Scotland's Economy

A modern and efficient tax system in an independent Scotland

November 4, 2013 by 1 Comment | Category Economy

In February, the Fiscal Commission Working Group published their first report, a comprehensive and detailed overview of the Scottish economy and proposals for a robust macroeconomic framework in an independent Scotland, workable from day one of independence.

Central to this was the recommendation that Scotland retain Sterling as part of a monetary union with the rest of the United Kingdom – an arrangement of mutual benefit to both Scotland and the rest of the UK.

To further illuminate the responsibilities and opportunities that would fall to Scotland with independence, the Working Group today sets out the principles of a modern and efficient tax system in an independent Scotland.

This work is intended to aid and inform the Scottish Government as it takes forward a programme of work to scope out and design an efficient and effective tax system as part of a framework that delivers longer-term stability and sustainability.

What this work does, is to detail a set of clear principles – simplicity, stability, neutrality, and flexibility – which, with full control over the tax system, we recommend the Scottish Government and Scottish Parliament should follow to meet its objectives in the most effective manner.

These matters are of crucial importance to all countries, and lie at the heart of government policy. Policies on taxation effect each and every person and business across Scotland.

While focusing on taxation, the paper makes clear that a whole system approach is required in formulating government policy, particularly concerning taxation and welfare. The Expert Working Group on Welfare recently published their report on welfare in the context of constitutional change, and we strongly recommend that the government considers that paper, and this, alongside one another.

Small countries are not just scaled down versions of larger countries, and utilising Scotland’s size through streamlined institutions and decision making would facilitate a comprehensive approach which allows a clear focus on the objectives of taxation and welfare across the entire public sector and beyond.

Getting this correct would provide Scotland with a significant international advantage – and crucially a tool for promoting economic growth, competitiveness and tackling inequalities across Scotland. With full control of taxation and welfare, the systems could be tailored to suit the specific characteristics of Scotland.

It is undisputed that there is significant room for improving in the UK tax system that Scotland would inherit. Over many years, the  addition of increasingly complicated provisions has left a system which is complex and lacking a clear set of guiding principles.

There is no doubt there will be certain practical issues to consider in setting up a Scottish tax system, but this should not limit ambition and design.

Recent high profile examples have also highlighted some of the challenges globalisation has brought in collecting revenues from companies operating across multiple borders.

Our work stresses the importance of ensuring individuals and companies pay their fair share – and that moves to make Scotland a more competitive environment must be about attracting genuine economic activity and creating not only jobs, but good jobs which is the most effective way to alleviate poverty across Scotland.

With the publication of this report, alongside our previous and forthcoming work, the body of quality analysis is growing substantially, and I would hope this is met by a similar level of dialogue and engagement on the economic future of Scotland from all concerned.

Principles for a Modern and Efficient Tax System in an Independent Scotland

Crawford Beveridge CBE, Chair, Council of Economic Advisers

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