Scottish taxes and the price of oil

01 July 2015

Stephen Hay

Last week saw Scottish Secretary, David Mundell, comment that he expects the new powers that are contained within the Smith Commission report currently contained within the Scotland Bill making its way through Westminster, to be concluded within the next parliament and before next year’s Scottish Parliament elections.

That suggests that Holyrood will have control over Scottish Income Tax rates and bands by next April and, according to Mr Mundell, these powers will be operational by 2018. Therefore, we now at least have some idea of when the new legislation might be implemented. 

However, the present Scottish Government is seeking additional powers over business taxes including corporation tax, National Insurance and savings taxes.The present Bill may be significantly different to what is presently proposed, but 2018 isn’t far away and given that the Scotland Bill will be in place before the Scottish Parliament elections, we can expect to see all the political parties set out their manifesto for Scottish tax issues early next year. We will then have some idea on any tax increases and just how far they might go. That itself will depend on whether only the proposals set out in the Smith Commission are implemented, further devolved powers are negotiated or indeed full fiscal autonomy is obtained.

Interestingly, last week also saw the updated oil and gas tax revenue forecasts published by the Scottish Government outlining a number of scenarios with the worst estimate forecast at £2.4bn and the best estimate at £10.8bn for the years 2016-17 until 2019-20. As it happens, that falls into the period where Mr Mundell expects a Scottish Government to introduce the new Scottish Tax rates. It was only back in May 2014 when oil and gas tax revenue was forecast as £38.7bn for 2014-15 until 2018-19, with a worst case scenario at £15.8bn.

While these tax revenues are presently reserved to Westminster and unlikely to be devolved to Scotland, if Scotland was to have full fiscal autonomy then given these figures and the timings of events, predicting whether tax rates would be increased in Scotland does not seem too difficult to forecast, as was the case with the oil and gas tax receipts given the economic outlook for Scotland on the back of these new figures.

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