Scotland’s new financial powers: the opportunities and risks Caroline Gardner Auditor General for Scotland

A brief history of devolution so far… Scottish Parliament established in 1999 (Scotland Act 1998) New financial powers (Scotland Act 2012) −Scottish rate of income tax −Devolved taxes (Land & Buildings Transaction Tax and Landfill Tax) −Borrowing powers Independence referendum – the Vow – the Smith Commission 2014 Further financial devolution (Scotland Act 2016) 2

Scotland Act 2016 – new financial powers 3 Income tax From April 2017 Estimated revenues of £11.2 billion The power to set income tax rates and bands on earned income and to retain the tax collected from Scottish taxpayers Social security Date TBC Estimated spending of £2.7 billion Responsibility for some social security powers Value Added Tax (VAT) From April 2019 Estimated revenues of £5.4 billion Assigning a share of the VAT collected in Scotland to the Scottish Government's budget Devolved taxes From April 2018 Devolution of two further taxes: Air Passenger Duty (estimated revenues of £309 million) Aggregates Levy (estimated revenues of £54 million) Borrowing and reserve From April 2017 Increased borrowing and reserve powers Revenue (£1.75 billion) and capital investment (£3.0 billion) Scottish Reserve (£700 million)

Taxation as share of devolved expenditure 4 Source: Scottish Parliament Information Centre Financial Scrutiny Unit

5 Financial devolution: opportunity and risk Risks Fiscal risk – volatility of taxes and spending Intergovernmental relationships Direct link between economic performance and public finances Opportunities More flexibility on policy choices and associated tax and spend Development of more strategic management of public finances

6 Parliamentary scrutiny and audit Priorities Whole of Government Accounts Greater transparency Budget process Fiscal framework Fiscal sustainability Our reports