Peter Kelly, the director of the Poverty Alliance, has criticised the Scottish Government for using tax avoidance as an excuse to make spending cuts in the upcoming budget. He argues that the government has a choice to invest in public services and social security, and to tackle the root causes of poverty and inequality.
Tax gap widens between Scotland and the rest of the UK
The Scottish Government has decided not to pass on a tax break for higher earners that was introduced by the UK Government in April 2023. This means that the tax gap between Scotland and the rest of the UK has widened, with Scottish taxpayers paying more income tax than their counterparts in England, Wales and Northern Ireland.
The Scottish Government claims that this decision will raise an extra £300 million for public services, and that it is fair and progressive to ask those who can afford to pay more to do so. However, some critics have warned that this could prompt some high earners to take action to avoid paying tax in Scotland, such as changing their residence or income sources.
The Chartered Institute of Taxation (CIOT) has said that the tax gap could create incentives and opportunities for tax avoidance, and that the Scottish Government should monitor the behavioural effects of its tax policy. It also suggested that the government should consider introducing a general anti-avoidance rule (GAAR) to deter abusive tax arrangements.
Spending cuts are not inevitable, says anti-poverty campaigner
Peter Kelly, the director of the Poverty Alliance, has challenged the narrative that the Scottish Government has no choice but to make spending cuts in the face of rising demand and reduced funding from Westminster. He said that the government has a choice to invest in public services and social security, and to tackle the root causes of poverty and inequality.
He pointed out that Scotland is one of the richest countries in the world, and that there is enough wealth and resources to ensure that everyone can live with dignity and security. He said that the government should use its tax powers to raise more revenue from those who have the most, and to redistribute it to those who have the least.
He also called for the government to implement the recommendations of the Citizens’ Assembly on Tax, which included simplifying the tax system, making it more transparent and understandable, and introducing measures to minimise tax avoidance. He said that the government should engage with the public and civil society on tax policy, and to explain how tax revenue is spent and what benefits it brings.
He said that the Scottish Budget 2023-24 is a crucial opportunity for the government to show its commitment to ending poverty and inequality, and to build a fairer and more sustainable society. He urged the government to prioritise investment in public services and social security, and to support the recovery of the economy and the wellbeing of the people.
Scottish Government consults on tax policy and the budget
The Scottish Government has launched a consultation on its overarching approach to tax policy, through Scotland’s first Framework for Tax. The consultation seeks views on the functions, principles and objectives that underpin how tax changes in Scotland are assessed and delivered, and how the government should use its devolved and local tax powers as part of the Scottish Budget 2022-23.
The consultation is open until 26 October 2023, and the responses will inform the policy development and decision making for the Scottish Budget 2022-23, and the finalisation of the Framework for Tax. The government aims to be open and transparent about how it approaches tax policy, to exemplify best practice and embed continuous improvement, to improve sequencing and alignment of policy and budget cycles, and to take a forward thinking approach in the wake of COVID-19.
The government has also published an analysis of the responses to the previous consultation on tax policy and the budget, which was launched in August 2021. The analysis shows that the draft Framework for Tax received positive feedback from a wide range of respondents, and that there was a mix of views on how the government should use its tax powers moving forward.