bearing the brunt of the Covid-19 pandemic, and in ensuring that Scotland is an attractive place in which to invest.
These are not easy times, but we have a collective responsibility to ensure that we are giving Scotland every chance to recover.17:30
It is a while since I have been in the Parliament in person and I was not sure how positive and constructive today’s debate would be. However, on the whole, it has been positive—I am talking not only about the speeches from the Government members but about those from the Liberal Democrat and Green members, too. That was good to see.
I am pleased to speak in this short debate on the Scottish rate resolution. If agreed today, the rates and bands will come into effect from 6 April this year. I note that the rates come with a forecast that they will raise an additional £475 million for the 2021-22 Scottish budget, which is welcome and needed. On those assumptions, the majority—54 per cent—of Scottish taxpayers will pay slightly less income tax in 2021-22 than they would if they lived elsewhere in the UK. It is not a competition, but that gives a relative perspective on the priorities of income tax in Scotland versus the rest of the UK. That 54 per cent represents the taxpayers who pay the lower and basic rates. The tax policy, therefore, seeks to protect those on the lowest incomes, and I very much welcome that. Of course, the Scottish income tax bands are progressive and, therefore, those in the higher income brackets will pay a bit more—that is self-evident.
It is important during the current Covid-19 pandemic to have as much certainty and stability as possible in our tax system, and the rate resolution provides that—that was acknowledged by members across the parties, which was good to see. However, there will clearly be a need to continue to engage with the wider public and stakeholders with regard to how our tax system can fund the delivery of the healthier, wealthier, fairer and greener Scotland that we all want. At some point, we will have to go further than we are going this afternoon.
That will mean not just having a frank and open discussion about how we might use our current income tax flexibilities differently but thinking about what further devolution to this place of tax and fiscal levers might be needed to achieve those ambitions. The issue is not necessarily just about increasing taxes to fund the country that we want to become; it is also about this place broadening the tax base. That is important.
I very much hope that we can get to a position in Scotland’s Parliament where we agree that the money that we raise in taxes is an investment in the kind of society that we wish to see and is not weaponised by political parties as a way of scoring party-political points—some parties do that more than others, but all parties do it at times. In that respect, perhaps the Conservatives should reflect on their contributions this afternoon. I appreciate that taking that approach is particularly challenging in the run-up to an election, so it may be that the parties will have to wait until after May before they can come together to make progress on that issue. However, I think that the vast majority of people in this Parliament are moving in the same direction.
That said, I welcome the Scottish Government’s consultation on devolved taxes as a genuine attempt to promote that debate in a positive and constructive fashion. When we look at the taxes that we pay as a nation, we should also look at the assistance and services that we secure for society. That is important, as tax is gathered from individuals but the benefit is accrued by society. That is the social contract that I hope that everyone in the chamber signs up to, whether it involves supporting carers with a carers allowance settlement, which gives unpaid carers a 19 per cent increase in their financial support; Scotland’s new game-changing Scottish child payment, which gives the lowest-income households £40 every four weeks; increasing the eligibility to free school meals and looking to move to universal provision of free school meals all year round for primary school children; the NHS, which is remarkable, despite the clear challenges that it is under; or the investment in our schools through the attainment fund, which will come to £750 million over the course of this parliamentary session, and the pupil equity fund, which will see schools in my constituency in the coming financial year get an additional £3.3 million to further boost attainment, which is something that I greatly welcome.
There might be different political choices in this place about how we spend the money that is raised. I get that, but that is only one side of the equation, and I hope that we get consensus this afternoon on the fact that the tax that we pay is for the benefit of all of society. With that in mind, I will be supporting this afternoon’s rate resolution.17:34
I welcome the opportunity to speak in this debate on the Scottish Government’s rate resolution settlement for 2021-22. Last time I spoke in an equivalent debate, I was a member of the Finance and Constitution Committee. Many members this afternoon have spoken about and recognised the work of Bruce Crawford, and I, too, recognise his able way as an MSP, a convener and a parliamentarian.
I am pleased to speak about how the rate resolution proposals will directly benefit people across Dumfries and Galloway and the rest of Scotland. The Scottish Government’s income tax policy proposals for the upcoming financial year maintain our commitment to a fairer and more progressive tax system, protecting lower and middle-income taxpayers while raising additional revenue to invest in public services, Scotland’s economy and the Covid-19 recovery. It is worth repeating what Stuart McMillan and Bob Doris have said: in 2021-22, the majority of Scottish taxpayers—54 per cent of them—will pay less tax than they would if they lived elsewhere in the UK which, given the financial hardship caused by the pandemic, is extremely welcome.
To that end, and to deliver stability and certainty from the tax system for people in Scotland, there will be no non-inflation changes to Scottish income tax rates this year. That includes increasing the starter band, the basic band and the higher rate of income tax by the rate of inflation only, with a freeze of the income tax top-rate threshold in cash terms at £150,000. That will allow people and families across Scotland room to support economic recovery from the pandemic.
This is an incredibly challenging economic, health and social landscape within which to make tax policy decisions, with unprecedented uncertainty, in particular due to the impact of Covid-19 and exit from the European Union. The state of the current landscape is exacerbated by the delay to the UK budget, which means that we do not know what the full suite of UK tax, fiscal and economic policies will be before we make our own Scottish policy decisions.
The Scottish Government’s focus is now on delivering tax policies that will help and support Scotland’s economy to recover in 2021-22 and beyond, recognising the role that tax can play in supporting the individuals and businesses most affected. The tax package that has been set out by the Scottish Government in response to those challenges supports the economy and underlines its recognition of and commitment to tackling the inequalities that have been further exposed by Covid-19.
I welcome the Government’s announcement that the revenues that are raised from taxation will support the most comprehensive range of free-to-access public services in the UK, in addition to the on-going Covid-19 support. That package is part of a budget that invests in Scotland’s recovery, supporting the individuals and businesses most affected. I again appeal to the cabinet secretary to ensure that no Dumfries and Galloway business, or indeed any Scottish business, is missed or is left to fall through any cracks.
The Scottish Government has been clear that this is not the time for sweeping reforms of the tax system or fiscal consolidation. Indeed, leading fiscal commentators, including the OECD, agree that now is not the time to balance the books, and that the time for any tax rises is when the recovery is firmly under way. The Institute for Fiscal Studies has said that tax rises should not be implemented any time soon and that substantial tax rises should not be part of the coming UK budget. I agree that it is a time for stability and certainty, with targeted support for the individuals and businesses that have been most impacted by Covid-19.
The Scottish Government’s focus is rightly on delivering tax policies that will support Scotland’s people and the economic recovery this year and beyond, which I welcome.
The rate resolution settlement, combined with the budget, will support the response to Covid-19 and will support people and families across Scotland. I call on the UK Government to act similarly.
We come to the closing speeches.17:39
I am pleased to close this important debate on the Scottish income tax rate resolution. As Murdo Fraser said, this year’s debate comes at an unusual time in proceedings—before stage 2 and before publication of the UK budget. Scottish Labour understands that certainty around tax rates is needed and we will not oppose the rate resolution tonight. However, the way in which taxes are set has a direct link to the budget and important issues need to be flushed out and debated, not only this afternoon, but in the future, as we consider how to recover from the pandemic.
The tax rates that the SNP has set out do not match up to its rhetoric since Scotland was granted tax-raising powers. We have heard much this afternoon from SNP members, including Ivan McKee, about how progressive the system is, but the reality is that the bands are far too wide. Take the range from the higher rate threshold to the top rate threshold: it runs from £43,662 to £150,000, which means that a senior nurse pays the same rate of tax as a chief executive officer in a top company. That cannot be fair. Also, the top-rate threshold has been frozen, which in effect gives an inflationary tax cut to 18,000 taxpayers in that band. As Ivan McKee ran through the consultation that he was expounding greatly about, I wondered whether anybody had told him that those bands represent fairness in the tax system, because I do not believe that they do.
As Jackie Baillie pointed out, the effects of the pandemic sadly mean that people on the lower rates will suffer more disruption to their lives—potentially losing jobs and working fewer hours—and will therefore be in more difficult circumstances than people who pay the top rates, who in many cases are protected. All of that matters, because how much tax is raised directly affects what can be done in the budget. The Government’s lacklustre ambition in relation to tax means that we see an impact on the budget. It cannot be right, as was reflected in the previous debate, that there is a sad increase in the number of homeless people who are dying, but there are cuts in the homelessness budget. I know that more money has been introduced, but less money is available for housing in the budget, which is unacceptable. In addition, if we want to achieve the ambition of rewarding care workers fairly and paying them £15 an hour, we need a tax system that matches the revenue raised with what is needed to deliver that.
Another thing to reflect on in relation to the forecast is that the pandemic will have a major impact, as the Scottish Fiscal Commission has noted. It could be that employment levels will be affected during the rest of this year, particularly when the furlough scheme comes to an end, which could significantly reduce tax revenues—one of the forecasts indicates that revenues could be £500 million less—and impact on future Scottish budgets.
We need an understanding of the issues that we face as we come out of the pandemic—an understanding of the reality that not only people’s lives but their jobs and incomes will be disrupted. We therefore need to look at a fair tax system to fund the budget properly, and we need to make demands to set a budget that helps recovery from the pandemic, properly supports the NHS to deal with the backlog that will exist, and supports our pupils and students in the school system, many of whom have been disenfranchised during this school year.17:44
There are usually two certainties with a Scottish budget—taxes going up and a pantomime from the Greens, pretending that they might not support it. I am pleased to say that at least one of those traditions has been broken this year, with income tax rates being frozen at long last.
I welcome the rate freeze, and the fact that ministers have listened to the Scottish Conservatives on the matter. As Bill Bowman highlighted, it is unfair to burden hard-working Scots with more taxes. For the Government to take more of people’s hard-earned wage packets right now would only pile more pressure on families who are already struggling. With businesses on their knees, jobs being lost and families facing tough times, every penny that they can keep in their pocket makes things a little bit easier.
We know that the public does not want tax hikes. At the previous Scottish Parliament election in 2016, almost two thirds of voters backed parties that were promising no tax rises. As Liz Smith highlighted, the Scottish Conservatives keep their promises. Ivan McKee said that he wants taxes that deliver for Scotland. I agree with that, and I agreed with him and the SNP in 2016. Sadly, the SNP went on to break its manifesto promise not to raise taxes, and instead raised the taxes of more than a million Scots, making Scotland the highest-taxed part of the UK. Even people on moderate salaries of just over £27,000 were paying more than they would elsewhere in the UK.
Murdo Fraser highlighted that broken promise, as well as the broken SNP promise to raise the personal allowance to £12,750. That makes it clear that we cannot trust the SNP on tax. In fact, the previous finance secretary did not even understand basic economics.
The fundamental problem with the strategy of hiking taxes has been that it has not actually worked. Income tax revenue has been lower than expected, and reconciliations from the 2018-19 budget have blown a £300 million hole in the budget. That will have to be filled by borrowing £309 million, thereby saddling the taxpayer with more debt. That debt is already costing £66 million in repayments this year alone.
If the high-tax strategy has not worked so far, the pandemic makes it even less likely that it will work in the future. Currently, 123,000 Scots are out of work, and new figures released this week show that the employment rate is dipping. Therefore, the tax base is being eroded.
The situation would be far worse had it not been for the massive support package that was deployed by the Conservative British Government. Its furlough scheme has protected almost a million Scottish jobs. If those jobs had been lost, the effect on the economy would have been catastrophic. As it is, the British Government has now spent a staggering £20 billion to support Scotland through the pandemic, more than £12 billion of which has been used to increase the Scottish budget into 2022.
However, although we now see some hope from the incredible success of the UK’s vaccination programme, the economic effects of the pandemic will be with us for years to come. The Scottish Fiscal Commission is forecasting that it will be at least 2024 before the economy returns to pre-pandemic levels. Therefore, jobs must continue to be an economic priority, and the SNP should focus on protecting existing jobs and creating new ones to expand the tax base and grow the economy. However, that was not happening before the pandemic. Scotland already had the slowest rate of business growth and job creation in the UK. In fact, the slower rate of job creation means that the SNP has, in effect, cost Scotland more than 260,000 jobs since it came to power in 2007.
Now that we are looking to recovery efforts, it is important that those failings are not repeated. By now, we should have seen a concrete plan for a green recovery, with the budget putting in place the funding for it. Instead, the SNP has cut funding for the very things that would help to create new well-paid jobs and expand the economy more sustainably. For example, the rail infrastructure budget has been cut by £33 million, and the newly launched Scottish National Investment Bank’s budget is already down by £36 million. Perhaps most worrying is the £66 million cut to the innovation and industry budget.
Those cuts come on top of the underfunding of Scottish universities—the institutions that should be driving innovation, research and attracting new investment. They requested £206 million to make the sector financially viable. The SNP provided just £6 million.
Those are the wrong choices for funding a green recovery, building more resilient services and creating better jobs. Therefore, just as the Scottish Conservatives have already put a stop to tax hikes this year, we will keep pushing the SNP to make the right choices.17:50
I thank members for their contributions and, in a moment, I will reflect on the points that have been raised during the debate. Before I do that, I remind members that, just a few hours ago, we debated the Budget (Scotland) (No 5) (Bill) at stage 1 and I now ask members to vote for the rate resolution. The Scottish Government is not willing to delay important decisions about income tax to allow for the UK Government’s inability to produce its budget. It is hugely disappointing that, once again, the Scottish budget is being debated and delivered without the assumptions of the UK budget to underpin it. This year is another in which we have had to base our judgments on outdated forecasts and partial information.
I want to pick up on some of members’ contributions. First up, I reflect on Murdo Fraser’s contribution. I welcome his agreement to our tax policy. As the cabinet secretary said earlier, we have reduced the tax rate for the majority of taxpayers in Scotland, which makes Scotland the lowest-taxed part of the UK. I want to come back to that.
Will the minister apologise for his party’s two broken promises on tax?
I will not apologise for the fact that the majority of taxpayers in Scotland now pay less tax than those in the rest of the UK. That is what talks to the progressive policy that the Scottish Government has implemented.
The fiscal framework does not, as Murdo Fraser said, protect tax revenue. It allows for the Scottish Government, through the tax policies that we implement, to generate additional revenue, provided that the Scottish tax base performs at least as well as the one in the rest of the UK. Through the tax and other economic policies that the Government has adopted, that has indeed been the case. Not only have the tax policies in Scotland performed better than those across the rest of the UK over the lifetime of this session of Parliament, but they will deliver an additional £930 million to be spent in Scotland as a consequence of that superior performance.
I am glad that Willie Rennie recognises that this is a time for stability. That is at the core of the Scottish budget. I agree with him that the Conservatives are confused about that. He observed that we will have a more mature consideration in this Parliament due to our having more powers on tax and spend. I will go further—and I am sure that Willie Rennie, being the perceptive individual that he is, will also make this link: the more powers that the Scottish Parliament and the Scottish Government have, the more mature will be our consideration of those issues. Consequently, I am sure that he would support the further devolution of tax powers; perhaps, going the whole way, he might also want to consider in due course supporting the devolution of all powers to the Parliament—our independence.
Willie Rennie made an interesting point about the impact of tax measures and behavioural changes. He will be aware of the Scottish Fiscal Commission’s work on modelling those tax and income elasticities, the range of measures that it uses for that, and the work that is being done in order to understand them.
As the member rightly pointed out, the effect of all our tax policies has been that we have not seen significant behavioural change at the top end of the tax rate. We have judged it very effectively and we have positioned those tax increases at the point on the Laffer curve, to refer to one of Mr Fraser’s favourite things, at which we have been able to leverage additional—
How is it coming on?
If members are quiet and let me continue, I will explain it. [Laughter.] We have been able to leverage additional revenue from those tax increases without reaching the point at which it becomes counter-productive. HMRC’s modelling on the TIE—the tax income elasticity—comes in at 0.48 and the SFC has a range from 0.1 up to around 0.7 at the top end.
I will comment on the Laffer curve, because it is a shame that we did not again get the opportunity to listen to Mr Fraser pretending that he understands the Laffer curve. [Laughter.] Where the Laffer curve says—[Interruption.] If the member listens, he might learn something. The Laffer curve indeed says that not all increases in tax rates result in an increase in tax revenue, but it does not say that all increases in tax rates result in a reduction in tax revenue, nor does it argue that all decreases in tax rates result in an increase in tax revenue. [Interruption. ] I think that the member did; he should go back and listen to what he said. That is why, Mr Fraser, it is a curve not a straight line. It is important to understand where the point of inflection is and that is done by looking at the tax income elasticities. If the member had listened to what I said, he might have learned something.
I move on to Patrick Harvie’s comments. I agree that the role of tax needs to be looked at, but he also got a bit confused about where he was going with that; I am not sure exactly what his message is on the matter. He said that the Scottish tax system delivers for the majority of taxpayers a lower tax rate than they would have in the rest of the UK. Is he saying that that is not a good thing? Will the Green Party manifesto argue for tax increases for lower-paid members of our communities? I am sure that that is not what he means, but what came across was quite confused, as were his comments on green ports. Is Patrick Harvie saying that we should not be arguing for enforcing payment of the real living wage, stopping zero-hour contracts, taking steps to tackle the gender pay gap and accelerating the net zero transition? That is what will happen in those green ports.
When Mark Ruskell came to the session that I ran, he listened to what was said and was fairly supportive of the comments that we made and could find no points to argue against. However, he clearly went back to his boss and was given a line, which is that the Greens have an ideological opposition to generating economic activity, which is of course what pays for our public services.
Can the minister enlighten the chamber on whether this is the end of the love-in between the Greens and the SNP?
It is between the Liberal Democrats and the SNP. Willie Rennie is the new Patrick Harvie.
I could not possibly comment. That is above my pay grade.
In my last couple of minutes, I will mention some other contributions. Bill Bowman talked about various gaps, but at one point there was quite a large gap in his narrative as he wandered through his contribution. To pick up on his specific point on the armed forces and the intervention from the cabinet secretary, it is important to recognise that although the Conservatives talk about higher-paid members of the armed forces and the differential in tax, the lower-paid ranks in the services benefit from a lower rate of tax in Scotland than they would pay across the rest of the UK. The cabinet secretary’s point was that the Conservatives should argue for that benefit for privates and others across the armed forces who work in England, so that they could benefit from the UK Government intervening to give them the lower tax rate that they would have enjoyed had they been stationed in Scotland.
Several members reflected on the importance of stability and certainty and that is at the core of what we are offering in the budget. I mention Shona Robison, Bob Doris and others in that regard.
James Kelly should reflect on the fact that the progressive nature of the budget that the Scottish Government has delivered and continues to deliver means that the majority of taxpayers in Scotland will pay less tax than they would in the rest of the UK, and that through the measures that we have taken, as I have said, the additional revenues generated—£930 million above the block grant adjustment—will be available to be spent on public services in Scotland beyond what would otherwise have been the case.
Liz Smith is another Conservative who complimented our approach and referenced the significant business support for what we have delivered. Her point on procurement was important and well made. I have responsibility for that area and we are working hard to see what additional steps we can take to leverage public sector procurement to support the growth of Scottish business.
The decisions that we make on tax are often passionately debated across the chamber and in homes across the country, which reflects the fact that income tax affects everyone, whether that is through the tax that we pay on our salaries or in its role in funding the public services that we all rely on in our daily lives.
There will be a time in the future when we are once again asked to debate changes to the tax system, but that time is not now. The proposals that are in front of us today reflect the income tax system that Scotland needs now. They protect household budgets and maintain spending power in real terms, they preserve our progressive tax system—which continues to protect low-income earners—and they provide the certainty and stability that people need from the tax system. Therefore, I invite members to support the proposals in the rate resolution.
That concludes our debate on the Scottish income tax rate resolution. Standing order rule 11.3.1 requires the question on the Scottish income tax rate resolution to be put immediately after the debate.
The question is, that motion S5M-24225, in the name of Kate Forbes, on the Scottish income tax rate resolution, be agreed to. Are we agreed?
There will be a division. I suspend the meeting for a few moments to allow members to access the voting app.18:01 Meeting suspended.
18:05 On resuming—
We move straight to the vote on motion S5M-24225, in the name of Kate Forbes, on the Scottish income tax rate resolution. Members should cast their votes now. This will be a one-minute division.
The vote is now closed. Members should let me know if they were unable to vote.
Adam, George (Paisley) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Allan, Dr Alasdair (Na h-Eileanan an Iar) (SNP)
Arthur, Tom (Renfrewshire South) (SNP)
Baillie, Jackie (Dumbarton) (Lab)
Beamish, Claudia (South Scotland) (Lab)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Bibby, Neil (West Scotland) (Lab)
Boyack, Sarah (Lothian) (Lab)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Campbell, Aileen (Clydesdale) (SNP)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Cole-Hamilton, Alex (Edinburgh Western) (LD)
Constance, Angela (Almond Valley) (SNP)
Crawford, Bruce (Stirling) (SNP)
Cunningham, Roseanna (Perthshire South and Kinross-shire) (SNP)
Denham, Ash (Edinburgh Eastern) (SNP)
Dey, Graeme (Angus South) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
Fabiani, Linda (East Kilbride) (SNP)
Fee, Mary (West Scotland) (Lab)
Findlay, Neil (Lothian) (Lab)
FitzPatrick, Joe (Dundee City West) (SNP)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
Freeman, Jeane (Carrick, Cumnock and Doon Valley) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Gougeon, Mairi (Angus North and Mearns) (SNP)
Grahame, Christine (Midlothian South, Tweeddale and Lauderdale) (SNP)
Grant, Rhoda (Highlands and Islands) (Lab)
Gray, Iain (East Lothian) (Lab)
Griffin, Mark (Central Scotland) (Lab)
Harper, Emma (South Scotland) (SNP)
Haughey, Clare (Rutherglen) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Hyslop, Fiona (Linlithgow) (SNP)
Johnson, Daniel (Edinburgh Southern) (Lab)
Kelly, James (Glasgow) (Lab)
Kidd, Bill (Glasgow Anniesland) (SNP)
Lamont, Johann (Glasgow) (Lab)
Lennon, Monica (Central Scotland) (Lab)
Leonard, Richard (Central Scotland) (Lab)
Lochhead, Richard (Moray) (SNP)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Angus (Falkirk East) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
Macdonald, Lewis (North East Scotland) (Lab)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Marra, Jenny (North East Scotland) (Lab)
Martin, Gillian (Aberdeenshire East) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Matheson, Michael (Falkirk West) (SNP)
McAlpine, Joan (South Scotland) (SNP)
McArthur, Liam (Orkney Islands) (LD)
McDonald, Mark (Aberdeen Donside) (Ind)
McKee, Ivan (Glasgow Provan) (SNP)
McKelvie, Christina (Hamilton, Larkhall and Stonehouse) (SNP)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
McNeill, Pauline (Glasgow) (Lab)
Neil, Alex (Airdrie and Shotts) (SNP)
Paterson, Gil (Clydebank and Milngavie) (SNP)
Rennie, Willie (North East Fife) (LD)
Robison, Shona (Dundee City East) (SNP)
Ross, Gail (Caithness, Sutherland and Ross) (SNP)
Rowley, Alex (Mid Scotland and Fife) (Lab)
Russell, Michael (Argyll and Bute) (SNP)
Sarwar, Anas (Glasgow) (Lab)
Smith, Elaine (Central Scotland) (Lab)
Smyth, Colin (South Scotland) (Lab)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Stevenson, Stewart (Banffshire and Buchan Coast) (SNP)
Stewart, David (Highlands and Islands) (Lab)
Stewart, Kevin (Aberdeen Central) (SNP)
Sturgeon, Nicola (Glasgow Southside) (SNP)
Swinney, John (Perthshire North) (SNP)
Todd, Maree (Highlands and Islands) (SNP)
Watt, Maureen (Aberdeen South and North Kincardine) (SNP)
Wheelhouse, Paul (South Scotland) (SNP)
White, Sandra (Glasgow Kelvin) (SNP)
Wightman, Andy (Lothian) (Ind)
Wishart, Beatrice (Shetland Islands) (LD)
Yousaf, Humza (Glasgow Pollok) (SNP)
Rumbles, Mike (North East Scotland) (LD)
Balfour, Jeremy (Lothian) (Con)
Ballantyne, Michelle (South Scotland) (Reform)
Bowman, Bill (North East Scotland) (Con)
Briggs, Miles (Lothian) (Con)
Cameron, Donald (Highlands and Islands) (Con)
Carlaw, Jackson (Eastwood) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Chapman, Peter (North East Scotland) (Con)
Corry, Maurice (West Scotland) (Con)
Davidson, Ruth (Edinburgh Central) (Con)
Finnie, John (Highlands and Islands) (Green)
Fraser, Murdo (Mid Scotland and Fife) (Con)
Golden, Maurice (West Scotland) (Con)
Greene, Jamie (West Scotland) (Con)
Greer, Ross (West Scotland) (Green)
Hamilton, Rachael (Ettrick, Roxburgh and Berwickshire) (Con)
Harris, Alison (Central Scotland) (Con)
Harvie, Patrick (Glasgow) (Green)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Johnstone, Alison (Lothian) (Green)
Kerr, Liam (North East Scotland) (Con)
Lindhurst, Gordon (Lothian) (Con)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Mason, Tom (North East Scotland) (Con)
Mitchell, Margaret (Central Scotland) (Con)
Mountain, Edward (Highlands and Islands) (Con)
Mundell, Oliver (Dumfriesshire) (Con)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Scott, John (Ayr) (Con)
Simpson, Graham (Central Scotland) (Con)
Smith, Liz (Mid Scotland and Fife) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Tomkins, Adam (Glasgow) (Con)
Wells, Annie (Glasgow) (Con)
Whittle, Brian (South Scotland) (Con)
The result of the division on motion S5M-24225, in the name of Kate Forbes, on the Scottish income tax rate resolution, is: For 88, Against 1, Abstentions 35.
Motion agreed to,
That the Parliament agrees that, for the purposes of section 11A of the Income Tax Act 2007 (which provides for income tax to be charged at Scottish rates on certain non-savings and non-dividend income of a Scottish taxpayer), the Scottish rates and limits for the tax year 2021-22 are as follows—
(a) a starter rate of 19%, charged on income up to a limit of £2,097,
(b) the Scottish basic rate is 20%, charged on income above £2,097 and up to a limit of £12,726,
(c) an intermediate rate of 21%, charged on income above £12,726 and up to a limit of £31,092,
(d) a higher rate of 41%, charged on income above £31,092 and up to a limit of £150,000, and
(e) a top rate of 46%, charged on income above £150,000.