Wealth Tax in Scotland Not ‘Quick-Fix Solution’ to Budget Issues, Says Expert

The Chartered Institute of Taxation has warned wealth tax is beyond Holyrood’s power.

The statue of philosopher David Hume on the Royal Mile in Edinburgh, Scotland, on February 21, 2012. Photo by Jeff J Mitchell/Getty Images

Introducing a wealth tax is beyond Holyrood’s power and would not offer a “quick-fix solution” to pressures on the government’s finances in the Scottish budget, the Chartered Institute of Taxation has warned.

Last week, Scotland’s First Minister Humza Yousaf said Holyrood shouldn’t  “rule wealth taxes off the table” in the forthcoming Scottish budget. His comments come as the Scottish government faces the inflationary pressures leading to growth in public spending.

Mr. Yousaf referred to a report (pdf) by the Scottish Trades Union Congress (STUC) that proposed a tax on property wealth in Scotland, implemented as part of the local tax system rather than a national tax.

This would include net property wealth, such as primary residence and second homes. Pension wealth and possessions, such as antiques and artworks, would also fall in the taxable wealth category, according to STUC report.

The proposed tax model could raise £1.4 billion per year for the budget and would apply to households, rather than individuals, said the report.

Christopher Thorpe, a technical officer at the Chartered Institute of Taxation, has warned that even if Scotland considered a locally focused wealth tax, it could be “costly and complex” and would not swiftly solve Scottish budgetary issues.

The Scottish National Party’s Finance Secretary, Shona Robinson, said in May that Holyrood’s day-to-day spending could outstrip its funding by £1 billion in 2024-2025, rising to £1.9 billion in 2027-28.

At a time, when councils are already “finding their resources under pressure,” it would be challenging for them to set up and enforce a new wealth tax model, said Mr. Thorpe.

The proposed tax model would affect 12 percent of Scottish households, if imposed on wealth above a £1 million threshold. These households would be taxed an average £8,000 per year.

In his speech last week, Mr. Yusaf said that Scotland faces the restrictions of devolution, the cost-of-living crisis and challenging budget settlements, adding that decisions about Scotland should not be made in Westminster.

“I will never shy away from the belief that those who earn the most should pay the most,” said the first minister.

Wealth tax could offer Holyrood the “greatest opportunity for change in the short to medium term, but it needs political will to make it work,” Mr. Thorpe said.

The Scottish government could instead look at the taxes already under its control, such as council tax, he suggested. This way, Holyrood won’t need to wait for Westminster’s go-ahead, Mr. Thorpe said.

In July, Holyrood proposed to increase tax in the top four council tax bands by between 7.5 percent and 22.5 percent. This could raise an additional £176 million and could be delivered in time for changes to take effect from the start of the 2024-2025 council tax year.

Speaking to the BBC on Sunday, Ms. Robinson said that the government hasn’t yet made any decisions on changes to taxation. The finance secretary said that she convened a group of tax experts to look into what a fair taxation system would be for Scotland going forward.

With many civil servants working from home, the Scottish government won’t need the same configuration of buildings, Ms. Robinson said. This could mean that some government buildings could be sold or leased off to raise funds.

Over the next two years, Scotland will receive £320 million from the UK government, Chancellor Jeremy Hunt announced in March. This would be on top of the £1.5 million of funding for the Cloddach Bridge in Moray and £8.6 million for Edinburgh’s festivals.

The Scottish government is expected to publish its 2024-2025 budget in December.