Next week’s Scottish Budget (on December 12) will be the third since the Scottish Parliament acquired full responsibility for setting the tax rates and bands in Scotland on earned income, a development that represents one of the most important changes to the devolution settlement since the advent of devolution. While initially the Scottish Government adopted a cautious approach to deviating from the rates and bands in force elsewhere in the UK, last year saw a marked divergence, with reductions in the rate of tax for those on low incomes but hikes for those who are better off – an approach that for the most part seemed to be in tune with public opinion.
Still, if the tax regime that now exists in Scotland is to be regarded as a successful extension of the devolution settlement, and one whereby voters are able to make informed judgements about the merits or otherwise of decisions made by the Scottish Government, it might be thought important that voters have a good understanding of which responsibilities for tax now lie with the Scottish Government. Back in September, the Chartered Institute of Taxation commissioned (on behalf of the Scottish Taxes Policy Forum) a poll that addressed that very subject. Undertaken by ScotPulse on behalf of a consultancy that has recently been established by the former Ipsos MORI Scotland executive, Mark Diffley, the poll led the institute to come to the pessimistic conclusion that ‘the public is struggling to make sense of the tax powers that have been devolved to Holyrood’.
Certainly, voters themselves seem none too sure about their understanding of the current regime north of the border. For example, just 14% agreed that ’the relationship between UK and Scottish taxes is easy to understand’, while as many as 60% disagreed. Similarly, only 18% feel that, ‘the tax system in Scotland is clear and easy to understand’, while 48% disagree. Meanwhile, although nearly a quarter (24%) say they know a lot about ‘the difference between income tax rates in Scotland compared with other parts of the UK’, a third (33%) say they do not understand it at all. Voters are evidently far from confident about their ability to follow the inter-relation between the UK and the Scottish tax systems.
However, when the poll tested voters’ knowledge directly, they emerged as rather more knowledgeable than those answers might lead us to anticipate. They certainly did quite well when asked about those taxes that are still the responsibility of the UK government. In particular, most voters (79%) correctly identify the UK Parliament as the body that makes decisions about VAT in Scotland. True, voters do not do quite so well on corporation tax – only 62% correctly name the UK Parliament as being responsible for this tax – but as this is a tax that does not trouble most people we perhaps should not be surprised that voters are somewhat less successful in answering this question successfully.
Still, at first glance, voters do seem to have had rather more of a struggle with those taxes that are wholly or partly the responsibility of the Scottish Parliament. Only 43% correctly identified the Scottish Parliament as the body that makes decisions about Land and Buildings Transaction Tax. That said, only 24% think that the UK Parliament is still responsible. However, this is also a relatively obscure tax with which most people only come into contact when they move house, and doubtless matters are not helped by the fact that the Scottish Government has changed the name of the tax since taking over responsibility. We thus, perhaps, should not be surprised that as many as one in five (20%) say that they simply do not know who is responsible for the tax.
Income tax, on the other hand, is one of the country’s most visible taxes, so we might think it important that voters can assign responsibility for it correctly. However, the position is, of course, not entirely straightforward. Although the Scottish Parliament now sets income tax rates and bands in Scotland and is partly reliant on the revenues that are raised by the tax, those rates and bands apply only to earned rather than unearned income. At the same time, the personal allowance above which income tax can be begun to be levied is still decided by the UK government.
Thus, strictly speaking, the answer to the question as to who is responsible for decisions about income tax in Scotland is ‘a mixture of the UK and the Scottish Parliaments’. The Chartered Institute highlighted the fact that only 34% gave this correct answer by claiming that ‘66% were unaware’ that the tax was a mixed responsibility. Trouble is, voters might not unreasonably feel that the mixture is a rather asymmetric one and that for the most part it is the Scottish Parliament that now makes most of the decisions about income tax in Scotland. We thus perhaps should not be surprised that as many as 41% named the Scottish Parliament as being responsible, almost twice as many (21%) as thought the UK Parliament was in charge.
Voters’ understanding of the tax regime in Scotland is clearly far from perfect, and many at least feel that the position is rather complicated. However, most voters do appear to appreciate that decisions about taxation are no longer just made in Westminster and have some understanding that some of the decisions are now made in Edinburgh. Doubtless there is more for Holyrood to do to help voters understand where responsibility now lies, but the public do seem to have some appreciation that, when the Finance Secretary rises to his feet next Wednesday, what he says could well make a difference to how much tax they will be paying in future.