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Chamber and committees

Official Report: search what was said in Parliament

The Official Report is a written record of public meetings of the Parliament and committees.  

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Dates of parliamentary sessions
  1. Session 1: 12 May 1999 to 31 March 2003
  2. Session 2: 7 May 2003 to 2 April 2007
  3. Session 3: 9 May 2007 to 22 March 2011
  4. Session 4: 11 May 2011 to 23 March 2016
  5. Session 5: 12 May 2016 to 5 May 2021
  6. Current session: 12 May 2021 to 25 June 2025
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Displaying 3510 contributions

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Finance and Public Administration Committee

Budget Scrutiny 2023-24

Meeting date: 20 December 2022

Kenneth Gibson

Thank you. I have just one final question before I open out the session to colleagues round the table. It is a question about taxation. We see that fiscal drag will increase income taxes quite considerably over the next few years, and you have said that the Scottish Government should continue to consider

“ways that the tax system could be made fairer and better aligned to improving productivity and wellbeing, either through reforms to existing taxes or through the introduction of new taxes”.

By 2027-28, what share of gross domestic product will be taken up by taxes compared with now? Also, you say that the system could be made fairer, but fairer to whom?

We have an anomaly in Scotland whereby people who are earning ÂŁ45,000 a year, for example, on marginal tax, will pay in the next financial year 42 per cent in income tax and 12 per cent in national insurance, giving a marginal rate of 54 per cent; on the remainder, they will have to pay excise duty, VAT and all the rest of it, depending on their lifestyle. However, for people earning over ÂŁ50,000, their national insurance level falls to 2 per cent, so their marginal rate is significantly less. How can the tax system be made fairer, given those anomalies?

Finance and Public Administration Committee

Budget Scrutiny 2023-24 (United Kingdom Context)

Meeting date: 13 December 2022

Kenneth Gibson

Paul Johnson of the Institute for Fiscal Studies said that borrowing will take the strain in the near term, with

“the great majority of the planned consolidation … due only after the next election”.

He added,

“what we are really doing is reaping the costs of a long-term failure to grow the economy, the effects of population ageing, and high levels of past borrowing”,

and concluded by saying that

“we are in for a long, hard, unpleasant journey … that has been made more arduous than might have been by a series of economic own goals”.

Do you agree with that?

09:45  

Finance and Public Administration Committee

Budget Scrutiny 2023-24 (United Kingdom Context)

Meeting date: 13 December 2022

Kenneth Gibson

That is one of the Government’s arguments for trying to ride out some of the current pay demands and not build them into the system.

Finance and Public Administration Committee

Budget Scrutiny 2023-24 (United Kingdom Context)

Meeting date: 13 December 2022

Kenneth Gibson

It is indeed.

Finance and Public Administration Committee

Budget Scrutiny 2023-24 (United Kingdom Context)

Meeting date: 13 December 2022

Kenneth Gibson

What Michelle Thomson has just talked about—fraud, corruption and money laundering—can be called tax evasion, but what about tax avoidance, which is somewhat different? Does the OBR analyse the impact of tax avoidance on the public finances?

Finance and Public Administration Committee

Budget Scrutiny 2023-24 (United Kingdom Context)

Meeting date: 13 December 2022

Kenneth Gibson

Is that 5 per cent of total tax income or 5 per cent of GDP?

Finance and Public Administration Committee

Budget Scrutiny 2023-24 (United Kingdom Context)

Meeting date: 13 December 2022

Kenneth Gibson

I think that we are in a more optimistic place in that at least we know what is happening. The OBR’s position has been strengthened by events in recent months, as I am sure that you will agree.

On the UK’s economic and fiscal outlook, you said:

“the medium-term fiscal outlook has materially worsened since our March forecast due to a weaker economy, higher interest rates, and higher inflation”.

You also talk about a number of those areas. For example, you said that rising prices

“erode real wages and reduce living standards by 7% in total over the two financial years to 2023-24 (wiping out the previous eight years’ growth), despite over £100 billion of additional government support.”

Obviously, that 7 per cent fall in living standards will not affect everyone equally. Who does the OBR feel will be most adversely affected by it?

Finance and Public Administration Committee

Budget Scrutiny 2023-24 (United Kingdom Context)

Meeting date: 13 December 2022

Kenneth Gibson

I was trying to put a positive spin on what is a depressing situation, as you have pointed out.

I have another couple of points and then I will open the questioning up to colleagues.

The Institute for Public Policy Research has said that there should be

“a root and branch review of the tax system ahead of the 2024-25 Scottish budget to examine reforms to rates and bands, and how local tax raising powers could be used to address wealth inequality in Scotland”.

Do you have a view on that?

Finance and Public Administration Committee

Budget Scrutiny 2023-24 (United Kingdom Context)

Meeting date: 13 December 2022

Kenneth Gibson

Thank you. I am pleased to say that our remaining committee colleagues, John Mason and Ross Greer, have now joined us.

Your latest outlook goes on to talk about higher borrowing pushing underlying debt

“sharply, from 84.3% of GDP last year to a 63-year high of 97.6% in 2025-26.”

Of course, your analysis also predicts that gross domestic product will contract by around 2 per cent. You touched on one of the main concerns around debt when you spoke about the impact on householders of mortgage rates going up. In terms of UK debt, however, you say that the

“near tripling of interest rates since March means the shares of revenues consumed by servicing that debt rises from under 5% in 2019-20 to 8.5% in 2027-28, leaving the public finances more vulnerable to future shocks or swings in market sentiment.”

What does that mean in cash terms? The UK economy has more than ÂŁ2.2 trillion in GDP, so what are we talking about as the economy grows after the recession ends? What are we talking about in cash terms? If servicing that debt rises by 8.5 per cent in 2027-28, what will the debt payments be now and in 2028?

Finance and Public Administration Committee

Budget Scrutiny 2023-24 (United Kingdom Context)

Meeting date: 13 December 2022

Kenneth Gibson

Yes, and people who are on benefits are likely to be hit by fiscal drag, are they not?