Sixth Annual Report on the Implementation of the Scotland Act 2016: Tenth Annual Report on the Implementation and Operation of Part 3 (Financial Provisions) of the Scotland Act 2012

1. Introduction

1. This is the sixth report on the implementation of the Scotland Act 2016 and the tenth and final annual report on the implementation and operation of Part 3 (Financial Provisions) of the Scotland Act 2012.

2. It is intended to inform Parliament of the implementation work that has been carried out on fiscal powers in the Scotland Acts 2012 and 2016 as required by section 33 of the Scotland Act 2012 and paragraph 107 of the Fiscal Framework. The UK Government produces a separate report on the implementation work they have carried out.

3. The Scotland Act 2012 was granted Royal Assent in May 2012 and represented the first transfer of fiscal powers from Westminster to the Scottish Parliament following devolution. These included:

• The creation of a new Scottish rate of Income Tax;
• Provisions to introduce a new Scottish tax on land transactions, and to disapply UK Stamp Duty Land Tax in Scotland;
• Provisions to introduce a new Scottish tax on disposals to landfill, and to disapply UK Landfill Tax in Scotland;
• Provision for capital borrowing by Scottish Ministers; and
• The power to create new devolved taxes.

4. The Scotland Act 2016 received Royal Assent in March 2016 and devolved a range of further powers to the Scottish Parliament. These included:

• Further income tax powers including the power to set rates and bands;
• Assignment of Value Added Tax;
• Certain social security benefits;
• Provisions to introduce a new Scottish tax on the carriage of passengers by air from Scottish airports, and to disapply Air Passenger Duty in Scotland;
• Provisions to introduce a new Scottish tax on the commercial exploitation of aggregates, and to disapply the UK Aggregates Levy in Scotland;
• Fines, forfeitures and fixed penalties.

5. This report provides an update on these sections, as well as non-legislative elements in the Fiscal Framework^[1] including:

• Block Grant Adjustments;
• Administration and implementation costs;
• Policy Spillover effects;
• Borrowing; and
• Scotland Reserve.

6. The report provides an update on all legislative, policy and implementation work that has been carried out since the previous report on 24 March 2021 and outlines any forecast administration and implementation costs incurred in 2021-22.

7. Administration costs are the ongoing costs incurred in supporting the delivery of the Scottish Government's responsibilities under the Scotland Acts 2012 and 2016. Implementation costs are one-off costs associated with the initial investment to set up all the necessary systems and other elements required for the delivery of the powers under the Scotland Acts 2012 and 2016, whether through setting up a body or a service or implementing IT systems.

8. Section 33 of the Scotland Act 2012 calls for a 'final report' on or as soon as practicable after 1 April 2020, or if later, the first anniversary of the day on which the last of the provisions of Part 3 came into force. All Part 3 provisions of the Scotland Act 2012 have come into force, save for consequential amendments in Schedule 2 relating to the Scottish rate of income tax, and therefore this is the final report on the Scotland Act 2012.

9. Paragraph 1(2)(a) to (d) of Schedule 2 of the Scotland Act 2012 amends section 110 of the Scotland Act 1998, and permits the Secretary of State for Social Security to designate a taxpayer as a Scottish taxpayer (for the purposes of the Scottish variable rate), for social security purposes. These amendments were made to ensure that DWP could deem an applicant's status and rate (if unknown at the time when a Social Security benefit is claimed or application made for a child maintenance calculation) to avoid delay. Paragraph 1(2) of Schedule 2 are precautionary amendments to allow for the section 110 power to be used for the new Scottish Rate, in the event that a Scottish Rate Resolution is not passed.

10. As a Scottish Rate Resolution has always been passed by the Scottish Parliament to date, use of these consequential amendments by the UK Government have not been necessary. The remainder of the Schedule 2 provisions relates to parts of the Scotland Act 1998 that have been omitted or would be repealed on commencement.

11. The Cabinet Secretary for Finance and the Economy will update the Scottish Parliament should there be any further changes to the implementation of Part 3 of the Scotland Act 2012.

12. The next report on the Scotland Act 2016 will be published in 2023.