Is Scotland’s billowing budget deficit forcing the administration into tax by accident? Figures released yesterday show that Scotland’s deficit in the last financial year was almost £15 billion.
It is equivalent to almost 10 per cent of Scottish output and more than double the comparable figure for the UK as a whole – just under 5 per cent.
Blame the oil price collapse. Blame the slowing world economy. Blame austerity. Blame Westminster. But the blame game doesn’t excuse a rush to bad tax policy.
After a long period of denial and reluctance to face up to the true position, the bubble has truly burst on the lofty rhetoric of a country poised to reap a golden harvest of extra tax and spending powers.
Much needs to be done to put Scotland’s finances in a strong and stable position lest we breach debt and borrowing limits.
To say the finance minister, John Swinney, faces “challenges” is to apply a Panglossian sheen over the profound rethinking that the SNP now has to do if it is to present anything like a credible manifesto for a second independence referendum.
More immediately, it underlines the need for the administration to boost its tax revenues through the new powers entrusted to it. And it is here that traps of unforeseen error and unintended consequence loom ahead.
Take, for example, the speed at which it is rushing through proposals for an extra supplement on top of the increased Land and Buildings Transaction Tax (LBTT).
The intention is to levy an additional 3 per cent charge on the purchase of second homes. A fair tax, you may think. Or you may take comfort that, having no intention to become a second home owner, this new tax will not apply to you.
Think again. As the legislation before Holyrood currently stands, many thousands of Scots will find themselves inadvertently liable to the charge because of being what is fast becoming known as an “accidental second home owner”.
How can you “accidentally” acquire two homes and find yourself liable to the tax?
Simple. A person who buys a new house for the purposes of becoming a main residence but who has not managed to complete the sale of their existing main home will have to pay the full tax up front.
Even if you had no desire or intention to own a second home but find, for any number of reasons – not being able to get dates to line up, or the person purchasing the property suddenly had to pull out or to delay because their mortgage had not come through – you could end up as an accidental second home owner.
If the house being bought was valued at, say, £300,000, this would mean having to pay an extra £13,000 overnight. If the house was valued at £125,000 – comfortably below and nowhere near the LBTT threshold, you would have to stump up £4,050.
I cannot believe that it is the intention of the SNP administration to hit those modest purchases that are exempt from the LBTT levy with a 3 per cent surcharge.
Equally, I cannot believe that the SNP administration is seriously opposed to a “grace period” that would exempt cases where, because of administrative delays or last minute hiccups on property sale completion, people become accidental second home owners. The policy memorandum says very clearly that the intention is not to bring this group into the tax because it is aimed at genuine second home owners. But that is exactly what would happen in practice. And it would be punitive on individuals or families, who would potentially be hit with bills for thousands of pounds at a time when they would be genuinely under pressure because their sale had fallen through and were scrabbling around trying to work out how to fund the purchase of a house.
While the bill provides for later reimbursement, it could be 18 months before the cheque comes back from HMRC while the purchaser would be left strapped for cash to cover all the extra spending that the purchase of a property inevitably involves.
Many would-be buyers would choose to defer a purchase until their existing property is sold. But this could oblige them to rent in the interim period and store all their belongings and furniture, to cite just a couple of complications and hassles.
Others, particularly retirees, want to have their new retirement home made ready, repairs and alterations completed and have furniture in place before vacating their existing house. This levy would also clobber them.
Gavin Brown, Conservative MSP and Holyrood finance committee member, estimates that between 10 and 15 per cent of transactions do not settle on the same day. If this anecdotal evidence is correct, the number of “accidental second home owners” could potentially total up to 10,000 transactions, based on 99,000 housing transactions last year.
Surely the problem could be solved by allowing a “grace period”? Here the story takes an even more depressing twist.
Holyrood’s SNP-dominated finance committee accepted the principle of a grace period. Among supporters were Labour MSP Malcolm Chisholm, who declared: “It certainly seems to be very unfair that people will have to stump up large sums just because the transaction of selling their house will not be complete until a few days later.” In this he was supported by fellow Labour MSP Jackie Baillie.
But two amendments moved by Brown – the first for a grace period of 60 days as recommended by the Law Society of Scotland, and a second amendment for a more modest period of 14 days – were defeated.
John Swinney, animated by “what all that could mean for the Scottish budget”, argued that the amendments “could burden Revenue Scotland with chasing sums with which buyers are reluctant to part”. Oh dear. Nothing must be a burden to Revenue Scotland.
He said he would keep the matter under review. But this is a glaring case of unintended consequence, unfairly taxing those who have no intention of being second home owners and undermining confidence in the fundamental right of people to sell and buy a home. He should surely have greater consideration than the temporary inconvenience of Revenue Scotland.
It is here one truly despairs of the Holyrood committee system. It is intended to correct oversights and/or poor legislative drafting of exactly this sort. But, having agreed to the principle of a grace period, party politics gets in the way and the amendments were voted down by five SNP votes to four. This is party political gymnastics – another example of a double somersault by a committee of acrobats I have already dubbed The Flying Flamingos.
All this, I fear, is ultimately traceable to the background drumbeat of the administration’s unsustainable budget deficit and its desperate need to rake in ever more tax revenue.
Scotland surely deserves better government than this tawdry, mean-minded spectacle of taxing people who have done nothing to merit being hit by this poorly drafted tax. Time, Mr Swinney, tae think again.