Scotland's Tax Strategy 2024: Fairer Scotland Duty

Stage 2 – evidence

Evidence for the Tax Strategy

The Tax Strategy began development following the commitment set out in the Medium-Term Financial Strategy (MTFS) 2023^[3]. Following this, Scottish Government developed a comprehensive plan, which included a two phased stakeholder engagement plan.

The Tax Advisory Group (TAG) was established and met for the first time in July 2023. TAG provided feedback and advice throughout the development of the Tax Strategy with respect to improvements to the existing tax system, future priorities and evidence and evaluation programmes^[4].

Officials gathered evidence and analysis from a review of externally published reports and internal analysis and through the programme of external stakeholder engagement.

The Tax Strategy was originally intended to be published as a draft for consultation; however, due to the change in Scottish Government First Minister in May 2024, followed by the UK General Election in July 2024 and Scottish Government’s legal obligations around that period, this was not able to occur before the Scottish Parliament 2024 summer recess.

As such, it was decided that the Tax Strategy would be published as a final document alongside the next fiscal event (2025-26 Draft Budget) and that this would be supported by a full programme of external stakeholder engagement over the period of August-October 2024, in lieu of a consultation.

What does the evidence suggest about existing inequalities of outcome, caused by socio-economic disadvantage, in this specific policy area?

Scottish Government held and attended a number of engagements, with 65 different external stakeholders (Annex A), including those representing low income groups, such as the Low Incomes Tax Reform Group (LITRG) and the Child Poverty Action Group (CPAG).

Stakeholders were welcoming of a strategic document setting out a medium-term approach for tax policy and delivery. Some stakeholders raised specific concerns with regards to tax literacy and associated behavioural impacts for low-income groups.

What does the evidence suggest about possible impacts of the policy/programme/decision, as planned, on those inequalities of outcome?

Evidence gathered by the Scottish Government suggests that the Tax Strategy will result in a positive impact for taxpayers in Scotland. Stakeholders highlighted during engagement that there are associated impacts for low-income groups with regards to in work progression due to tax literacy and administration, as such the Tax Strategy may have a more positive impact on these groups.

The strategic decisions set out will ensure that the people of Scotland are able to view the tax policymaking process with greater transparency and understanding, as well as being able to engage with SG officials and Ministers in a more systematic manner.

As part of the Tax Strategy implementation there will be programmes of work focussed on improving public understanding of tax, and better communications of the tax system. This will enable taxpayers to make better informed decisions in terms of their tax planning and increase understanding of how their tax revenues are used to fund public services.

Improvements set out which aim to improve tax literacy and understanding of tax for taxpayers and citizens in Scotland will enable them to better plan their tax affairs, and this could support increased understanding of reliefs for which they are eligible where appropriate. As well as increased understanding of income, tax and benefits interactions for those most vulnerable, so that they can make effective choices for in work progression by dispelling existing myths around taxation. This may have the effect of reducing harm to low income and low/no wealth groups in Scotland.

Enhancing our evaluation, evidence and engagement on tax, as set out in the Tax Strategy will ensure that decisions made by Scottish Ministers fully consider the trade-offs and concerns of stakeholder groups.

Is there evidence that suggests alternative approaches to the policy/programme/decision? For example, evidence from the UK or international evidence?

Whilst a small number of countries have chosen to publish tax strategies, there is no obligation for us to do it. As such, we could opt not to publish the document but we have decided to do so as part of our MTFS commitment.

The Tax Strategy has no potential to cause harm, and potential to have a positive impact on low-income groups. The Tax Strategy also sets out our medium-term ambitions for how the tax system should develop to support the delivery of our four government priorities: eradicating child poverty, growing the economy, tackling the climate emergency, and ensuring high quality and sustainable public services. Given these potential positive impacts it is appropriate to proceed with a Tax Strategy.

What gaps are there in key evidence? Is it possible to collect new evidence quickly in other areas? For example, through consultation meetings, focus groups or surveys?

Scottish Government does not believe that there are gaps in evidence with respect to the decision to produce and publish a strategic document on taxation. During the implementation phase, the Scottish Government will continue to engage with a broad range of stakeholders and learn from international best practice.

The Tax Strategy outlines a number of priority areas and programmes of work for Scottish Government, including evidence gathering from international best practice, and developing a greater evidence base through the inclusion of the Areas of Research Interest. These are focussed on a number of key evidence priorities for the Government which relate to enhancing the evidence base on behavioural change, including the distributional impacts for taxpayers, groups and households. These ARIs also include the consideration of evidence of cumulative policy changes across the UK, Scottish and local tax systems on these groups. As such, the publication and work programmes seek to address existing evidence gaps in broader tax policymaking.

How could you involve communities of interest (including those with lived experience of poverty and disadvantage) in this process? The voices of people and communities are likely to be important for identifying potential improvements to the programme/policy/decision.

The Tax Strategy notes Scottish Government’s intention to continue to engage with stakeholders, building on the programme of stakeholder engagement undertaken to produce the Tax Strategy. This includes an intention to extend our engagement further to include seldom heard voices, including children and young people.

Improvements to transparency of tax policymaking, communication and tax literacy aims to stimulate better discussion on tax, and develop a broader evidence base for Scottish Ministers to use when making tax policy decisions.