Opposition parties fail to acknowledge limits of Holyrood tax powers

The First Minister’s commitment in his conference speech to fully fund a Council Tax freeze propelled the issue into the headlines.

American statesman Benjamin Franklin famously said: “In this world nothing can be said to be certain, except death and taxes.” I would add that there is one further certainty in Scotland – hot takes on tax that are frankly nonsense.

Let’s start with the incoherence of opposition politicians. Every time I hear a Tory lament that Scotland is the highest-taxed part of the UK, I cringe.

Not just because of their hypocrisy – their rhetoric is undermined by the fact the Tories have presided over the highest increase in tax for generations. – and not just because it’s factually inaccurate – it’s well-proven that Council Tax in Scotland is, on average, lower than elsewhere in the UK.

No, I cringe because it ignores the relative powerlessness of the Scottish Parliament over tax. Would it surprise you that the Scottish Parliament currently only has full powers over a few taxes?

READ MORE: Momentum builds behind call for Israel-Hamas ceasefire

Most voters have been led to believe that the so-called “most powerful devolved parliament on the planet” has great, wide-ranging and full control over most taxes.

In fact, the only taxes which are in the full control of the Scottish Parliament are Land and Buildings Transaction Tax (LBTT), landfill tax and non-domestic rates. Note, I have not included income tax or Council Tax, in the spirit of accuracy – neither are fully the responsibility of the Scottish Parliament.

Labour are frankly no better.

During the Rutherglen by-election, they latched on to a consultation on Council Tax which is, by definition a consultation, and campaigned against increases to Council Tax.

You will recall that it was an election for a new MP, sitting in Westminster, who technically will have zero responsibility over Council Tax.

That inconsistency aside, Labour MSPs then lined up yesterday, in the Scottish Parliament chamber, to criticise the Scottish Government for announcing a fully funded Council Tax freeze.

Turns out the Labour Party will say one thing to win an election, and then quite another thing. I can’t imagine this will be the end of Labour U-turns on the issue.

We watch with interest for the next flip-flop.

READ MORE: Craig Murray 'facing potential criminal probe on terror charges'

These inconsistencies aren’t new. I recall when, as finance secretary, I removed the cap on Council Tax, restoring full power to set Council Tax rates back to councils for the first time in a decade. Rather than agree with me that Council Tax should be set independently by councils, the Tories and Labour both went on the attack.

The Labour spokesperson suggested it would hit people hard and it was an empty promise to councils. The Tories said it was a slap in the face for taxpayers. I suggest you listen for the undercurrent of irony in the current attack lines from the opposition.

But the inconsistency of opposition parties begs the question: how do we best use Scotland’s limited tax powers to raise public revenue and send a message about our progressive values?

Because if the purpose of tax is to ensure there is sufficient funding to reinvest in public services, we can’t forget that it also reveals what we value. And I, for one, value a radical transformation in our society, that ends poverty, unfairness and inequality.

The thing is, that radical transformation through taxation is extremely limited without the full tools of independence. However, change is needed, because our taxes are totally outdated, overly complex and mostly regressive.

I’m struggling to think of any that would meet Adam Smith’s tests with flying colours. The opportunity with independence isn’t to just control a power, it is to improve it.

READ MORE: Anas Sarwar attacks Labour figures who quit after Gaza 'gag order'

Through devolution, the SNP has done that with welfare powers, ensuring that dignity and equality characterise devolved benefits. We’ve also done it with two of the fully devolved taxes: LBTT and landfill tax.

Granted, they are relatively small taxes in the grand scheme of things, but they tell a big story. They don’t feature much in political debates, but they demonstrate what is possible when taxes are fully devolved – fully devolved in terms of setting rates, administering the taxes and retaining all of the income.

As part of LBTT, for example, the SNP introduced the Additional Dwelling Supplement on second homes, recognising that we needed to take more action on housing. As finance secretary, I increased the Additional Dwelling Supplement further because I believe in progressive taxation but also because everybody deserves one warm, affordable, safe home.

It is about fairness, equality and ending housing poverty.

The SNP have reformed these taxes, making them more progressive, introducing new elements and building a tax body from scratch – Revenue Scotland – which has led the way on tax avoidance.

Next in the firing line should be non-domestic rates and income tax. But this is where it becomes immediately obvious that the Scottish Government’s ambition is limited by its powers. Take non-domestic rates, which the Scottish Government has announced needs overhauled.

READ MORE: Councillors who quit Labour accuse Keir Starmer of 'gaslighting'

I am heartened to hear that. I have long believed that non-domestic rates are outdated and fail to reflect the reality of our economy. It leads to a situation whereby a highly profitable tech business might pay very little in non-domestic rates, whereas a struggling business that occupies a building with a large footprint pays a lot.

But it is not a business tax, despite suggestions to the contrary. It is a property tax, equally applied to all non-domestic entities. Of course, some are in receipt of reliefs like charities, but it is based on rental values and not on the type or profitability of the organisation.

It is immensely infuriating that the Scottish Government doesn’t have control over any form of business taxation. We can’t clamp down on tax avoidance or make changes that could incentivise or disincentivise certain business practices – like unfair work practices.

Those are the changes we need to see, and non-domestic rates – as it is currently devolved – cannot do that in isolation from other taxes.

Reform to income tax will always be limited to the parts over which we actually have control. With control over rates and bands, the SNP have increased the tax burden on the wealthiest and reduced it for the poorer. But there is far more to income tax than just tinkering with rates and bands.

READ MORE: 'Profoundly undemocratic': Westminster objects to republican protest

Now, of course those powers aren’t irrelevant, but let’s not kid ourselves that we can burden income tax with expectations that are impossible to achieve. It is an incredibly blunt tool. You need to look at tax in the round – you can’t change behaviour, guarantee tax revenue or make society more equal purely through limited powers on one tax.

I could dedicate an entire column to the options for replacing the taxes we have, including a new property tax for Council Tax or a land value tax instead of non-domestic rates.

That’s a column for another day.

In the meantime, the big opportunity for Scotland in the short term is to increase the tax base.

In other words, ensure that more people are in well-paid jobs, contributing income tax which allows the Government to end poverty, embed fairness and improve lives across Scotland.

Being truly progressive is about ends as much as it is about means.