A variety of tax-raising powers have been devolved to the Scottish Parliament in the last few years. With the passage of time we are likely to see a widening "tax gap" between regimes north and south of the border, reflecting the different political aims and priorities of Holyrood and Westminster.
North of the border, Land & Buildings Transaction Tax (LBTT) (which has replaced Stamp Duty Land Tax for property purchases in Scotland); and Scottish Landfill Tax are both fully devolved already. The Aggregates Levy and, from April 2018, Air Passenger Duty, look set to follow suit. Of more immediate importance, we also have the Scottish Rate of Income Tax and, from 2017/18, Scottish Income Tax rates and bands.
One of the highlights of the Autumn Budget 2017 was the headline-grabbing Stamp Duty relief for first-time buyers, who will no longer be charged Stamp Duty Land Tax on first-time purchases up to £300k. For the time being, a first time buyer of a residential property in Scotland, by contrast, will pay £4,600 in LBTT on a £300k purchase. For a young couple considering whether to buy their first property in Edinburgh or, say, Newcastle or Leeds, that is a significant difference. Will the Scottish Government follow suit with a similar relief in the Scottish Budget on 14 December? Perhaps they will.
In 2016/17, the Scottish Parliament decided not to raise the Income Tax higher rate band, which left high earners in Scotland £400 worse off than the rest of the UK. For 2017/18, the SNP has tabled an options paper outlining various proposals. Most options would result in those earning over £31,000 paying more Income Tax next year. As the SNP is a minority administration, it will have to strike a deal with one of the other parties. Labour want a 50p top rate; the Lib Dems want penny on every rate; the Tories want to keep in line with the rest of the UK; and the Greens want a redistributive approach. One thing seems highly likely; the tax gap between Scotland and the rest of the UK will widen further, at least where Income Tax is concerned.
What are the long-term consequences of further divergence on tax between the two regimes? Could we see commuter towns springing up all along the border? Will businesses relocate? How will inward investment be affected? There may be a tax gap but there is also tax competition: Scotland competes with the rest of the UK for investment and jobs. Does Scotland want to promote a competitive, business-friendly tax environment - or pursue some of the more radical, redistributive proposals on the table? Whatever is announced on 14 December, there are interesting times ahead.