Today’s stage 3 debate on land and buildings transaction tax is something of a landmark for this Parliament: it is the first tax bill in Scotland for 300 years—308 years to be exact.
The chamber may be interested to know that the last tax bill passed by a Scottish Parliament was in 1705. In “the Act in favors of the toun of Glasgow for two pennies on the pint”,
“their Majesties King William and Queen Mary did thereby grant and dispone to said toun of Glasgow and community thereof the imposition of two pennys Scots upon the pint of all ale and beer to be vended and sold within the said toun and liberties thereof”.
It is interesting that the last tax act was about setting alcohol taxation in Scotland—not much has changed after 308 years.
To bring the debate up to date, an article in the New Statesman of 25 June starts with the words:
“Good news if you’re Scottish: your government is fixing one of the most ridiculously broken parts of the British tax system!”
Alex Hearn, the gentleman who wrote the article, makes the point that the Scottish Parliament’s reforms represent a significant transformation in how taxation of property is being handled in Scotland as a consequence of this Parliament acquiring those responsibilities and having the opportunity to legislate for change.
The Land and Buildings Transaction Tax (Scotland) Bill is coming to a conclusion this afternoon. The second tax bill in 308 years, the Landfill Tax (Scotland) Bill, is following hard on its heels, and preparations continue for the introduction of the tax management bill in the autumn. I also report to Parliament that both revenue Scotland and Registers of Scotland are making good progress, working together on the implementation of the legislation.
Those two taxes, devolved under the provisions of the Scotland Act 2012, are a modest start, but they are only a first step in strengthening the tax powers of this Parliament and enabling it to take the decisions on taxes and revenues that match Scotland’s interests and create opportunities for Scotland to flourish economically and socially.
As I first articulated in this chamber just more than a year ago, the Government’s proposals for taxation are firmly founded on Scottish principles that have stood the test of time. In 1776, Adam Smith set out four maxims on taxes in his “Inquiry into the Nature and Causes of the Wealth of Nations”: the burden proportionate to the ability to pay, certainty, convenience and efficiency of collection.
Those maxims may have been too late for the beer tax of 1705, but they point towards a system that will meet the needs of a modern, 21st century Scotland, grounded on solid foundations. To those four principles, this Government will seek to ensure that the devolved taxes will contribute to our core purpose of delivering sustainable economic growth for and meeting the distinctive needs of Scotland.
Land and buildings transaction tax represents a significant improvement on the tax that it replaces—the United Kingdom’s stamp duty land tax. We will do away with the nonsense of the slab structure of SDLT in which three times as much tax is paid when a house value nudges above the £250,000 threshold. That has caused market distortions and leads to the false recording of house prices in an effort to avoid paying tax at the higher rate.
Land and buildings transaction tax will solve the problem at a stroke in Scotland, by substituting a progressive structure in which only the amount above the threshold will incur tax at the higher rate. The Council of Mortgage Lenders and others have been calling for such a change since stamp duty land tax was introduced in 2003. It was clear during the earlier stages of the bill that there is cross-party support for the approach. The Government and indeed the Parliament have shown the vision to get on and do the right thing.
There are a number of other areas in which the bill improves on the equivalent legislation for stamp duty land tax. To encourage prompt payment of tax, a tax return and payment arrangements that are satisfactory to the tax authority will have to be made before Registers of Scotland can accept an application to register a land transaction. Revenue Scotland and Registers of Scotland have started planning for an information technology solution that will allow for the submission of a tax return and payment, with a paper alternative for people who cannot use the online system.
We rationalised the number of tax reliefs that will be available, to simplify the tax and the statute book. Under SDLT, some tax reliefs apply only in England and Wales and others are not being claimed; those reliefs have not been replicated in the bill. Wherever possible, we adopted Scottish legal terminology, to make the legislation more comprehensible to the Scottish reader.
For a number of years, the sub-sale rules for stamp duty land tax have been the subject of aggressive tax-avoidance activity. People have found a number of different ways of taking advantage of the rules, in an effort to avoid paying any stamp duty land tax. Such activity is not welcome in Scotland. I am keen to encourage a culture of responsible tax paying. Those who doubt that can expect to see timely and effective action from revenue Scotland to protect the tax base.
In my closing remarks in the stage 1 debate, I committed to exploring options to ensure that the property development industry in Scotland is treated fairly in the absence of sub-sale rules. Since then I have met representatives from the industry, who provided a range of insights and suggestions. I hope that the conclusion at which the Parliament arrived after considering amendments today gives the industry satisfaction that the Government is engaging seriously on the matter and—this is crucial—reassures the Parliament that the Government is resolute in its determination that the integrity of the bill should not be undermined by avoidance activity.
We also considered partnerships and trusts and came to conclusions about how to advance issues in that regard.
During the bill’s development, a great deal of work was done to develop legislative provisions in relation to the taxation of non-residential leases. I single out work in that area as an example of good practice. We had the benefit of being able to discuss complex issues with members of the non-residential leases working group, which included representatives from the Scottish stamp tax practitioners group, the Institute of Chartered Accountants of Scotland, the Law Society of Scotland, the Chartered Institute of Taxation and the Scottish Property Federation. I thank the members of the group for the way in which they enabled consideration of and agreement on a comprehensive approach, which covers a range of issues. Their giving their time and expertise greatly strengthened parliamentary scrutiny of the matters.
The establishment of the non-residential leases working group is a good example of how the legislative process in Scotland can be made accessible to stakeholders. Close working with stakeholders has been a feature of the bill and is something that I am keen to continue as we take forward the examination of tax issues. Such an approach is the hallmark of the tax consultation forum, which is already giving the Government substantial advice on the formulation of the tax management bill, which will shortly be introduced in Parliament.
I thank the Finance Committee for its detailed scrutiny of the bill at stages 1 and 2. The bill covers a number of policy areas, and the committee heard evidence from a broad range of stakeholders. We can take pride in the fact that today we are giving evidence of the Parliament’s ability to shape legislation that addresses diverse and significant issues. The bill is an example of what the Parliament can achieve if we work collaboratively. I hope that at decision time this evening it will attract support from across the political spectrum.
That the Parliament agrees that the Land and Buildings Transaction Tax (Scotland) Bill be passed.
Thank you, Presiding Officer.
There has been very little fuss about the bill, which has broad political agreement across the chamber and broad support among home owners and businesses. However, it is worth noting for the record that, even if it is not the most earth-changing legislation, it is introducing Scotland’s first new tax in more than 300 years. The bill is another example of devolution working well, with the Scottish Parliament taking control of this property transaction tax and designing a system to suit Scotland’s needs while retaining all the advantages of working within the political, social and economic union that is the UK.
Although we have agreed today on the principles of the new land and buildings transaction tax, there is still a great deal of detail to be worked out. For example, there is the practical issue of how the collection agency, Registers of Scotland, will interact with the new supervisory body, revenue Scotland; there is the rather important matter of negotiation and agreement on how much the block grant will be reduced by when the new tax is introduced; and of course there is the question that I suspect most home buyers and businesses will most want to hear answered, which is how much they will pay and what the rates at which LBTT is introduced will be.
On the first of those points, alongside the devolution of LBTT, perhaps the most practical, immediate and positive benefit will be the move from an inefficient, unfair tiered or slab structure of stamp duty to the progressive, rising scale of LBTT. Stamp duty has long been broadly redistributive; in other words, a high rate of tax has generally applied to more expensive properties, with no stamp duty on properties below a value of £125,000. However, applying higher percentage rates to all the properties above a certain threshold has created highly marginal rates of tax at those new banding levels and has led to distortions in the housing market and in the application of the tax. The new system will smooth out those iniquities and ensure an efficient market that will be fairer to buyers and sellers alike.
When the bill is implemented, the block grant will of course be adjusted to remove a sum equivalent to the money that we currently receive from stamp duty levied across the UK. It is worth noting, at the very least, that the UK and Scottish Governments have already offered us widely varying estimates of how much the grant should be reduced by. That is perhaps not surprising, given the collapse of the property market and the consequent drop in the number of sales on which stamp duty has been levied over the past few years, but it is important that an agreement is reached that is fair not just for Scotland but for the rest of the UK, too. The Cabinet Secretary for Finance, Employment and Sustainable Growth has placed great stock in the past on providing stability in the public finances, so for that reason alone I urge him to work towards reaching agreement on the block grant reduction sooner rather than later.
I am certainly not asking members to rethink their support for the bill, but I suspect that there might be a marginal downside to devolving LBTT. I have not made the exact calculation but, given that stamp duty is a broadly redistributive tax and, I believe, the proportion of expensive properties is far higher in London and the south-east of the UK than in Scotland, Scotland will currently be among those parts of the UK that marginally gain from the redistributive effect of the stamp duty tax.
I mention that point as it is also worth noting that, when LBTT is introduced in Scotland, many of the properties at the higher end of the scale will be in Aberdeen, Aberdeenshire, Edinburgh and Glasgow. At the very least, the new system will create a tension between our support for localism and local control and our belief in a nationally applied, progressive and redistributive system of taxation.
One of the most important issues that are still to be resolved is the timescale for the publication of the new tax rates. I will not repeat all the arguments that we have just heard debated at stage 3 and which were debated at stage 2 in committee, but I hope that the cabinet secretary will bear it in mind that business in particular is clamouring for greater certainty.
The cabinet secretary has stated that his broad approach is to try to maintain revenue neutrality, but even within that policy intention there is scope for winners and losers. I believe that, when the bill was first outlined, the cabinet secretary suggested that 95 per cent of people would be better off under LBTT. If that is the case, clearly the 5 per cent who would be worse off might be disproportionately affected.
There is a particular worry in the commercial property sector that high-value commercial property might bear some of that disproportionate impact. Businesses are used to testing our words as politicians against our actions as parliamentarians or Government ministers. I urge the Government and the particular minister involved to publish his proposals as soon as possible in order to introduce some certainty.
The fact that the cabinet secretary has repeated his intention not to publish the information before September 2014—in other words, it will not be published before the referendum—has not helped assuage the anxiety. His intention suggests that it is less of a priority and it begs the question: if there is nothing to be worried about and everyone will be broadly unaffected or even slightly better off, why the delay in making the announcement?
I do—but I am not sure that that is a killer point or that it answers the point about the certainty that we are looking for. We do not have certainty at the moment, and the cabinet secretary has it within his power to offer that to businesses and home owners.
I turn to the administration of the new tax. The bill states that Registers of Scotland will have a role in the collection of revenues alongside revenue Scotland. Having two organisations involved in one tax creates room for complexity and confusion, and I urge the cabinet secretary to clarify their roles as soon as possible.
As the cabinet secretary knows, we have given our strong support to the introduction of a robust general anti-avoidance measure. However, one of the exceptions that we made was on energy efficiency, and I urge the cabinet secretary to return to that.
There are a number of issues still to be resolved, and much detail remains to be published. However, the Parliament is of one mind that today marks a major step forward in improving the tax system in Scotland. The bill reflects a number of principles on which we can agree and an approach that is both progressive and redistributive, which we believe can help to shape a modern, prosperous and socially just Scotland of which we can all be proud.
We welcome the devolution of the tax along with the Land and Buildings Transaction Tax (Scotland) Bill, which we will support at decision time at 5.40. When the cabinet secretary talked about its being the first new tax for well over 300 years, I was reminded of one practitioner in tax, who shall remain nameless, saying that new taxes are a bit like buses and that, by the end of 2013, we will have another one with which to contend in the shape of the Scottish landfill tax.
We welcome many elements of the bill. One of the Scottish Government’s strongest decisions is to remove the existing slab structure that is found in SDLT. Without any shadow of a doubt, that structure has previously led to market distortions, and the one simple move of removing it will make a big difference to the marketplace. I have yet to find anybody from any profession who has a bad word to say about that decision.
Over the course of the bill’s passage, the Scottish Government has made strong progress in certain areas, as has been indicated in the stage 3 voting on amendments, and it ought to be credited for the work that it has done. The cabinet secretary talked about the working group on non-residential leases that he set up, and I join him in commending the work of that group, whose members sat down, rolled up their sleeves and pulled together some provisions that are complex but far superior to those that they replace. Indeed, as I said earlier, I commend the decision that the cabinet secretary took in relation to licences, which were initially to be a part of the tax but are now not to be, apart from those that may be granted at a later date.
We have had discussions about issues on which we disagree, too. As the cabinet secretary will know, I find myself holding a different position from him in two areas. The first relates to the timings of the rates. I will not rehearse all the arguments; I will simply respond to John Mason’s intervention on Ken Macintosh. He is right to say that the Chancellor of the Exchequer has raised stamp duty. Budget day in March 2012 was an example of that. However, the concern that businesses are raising with me at the moment is that this is an entirely new tax and a new framework with new thresholds—we do not know exactly how many—and new rates at every level apart from the nil rate. There is greater uncertainty over an entirely new tax than there is over an existing tax, even when there are changes late in the day.
We also disagree on sub-sale relief. I will not rehearse all the arguments. Suffice it to say that I feel that the Scottish Government has slightly overstated the case in relation to tax avoidance. It has not quite taken into account enough areas of competition. The cabinet secretary has outlined what he intends to do, but we are in a slightly different place. Most of the group on non-residential leases that he mentioned—including ICAS, the Law Society, the Chartered Institute of Taxation, the Scottish Property Federation and others—take a view that is broadly closer to what I have suggested than to the Scottish Government’s approach of trying to exclude everything and looking at bringing in only one or two aspects.
The fact that there is still work to be done is acknowledged in the specific regulatory powers that the bill provides. Mr Swinney quoted the New Statesman article that said that the Scottish Government was
“fixing one of the most ridiculously broken parts of the British tax system”, but there are some parts of the bill that people would deem to be broken—not just the provisions on partnerships but those on trusts, which need to be looked at. I am glad that the regulatory power on that was brought in at stage 3.
As I said at the outset, we will support the bill at decision time, but there are a couple of areas on which we still disagree with the Government, and I press it, even at this late stage, to look at where it can make progress on them.
As convener of the Finance Committee, which was the lead committee for consideration of the bill, I am pleased to take part in the debate, which is on a subject that has featured heavily in our work this year.
The complexity of establishing a fair and workable taxation system is apparent. It has not been easy to iron out inequity and to learn from the mistakes of old, repeatedly altered legislation while trying to simplify the system within the Scottish Parliament’s powers. I thank the committee clerks, committee colleagues and all those who contributed to the evidence-gathering sessions for their input as the bill progressed, which was invaluable and helped to offer a fuller picture of how the new tax could, should and will operate.
The bill is the first of three related tax-raising bills to come before the Finance Committee and the Parliament following the passage of the Scotland Act 2012. It is clearly in everyone’s interest to ensure that new taxes are progressive and are relatively simple and effective.
LBTT will replace stamp duty land tax, which the Institute for Fiscal Studies described as “wholly ill-conceived”. Perhaps the most notable of SDLT’s faults is the fact that it is charged on the basis of a slab system, which creates significant distortions. For example, as the Ernst & Young report “Grasping the thistle”—which is not to be confused with Mike Russell’s book of the same title—pointed out, a non-residential property that is acquired for £249,000 attracts stamp duty of 1 per cent, or £2,490, whereas one that is bought for £251,000 incurs a charge of 3 per cent, or £7,530. LBTT will offer a more progressive tax that avoids the sudden increases in liabilities that are a feature of the slab system.
Furthermore, as an article in The Sunday Times on 28 April pointed out, stamp duty is open to a series of tax avoidance schemes that Her Majesty’s Revenue and Customs is trying desperately to close. Although the finer details of stamp duty mitigation schemes are kept secret by some legal firms, it is known that, through a complex system that involves setting up third-party companies, sub-sale relief can be exploited on behalf of a buyer. I am pleased that the bill addresses that issue. I am aware that many property developers use sub-sale relief for wholly commercial purposes, but the bill will properly legislate to cover such specific commercial transactions.
It is clear that tax avoidance is an important issue that has received much attention in recent months, so I am pleased that the bill takes steps to close tax loopholes. As the Scottish Government does not intend to increase the overall revenue take, everyone should pay less.
Of course, the Scottish Government intends to tighten things up even further by introducing a general anti-avoidance rule through the proposed tax management bill later in the parliamentary session. That move will enjoy public support but, according to the Ernst & Young survey that I cited earlier, it also has the support of 78 per cent of businesses that operate in Scotland across an array of sectors. As an aside, I believe that that shows that the Government can act in the public interest by collecting taxes that are duly owed by businesses without scaring them away or damaging the economy, which is a scenario that some are all too keen to depict. I suggest that the UK Government might wish to reflect on that.
The introduction of LBTT is the first step towards a Scottish approach to a fairer taxation system, and it is important that it is achieved with as much consensus as possible. I am encouraged that that has been the case, in committee and in the chamber, with a majority of amendments being agreed to without division. I am confident that, following the bill’s passage and when the improvements and benefits of it are realised, it will become apparent that all—and not some—tax powers should be devolved to the Parliament.
I very much welcome the bill, which will soon become the first tax act in Scotland since the tax on alcohol in Glasgow act of 1705—I thank the cabinet secretary for that interesting information.
The cabinet secretary said that he hoped that the bill would be the first step in strengthening the Parliament’s tax powers. I certainly agree with that—I would like a few more taxes to be devolved to the Parliament. In committee, he said that he wanted all taxes to be devolved to the Parliament. I pointed out to him that that was devo max, but he assured me that he still supported independence.
Unless or until we raise all the revenue that we spend, the key issue of the block grant adjustment will remain. It is not in the bill but, clearly, it will be one of the major issues in the next year or two. We wish the cabinet secretary all the best in his negotiations with the UK Government. I am sure that we would all urge him to strike the best possible deal.
There are many things in the bill that I welcome, including the process. There was a good process in the committee and with the stakeholders, so I welcome the changes that have been made in relation to charities, for example, and the additions, such as the provisions on non-residential leases. I also welcome the general emphasis on tackling tax avoidance. Part of that involves dealing with reliefs that encourage it, such as sub-sale relief. I also welcome the bill’s progressive nature.
The first controversy that came up today concerned when the rates will be announced. In a sense, that is still a live issue, since nothing in the bill says when that should be done. The distinction between the setting of residential rates and the setting of non-residential, commercial, rates is important. Gavin Brown in particular emphasised the range of bodies that think that commercial rates should be set earlier, and I was persuaded by that argument.
I was not persuaded by the cabinet secretary’s argument against that, which was that the rates must be set in September because of the budget bill. There is a commitment to revenue neutrality, so I do not see why the decision on the rates should depend on the overall levels of public expenditure at the time.
Obviously, I was disappointed in relation to energy efficiency, but there is no time to say anything else about that. I was also disappointed by the partnership sections, which were lifted straight from what is generally agreed to be a bad part of Westminster legislation. However, the cabinet secretary has agreed to consider that before 2015, and I am sure that that will be done.
Kenneth Gibson mentioned “Grasping the thistle”, which is quite an interesting document. A lot of the discussion on the bill has been about business, but that publication says that there is a lack of awareness in the business community and calls for a concerted programme of communication to boost awareness of the switch. I am sure that it is not just the business community that needs that, so communication will be important over the next couple of years.
The other big issue is the practical issues that have to be sorted out. I am glad that Registers of Scotland and revenue Scotland are making good progress but, clearly, there are issues that concerned the committee, such as who will give advice on the tax. The committee will keep a watching eye on progress on that as well.
It has been fascinating to follow the progress of the bill, which introduces the first new tax in this Scottish Parliament. That is both exciting and symbolic. As we start the process of replacing UK taxes with more appropriate Scottish taxes, it does no harm to repeat the four principles of Scottish taxation, which the cabinet secretary has laid down, having drawn them from Adam Smith: they are the burden being proportionate to the ability to pay; certainty; convenience; and efficiency of collection.
It is also worth saying again that tax is a good thing. We live in a world where many complain of paying too much tax and where there is an idea that, for some days in the year, everyone is working for the Government. However, that is clearly not true. We pay tax for the good of our fellow citizens. The Parliament has a duty to argue for taxation and to say why it is both necessary and good.
Gavin Brown, who is not here at the moment, made a point about witnesses coming to the committee. Of course, people come to committee with special interests, but we have a responsibility to all the citizens of this country. They are not always at our committee meetings, and we must take their views into account.
I welcome the principle of simplicity in the bill and the fact that the cabinet secretary has resisted the requests for a range of reliefs. On the surface, some of those might have seemed attractive, but they could open the door to those who seek to artificially avoid paying the tax.
We have debated the issue of encouraging environmentally friendly housing. We all want to encourage that, but I continue to believe that the money would be best used to finance grants or reductions in council tax, rather than a tax reduction.
The question of when rates should be announced has been discussed. We have not spent a great deal of time on the block grant adjustment. That is an issue for all the new taxes—LBTT, the Scottish rate of income tax and landfill tax. It certainly should be simpler to work out the formula for LBTT than for the Scottish rate of income tax, for example. However, we cannot have the same system for all three taxes. The Finance Committee will want to keep a close eye on the discussions between the two Governments.
Something exciting is happening here today. For the first time, the Parliament is introducing a new tax. I accept that it is a small tax that replaces a similar existing one, but there is something symbolic about that. Until now, only the block grant has been available to us and we have had choices about how to spend it. Now, for the first time, we will be able to raise some of our own revenues.
The ability to raise tax was a key issue on the road towards independence for the United States. At that time, London made serious mistakes in how it handled things. Westminster has over the years made serious mistakes in its quest to hang on to Scotland, too. First, it made the mistake of giving us our own Parliament, which has only helped to boost Scotland’s sense of identity and our ability to do things ourselves. Now, it is giving us the power to raise some of our own taxes. Again, that could be a serious misjudgment on its part. The more powers we have and the better we use them, the more likely it is that we will go the whole hog and opt for complete freedom. Especially for that reason, I very much welcome the passage of the bill.
It is interesting that the independence revolution starts with LBTT. That is obviously the most revolutionary development that has happened in the Parliament and I look forward to joining John Mason on that fantastic, exciting journey.
Many members have mentioned that the bill is historic—it is a landmark. The bill has been greeted with great enthusiasm. However, we should not forget that it is part of the powers in the Scotland Act 2012, which many ministers described as a poison pill and which they threatened to veto. Many red lines were drawn and then painted over with Tipp-Ex.
Now we have the bill. I welcome it, because I am in favour of more powers for the Parliament. However, we should not forget that those who are enthusiastic about the bill today threatened its introduction. We should not forget that those who are in favour of more powers sometimes adopt strange positions.
For such a historic bill, we have adopted quite a timid approach to its implementation. We could have implemented something quite interesting to incentivise people in relation to the environment. We could have made significant steps today. However, that approach was turned down, which is a shame. I hope that the Government reflects on that and introduces measures in other areas to address the climate change targets that we have missed on two successive occasions.
I do not want to be completely negative this afternoon. I welcome the replacement of the slab structure with something that is more in line with the income tax proposals. That is a sensible, progressive way to proceed. However, I am disappointed that the finance secretary did not listen to Gavin Brown’s wise words and introduce much more notice for business and others of how the tax will be structured. There is still an opportunity for him to indicate that he will do that. I hope that he does, but I might be disappointed, too.
Having heard the evidence sessions in the Finance Committee, I am convinced of the merits of the land and buildings transaction tax. The slab system of rate setting in the stamp duty land tax is outdated and inefficient. I commend the Scottish Government for striving to meet the four principles of tax legislation that it has committed itself to and particularly for the LBTT’s shift to a proportional and efficient progressive rate of tax. The evidence makes it all too apparent that land prices have been distorted by the slab system, as it discourages the sale of residential property at prices immediately above the thresholds. The move to a progressive tax is a welcome shift in the current housing climate.
On Willie Rennie’s comments, the Scottish people would welcome the rejection of Gavin Brown’s amendments because, largely, tax dodging is abhorrent to everybody in this country. We struggle to provide good public services on endlessly reduced taxes, yet it has been recommended that in some of the areas in which tax has been dodged most, we should not implement the regulations.
This is the first tax to be introduced after the 2012 act; it is a moment of history. If I have any personal comment to make about that, it is that the bill is almost premature. After a resounding yes result next autumn, we will be in charge of all taxes. However we deal with tax in this country, we will not have to accept a block grant adjustment accordingly, which in effect could leave us no better off.
As I did at stage 1, I note that this is the first of three bills to emanate from the 2012 act that will begin to increase the Parliament’s powers. It is important that we get it right so as to make another statement about Scotland’s competence with regard to tax. I look forward to the day when the Parliament has the full, normal powers of a nation to bring about the substantive changes in our economy and society that we desperately need. I support the bill.
John Mason said that this was an exciting piece of tax. I have to say that, in a way, he is right: elements of it are quite exciting and interesting. The idea that we will be responsible for setting the rates of and collecting LBTT, instead of just expenditure, is a new development for the Parliament. It will force all of us as legislators, and the Finance Committee in particular, to step up to the plate a little.
We will also have to begin to understand concepts such as behavioural economics and what happens when we change the rate of a tax up or down—will we get anywhere near what we think we will collect and will we get anywhere close to what we fear we might have lost? That is an exciting development for the Parliament, and I look forward to the rates being set and the discussions going on until April 2015 and thereafter.
Obviously, I take a slightly different view from Mr Mason of where this will lead. He thought that this was the beginning of the independence march. My view is slightly different, but I agree that the concept is exciting.
As I said in my opening speech, there is still work to be done. Sometimes it can sound a bit trite to say that, so I will get one example on the record to show what I am talking about. Schedule 18, which we looked at briefly, relates to trusts. Some of the provisions on stamp duty land tax have simply been copied over to that. Part 2 of schedule 18 basically defines some of what beneficiaries are entitled to in terms of their interest under the law of England. It states:
“Paragraphs 3 and 4 apply where property is held in trust ... on terms such that, if the trust had effect under the law of England and Wales, a beneficiary would be regarded as having an equitable interest in the trust property.”
I cite that minor example to illustrate the point that, although much in the bill is good, certain aspects have simply been cut and pasted. It is critical that, in advance of April 2015, work is done via the various working groups and parties that the cabinet secretary has talked about.
I make another plea for the cabinet secretary to say a little more about the setting of rates in his closing speech, although I suspect that he might not. The reason why I say that is that, if I heard Mr Gibson correctly—he will correct me if I did not—he said that everyone should pay less. I want to probe that a little and ask the cabinet secretary simply, “Is Mr Gibson right?”
All else being equal, if everyone pays their fair share and avoidance is eliminated, people will pay less than would otherwise be the case. That is what I should have said.
Perhaps the cabinet secretary will confirm in his closing speech whether everybody will pay less in terms of the rates that we will face, compared with stamp duty land tax. I would be very interested to hear about that.
There is much to commend in the bill but, as I have said, there is still work to be done, particularly on rates but also in relation to sub-sale relief. Jean Urquhart was particularly harsh on sub-sale relief. It has been an avenue for avoidance, but I do not think that we should suggest that everybody who has used sub-sale relief has done so purely as a method of avoidance. Forward funding proposals are popular now because many of the banks are not lending to commercial property in the way that they used to. Forward funding has grown because of that. I ask that we do not cut those avenues off and that we are not too hasty in hitting the economy with that.
The Labour Party supports the principles of the land and buildings transaction tax. This has indeed been an interesting debate. The bill is an example of devolution working well and affording the Scottish Government the opportunity to design a tax that suits its needs and redresses some of the flaws of the current UK system. The tax will be responsive to Scottish markets, especially our housing markets, and will free us from the other market distortions that happen when tax is levied more widely. The bill is a good example of decisions being taken as close as possible to those who are affected by them, illustrating one of devolution’s real benefits.
I take slight issue with people who have said that we have not had tax-raising powers before. We have. Indeed, the Parliament was set up with tax-raising powers, although we have never used them. It is a point of fact—we did have tax-raising powers. Other members have said that the land and buildings transaction tax is the first tax that we have devised. That is possibly correct, although we did devise the social responsibility levy, and I very much hope that the new tax that we are now providing for will raise more revenue than that other one did—it will probably never raise any revenue again.
I turn to energy efficiency, which provides one of the main bones of contention in the debate. No cognisance was taken of Malcolm Chisholm’s stage 2 amendments, nor of Patrick Harvie’s stage 3 amendments to charge differently for energy efficiency. That would have provided the Government with a tool to encourage energy efficiency measures. We know that the climate change targets have been missed, and such measures would have provided another tool in the box to deal with meeting those targets. I feel sure that we will come back to the issue in the future, and the eventual act will perhaps be amended to make that happen.
I turn briefly to sub-sale relief and welcome the cabinet secretary’s points on the subject. I very much welcome the setting-up of a working group on the matter and the provisos that the cabinet secretary has put in place to ensure that speculative land purchasers cannot apply for sub-sale relief. I also welcome the fact that there will be clawback if people apply for it, are granted it and then do not fulfil the terms of the agreement. We very much agree that if the balance between relief and avoidance is not met, we will perhaps not pursue the issue further. However, I welcome the fact that the cabinet secretary is examining the matter in greater detail. I re-emphasise the importance of ensuring that tax avoidance is not part of the new tax.
Tax avoidance has been a big issue with stamp duty. We welcome the general anti-avoidance rule that will be part of the forthcoming tax management bill, ensuring that people cannot abuse tax arrangements in Scotland. We look forward to working with the Government to ensure that those provisions are as stringent and rigorous as possible.
I turn now to a point that has not been raised so far in the debate: that of revenue Scotland and Registers of Scotland working together. I welcome what the cabinet secretary said in his opening speech about good progress being made on that front. I urge the cabinet secretary not to take his eye off the ball with regard to the IT system. We need a good IT system to deliver the tax. It must be fit for purpose, and we know that the Registers of Scotland have had problems with computer systems—its systems have not proved to be very efficient, and we very much hope that the new system that is being devised is fit for purpose and can deliver the system that we require.
Malcolm Chisholm spoke about the block grant. That issue has not been discussed very much in the debate, but it is hugely important. We know that we will face a one-off reduction in the block grant, and how that happens will impact on our future revenue. We need a fair settlement. It will be for the Scottish Government to deal in its budget with the peaks and troughs that arise from devising the tax and what it brings in, but we need to be sure that the one-off cut to the block grant is fair and that we do not lose out.
Like other members, I welcome the changes in the taxation system, which move us towards a much more progressive system. Many members have spoken today about the distortions that were caused by the old slab system that was part of stamp duty land tax. There were high thresholds, and people tended to keep their prices below the threshold to encourage sales and purchase. The new system will be much fairer and more progressive, and will start from a higher amount to reflect our market conditions.
The bill is devolution in practice, and it gives the Scottish Government the levers that it needs to promote economic development as well as revenue-raising powers. It is always a challenge to reach the right balance between two aspects of our economy—raising the revenue that is needed to provide our public services and encouraging economic development—but we very much welcome the bill.
I am delighted that we have been joined in the chamber for the debate’s conclusion by my colleague and friend Michael Russell, the Cabinet Secretary for Education and Lifelong Learning. He must have heard the phrase “grasping the thistle” mentioned while he sat in his office. However, I must disabuse him of any notion that it was a plug by Kenny Gibson for the illustrious publication that Mr Russell perhaps thought was being discussed. Mr Gibson in fact referred to the thoughtful and comprehensive report from Ernst & Young on the issues around tax policy in Scotland, which is a welcome contribution to the debate.
The contributions of colleagues to the final stage of proceedings have also been welcome. I say to Malcolm Chisholm that, earlier this afternoon, before I came down to the chamber, I was viewing in the Government archives the 1705 act to which I referred. The act itself is somewhat more elegantly presented than the purple sheets that are before me today. Nonetheless, it is a very significant moment when the Parliament here in Scotland is, for the first time, able to exercise responsibility for the formulation of tax legislation that will be effective in this country.
John Mason made a powerful argument for the purpose of taxation. He highlighted that it is our duty in Parliament to scrutinise the application of that taxation and, sometimes, to take a robust view of some of the information that is presented to us, taking into account as well our wider responsibility—as Mr Mason expressed it—to the citizens who may not be at the parliamentary committees that are hearing the evidence and having the discussions.
Mr Mason’s points about the purpose of taxation and its importance in funding public services lie at the heart of the Government’s aspirations in formulating the legislation. They also lie at the heart of the composition of the tax consultation forum that I have now established. The forum brings together not an exclusive group of tax experts—although there are plenty of tax experts in the room; it includes representatives of youth organisations, older people’s organisations, the people who represent individuals on low pay and so on. That will ensure that we have a challenging debate about the approach that we should take to taxation as we acquire these wider responsibilities.
One of the characteristics that I have been anxious to ensure is reflected in the first bill to legislate on tax in this country that has been introduced in 308 years is the taking of the firmest, hardest line on tax avoidance, to tackle it from the very beginning. In that respect, Jean Urquhart is absolutely correct: we should not in any way give a signal in the bill that we are interested in anything other than good, strong tax compliance.
I welcome what Rhoda Grant said in response to my comments about sub-sale relief. Whether we like it or not, sub-sale relief has been used as a tax-avoidance mechanism, and the comments that I have put on the record are designed to make it absolutely clear that, although we are prepared to consider the issues, if there is any possibility that we will open up an avenue to tax avoidance, the Government will not go down that route. Our approach of ensuring the robustness of the legislation is crystal clear.
Mr Rennie said that he did not want to sound all negative, although he did a pretty good job of pulling off such an act in the process. If Mr Rennie was so desperately troubled by the absence of a measure to assist in meeting the environmental challenge, there have been limitless opportunities for an amendment to be lodged, considered and scrutinised. I am not aware of a single Liberal Democrat amendment that would have assisted us in resolving the issues.
That was a very elaborate Liberal Democrat way of saying, “I haven’t lifted a finger in this debate.”
I also point out to Mr Rennie that he marshalled arguments about comments that we made about the Scotland Act 2012 provisions. I remind Mr Rennie that the Scotland Act 2012 provisions differ substantially from the Calman commission’s proposition and that advanced initially by the UK Government. We thought that the change to the mechanism for adjusting the block grant in relation to income tax-varying powers had a deflationary bias. The UK Government deserted that position and the Holtham methodology was applied. Some of our criticism was well founded in protecting the legitimate interests of the people of Scotland.
I do not think that this Parliament is a great place for unionists to talk about red lines. There were all these red lines in the sand, but they have all gone away again.
As for Mr Brown, he said that Mr Mason made an undue link between Parliament getting these tax powers and getting further powers. I gently remind Mr Brown that his party was against the establishment of this institution. It said that it would go thus far and no further, then thus far and no further, then thus far and no further—[Interruption.]
Then it gave us the Calman commission, which was apparently designed to put our gas at a peep. After the election, when we won a majority, it came around—although it drew a line in the sand, we were to have more powers. I do not think that the Conservatives are in a strong position to lecture us on how transferring one power or responsibility to the Scottish Parliament does not lead to further constitutional change— [Interruption.]
This is a significant day. It is the first time in 308 years that the Scottish Parliament has had the opportunity to formulate legislation on tax and to implement taxation in our country. We believe that that is an indication of the strengthening of Scottish democracy, which will be complete when this Parliament has all the financial and economic powers that come with being an independent country.