Shirley McIntosh, RSM’s Head of Tax in Scotland said: ‘In essence this week’s Scottish Budget should be a war chest statement ahead of the May election; but the focus on recovery after Covid will understandably take precedence.
‘The lack of a Westminster Budget in the autumn has already presented a challenge for the Scottish Government. With much of the funding still coming in the form of the Block Grant from Westminster, the UK budget normally provides important information for the Scottish Government budget process; which is ultimately missing this year.
‘The Finance Secretary will inevitably make further reference to the limitations on the Scottish Government’s tax raising and borrowing powers and the effect that this has on the ability to meet its ambitions. This will likely be a key component of the forthcoming election campaign.
‘When you combine this backdrop with an unstable economic landscape, then we are unlikely to see any significant headline tax changes as continuity and stability for taxpayers and businesses will be crucial at this time.
‘To give businesses a boost, particularly in the struggling retail sector, the Finance Secretary may consider an extension to rate reliefs to help protect jobs and stimulate economic growth throughout the year. However, business rates revenue goes directly to local government so any shortfall in income could impact local services.
‘It is possible that we could see some last minute adjustments to the Scottish Budget before the 5 April 2021 deadline following the UK Budget on 3 March 2021; particularly if the Chancellor extends the Stamp Duty Land Tax holiday as the Finance Secretary might look to mirror this move with Land and Building Transaction Tax (LBTT) in Scotland.
‘However, the pressure on the fiscal landscape in Scotland is growing; and could well become more acute if redundancies increase once Government support, such as the furlough scheme, comes to an end. If the unemployment rate increases, then the tax take will decrease at a time when financial support is needed; so, additional borrowing, if possible, is likely, but further tax reform may play a part in cash generation in the future.’