Kate Forbes MSP, Cabinet Secretary for Finance, will deliver her second draft tax and spending plan for the Scottish government on 28 January 2021.

Billed as the most important budget since devolution, it’s going to be an unenviable task to make any changes when the tax raising powers north of the border are very limited - and there has been no direction on any policy changes from Westminster as the UK’s planned autumn budget was scrapped due to coronavirus. The next UK budget is scheduled for 3rd March 2021.

In advance of this 2021/22 budget announcement, the Scottish Government issued a consultation on 3rd September 2020 seeking views on the role of Scotland’s devolved taxes and fiscal framework in supporting the COVID -19 economic recovery.

The consultation closed on 8th October 2020 and it’s expected that the outcome of this will be reflected within next week’s budget.  However, any major economic stimulus from tax will have to come from the UK level, given the short list of taxes that are devolved to Scotland.   

At a UK level the dilemma will be around how and when to start to pay off the massive government debt that has built up through the various support schemes that remain necessary.

With Brexit on top of COVID, many of Scotland’s businesses from holiday lets to fishing have been hit hard and continue to be so. 

So at a Scottish level, any increase in business rates seems unlikely unless narrowly targeted; any further increase in income tax rates and bands would hit a small population – but perhaps a review of who is a Scottish taxpayer is due; plans for a new Air Departure Tax wasn’t compatible with emissions targets and was put out to grass so this is unlikely to be revisited at this time; which leaves the Land and Buildings Transaction Tax (LBTT) and the ‘holiday’ due to expire on 31 March 2021 (0% currently applies up to £250,000; pre 15th July 2020 0% applied up to £145,000).

Will the holiday be extended?  Given the desire to not trigger a property slump and to encourage those working from home from anywhere in the world to choose Scotland as a base, it would be a brave move to end the holiday without direction coming from Westminster on whether or not the equivalent SDLT holiday south of the border will be extended beyond 31 March 2021. 

With ongoing government support schemes necessary until a clear and certain path out of the current crisis is underway, it feels the wrong time to make such a decision and an extension of the LBTT holiday for at least another 3 months would be welcome.

Fiscal policies to kickstart the economy are needed and it’s hoped that we’ll have a clear direction from Westminster in early March, for example a reduction in VAT could perhaps be funded by a new digital sales tax. What the Scottish government do in the interim will be revealed in a week.

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