The Scottish Government A Consultation on the Scottish Fiscal Commission Response by the Chartered Institute of Taxation

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1 Th Scottish Govrnmnt A Consultation on th Scottish Fiscal Commission Rspons by th Chartrd Institut of Taxation 1 Introduction 1.1 Th Chartrd Institut of Taxation (CIOT) is plasd to submit commnts in rspons to th consultation papr abov, issud by th Scottish Govrnmnt in March W hav prviously submittd a rspons to th Inquiry into Scotland s Fiscal Framwork by th Financ Committ of th Scottish Parliamnt (jointly with our Low Incoms Tax Rform Group (LITRG)). 1 This includd a brif considration of th rol and rmit of an nhancd Scottish Fiscal Commission. 1.3 In particular, w bliv that indpndnt scrutiny is an ssntial lmnt of a robust fiscal framwork. With that in mind, w agr that th rmit of th Scottish Fiscal Commission should b nhancd and that it should b put on a statutory footing. In addition, th Commission must b fundd and rsourcd such that it has th capacity to fulfil its nhancd rmit. 1.4 W think that th OECD rcommndations in rspct of principls for indpndnt fiscal commissions should b kpt in mind throughout this consultation and in th implmntation of ths proposals. 2 2 Gnral Principls 2.1 Th Scottish Govrnmnt has committd itslf to a tax systm that has rgard to Adam 1 S in particular sction 12 of th rspons: Fbruary C(2014)17 - C(2014)17/CORR1 - Rcommndation of th Council on Principls for Indpndnt Fiscal Institutions:

2 Smith s four principls: crtainty; th burdn proportionat to th ability to pay; convninc; fficincy of collction. 3 W agr that ths longstanding principls ar important and rlvant for th dvlopmnt of a sound tax systm. In viw of this, w think it is ky that th Scottish Fiscal Commission is robust and indpndnt, so that it can scrutinis ffctivly th Scottish Govrnmnt s us of fiscal powrs. 2.2 It is important that th Scottish Fiscal Commission is stablishd in a mannr that will nabl it to scrutinis th potntially much gratr powrs that th Scottish Govrnmnt is likly to rciv in th coming yars. This mans that its constitution must provid for rcruitmnt of additional staff to nabl it to covr a gratr rang of issus, but mor importantly ky principls such as an annual rport to th Scottish Parliamnt nd to b stablishd from th start. 2.3 W would lik to assist in nsuring that th tax systm in Scotland (and th rst of th UK) is ffctiv and fficint. W think that th achivmnt of a tax systm that works wll for taxpayr and tax authority alik is mor likly if th aformntiond principls ar born in mind and if th Scottish Fiscal Commission is placd on a statutory footing. 3 Th Status of th Commission Q1. What ar your viws on th proposal to stablish th Commission as a sparat part of th Scottish Administration, and thrfor dirctly accountabl to th Scottish Parliamnt rathr than through Scottish Ministrs? 3.1 W wlcom th proposal to stablish th Commission on a statutory basis this will hlp to nsur prmanncy. 3.2 W agr that th Commission should b stablishd as a sparat part of th Scottish Administration. This will b part of building in appropriat chcks and balancs and will hlp to nsur accountability. In particular, w think it is important that th Commission is dirctly accountabl to th Scottish Parliamnt. It might b appropriat for a committ of th Scottish Parliamnt to hav ovrsight of th Commission; it would b possibl ithr for th Commission to rport to th Financ Committ or to st up a nw committ with this rol. 4 Th Commission s statutory functions Q2. What ar your viws on th proposd statutory functions of th Commission? 4.1 Th currnt functions of th Commission ar scrutiny and rporting. W agr that ths could b usfully addd to. In addition, w agr that th rmit of th Commission should b subjct to adjustmnt in futur by subordinat lgislation, subjct to th affirmativ rsolution procdur. In trms of cor functions, w think that th proposals ar ralistic and snsibl. W mak furthr spcific commnts blow. 4.2 W undrstand that proposd function (a) is intndd to includ futur dvolvd taxs in addition to th initial ons. Th wording could b changd to xplicitly includ both currnt 3 Th Scottish Govrnmnt s Approach to Taxation, Financ Scrtary John Swinny s statmnt to th Scottish Parliamnt, 7 Jun 2012: 2

3 and futur dvolvd taxs, to rmov any ambiguity. 4.3 W wlcom th flxibility offrd by function (), although if proposd function () includs xamining th implications of proposd nw taxs w think that this should b mntiond sparatly and xplicitly. 4.4 W agr that thr is a rol for th Commission in rlation to non-dvolvd taxs, whr th rvnus ar assignd to th Scottish Govrnmnt (VAT in th futur) or whr th Scottish Parliamnt sts th rats for Scottish taxpayrs (Scottish Rat of Incom Tax and Scottish rats of incom tax following th implmntation of th Scotland Bill 2015). Th wording of function (c) could b xpandd to rflct this. As notd at paragraphs 4.7 and 4.8 of th consultation documnt, th Commission may nd to work with and shar aggrgat data with UK institutions, including HM Rvnu & Customs and th Offic for Budgt Rsponsibility w agr that it would b bnficial for joint-working arrangmnts to b placd on a statutory basis. In particular, this might hlp to nsur co-ordination and prvnt duplication of ffort. 4.5 As a final point, w not that it is important to hav consistncy whn producing and analysing forcasts. If mthods chang from yar to yar, comparativs should b producd so that it is nvrthlss possibl to discrn trnds. Q.3. Ar thr any othr statutory functions which th Commission should b rquird to prform? 4.6 W not that a qustion might b raisd as to whthr th Commission should prpar its own forcasts, and a cas could b mad for this. Howvr, w do not think that this is ncssary; in addition it would crat a hug dmand on th Commission and is prhaps not ralistic in trms of capacity and rsourcs. 4.7 Nvrthlss, th Commission should hav th xprtis to prpar analysis of and provid commntary on th Govrnmnt s budgt proposals. It might also b usful for th Commission to monitor complianc with fiscal ruls or official targts and provid costings of major lgislativ proposals. 4.8 A furthr suggstion would b to considr whthr th Commission should hav th ability, whr rqustd, to xamin th rsults of consultations in rlation to fiscal mattrs or to monitor th consultation procss to nsur that du rgard is givn to th viws of rspondnts whr appropriat. Q4. What ar your viws on th proposd futur functions of th Commission? 4.9 As notd abov, w agr with th proposal to includ a rgulation-making powr to adjust th functions of th Commission, subjct to th affirmativ procdur Th proposd futur functions (som of which ovrlap with our suggstions at paragraphs 4.6 to 4.8 abov) ar all logical for xampl, w think it is important to xamin th mthodologis adoptd as wll as th forcasts thmslvs. W not howvr that if all of th proposd futur functions ar addd to th rmit, th Commission will hav a significant workload and will nd to b rsourcd appropriatly. 3

4 5 Mmbrship of th Commission Q5. What ar your viws on th proposals st out in th draft Bill for th appointmnt, tnur and rmoval of mmbrs of th Commission? 5.1 For continuity purposs, w can s that it is rasonabl for th xisting mmbrship to form th initial mmbrship of th statutory Commission. Such continuity may howvr lad to a prcption that th initial mmbrs of th Commission ar not fully indpndnt. In gnral, howvr, th proposals for appointmnt, tnur and rmoval of mmbrs of th Commission appar rasonabl. 5.2 Th OECD principls for indpndnt fiscal institutions aim at nsuring a transparnt procss, with th ultimat objctiv of both actual and prcivd indpndnc of a fiscal institution. 4 Sinc appointmnts will b subjct to th Public Appointmnts and Public Bodis tc. (Scotland) Act 2003, th OECD principls ar likly to b adhrd to. 6 Staff, administration and funding Q6. What ar your viws on th provisions of th draft Bill for th staffing and funding of th Scottish Fiscal Commission and othr administrativ mattrs? 6.1 W agr that th Commission should hav th capacity, including sufficint ongoing funding, to mploy staff. In trms of th provisions, w think thy should b xpandd to spcifically giv th Commission th powr to hir consultants (or sub-contractors), commission rports by third partis and so on. Th powr to ngag workrs should not b limitd to mploymnt. An xtnsion of th powr as w suggst would nsur flxibility, nabling th Commission to cop with spiks in dmand for its rsourcs and to hav accss to dp spcialists on ky aras whn rquird. 6.2 Thr is an indication that th Commission will b abl to dcid th trms and conditions of mploymnt. W think that th OECD principls should b kpt in mind whn drawing ths up. 5 7 Indpndnc of th Commission Q7. What ar your viws on th provisions of th draft Bill intndd to safguard th indpndnc of th Commission? Ar thr any additional safguards which you think should b addd to th proposd lgislation or which should oprat on a non-lgislativ basis? 7.1 Th proposals with rgards to safguarding th indpndnc of th Commission sm snsibl. 4 Principl 2.2, 13 Fbruary C(2014)17 - C(2014)17/CORR1 - Rcommndation of th Council on Principls for Indpndnt Fiscal Institutions: 5 Principls 2.5 and 2.6, 13 Fbruary C(2014)17 - C(2014)17/CORR1 - Rcommndation of th Council on Principls for Indpndnt Fiscal Institutions: 4

5 7.2 W think that thr should b an additional provision in th lgislation rquiring th Commission to prpar its own annual rport. This should b laid bfor th Scottish Parliamnt and so publishd. This would b with th aim of showing that th Commission has carrid out its functions, whil rtaining its indpndnc and objctivity. 8 Draft Scottish Fiscal Commission Bill 8.1 W mak a fw commnts on th draft lgislation itslf. 8.2 Claus 4 Powr of Scottish Ministrs to rquir rports on othr mattrs provids for th Commission to prpar rports as rqustd by Scottish Ministrs. According to th consultation documnt (paragraph 4.10) th intntion is for thr to b a protocol, to nsur that such rqusts for ad hoc rports can b accommodatd. W suggst it might b hlpful to includ a provision in th lgislation to th ffct that such ad hoc work may not imping on th cor functions of th Commission. 8.3 W not th importanc of claus 7 Indpndnc. W rais th issu of whthr sction 2 of this claus wakns th indpndnc and prcivd indpndnc of th Commission. In addition, thr sms to b a tnsion btwn this claus and a fw of th othr clauss, in particular claus 12 and claus 15. Claus 15 has plnty of safguards, and ths hlp to rsolv that tnsion, but w suggst it should b mad xplicit that th powrs providd for in claus 12 do not ovrrid claus Claus 12 provids for Scottish Ministrs to appoint mmbrs for such priods as thy may dtrmin. Th consultation documnt indicats that th intntion is for trms of appointmnt to ndur no longr than fiv yars. W rcommnd that a maximum trm lngth of fiv yars is rfrrd to xplicitly in th lgislation. Th trms should provid for a mmbr to b rappointd, though w think only on rappointmnt (and so in normal trms a maximum of 10 yars) should b allowd. In ordr to stablish continuity of mmbrship, it might b hlpful to hav a st, standard trm, but to hav say half of th initial appointmnts for a longr priod than this. Going forward, this would man that changs in appointmnts would not all occur at th sam tim. W also draw attntion to th OECD principls in this rgard, in particular whr ths suggst that th ladrship s trms should b indpndnt of th lctoral cycl As notd abov at paragraph 6.1 of this rspons, w think that claus 17 should also mak provision for th Commission to ngag sub-contractors and commission work by third partis. Th currnt draft provision limits th Commission to mploymnt. 6 Principl 2.3, 13 Fbruary C(2014)17 - C(2014)17/CORR1 - Rcommndation of th Council on Principls for Indpndnt Fiscal Institutions: 5

6 9 Th Chartrd Institut of Taxation 9.1 Th Chartrd Institut of Taxation (CIOT) is th lading profssional body in th Unitd Kingdom concrnd solly with taxation. Th CIOT is an ducational charity, promoting ducation and study of th administration and practic of taxation. On of our ky aims is to work for a bttr, mor fficint, tax systm for all affctd by it taxpayrs, thir advisrs and th authoritis. Th CIOT s work covrs all aspcts of taxation, including dirct and indirct taxs and dutis. Through our Low Incoms Tax Rform Group (LITRG), th CIOT has a particular focus on improving th tax systm, including tax crdits and bnfits, for th unrprsntd taxpayr. Th CIOT draws on our mmbrs xprinc in privat practic, commrc and industry, govrnmnt and acadmia to improv tax administration and propos and xplain how tax policy objctivs can most ffctivly b achivd. W also link to, and draw on, similar lading profssional tax bodis in othr countris. Th CIOT s commnts and rcommndations on tax issus ar mad in lin with our charitabl objctivs: w ar politically nutral in our work. Th CIOT s 17,000 mmbrs hav th practising titl of Chartrd Tax Advisr and th dsignatory lttrs CTA, to rprsnt th lading tax qualification. Th Chartrd Institut of Taxation 26 Jun