September 2017



Here at SCVO we have been engaging our members in a wide-ranging conversation on tax and spending options, in order to find out what are the suggestions the third sector would like to bring to the table ahead of this year’s budget. We have spoken to a mix of chief executives, policy leads, and heads of Scotland; our elected Policy Committee and our Third Sector Forum; and they have shared their thoughts with us.

Our earlier discussion paper shows the starting point for our conversations, while below is a summary of our members’ views. We are keen to keep having this conversation, not only amongst our sector but also with members of the Scottish Parliament and Government; so if you have an interest, please get in touch at the contact below.


There has not – yet – been an appetite to use the Scottish Government’s tax powers. But with the Scottish Government now set to open up the debate, the question is: what would the third sector like to see these powers achieve? This question is broad, and some of the things to be aware of in advance of this include:

The need for wider civil society and Scottish Government / Parliament to think more broadly about what we want to achieve.
What levers does the Scottish Government have to influence specific outcomes?
While the UK budget still hugely matters for the Scottish budget, with tax decisions on devolved areas having an effect by altering the block grant of the Scottish budget, the Scottish Government is now reaching a point where half of the budget is driven by revenues raised in Scotland.
The current political debate on raising income tax dominates the debate on where the money will come from.
Ministers are cautious around new tax powers and this, alongside political dynamics and long-term demographic change, is a challenge.
Tax is at the heart of the debate on the economy. How do you balance the tensions between competitiveness and productivity?
The use of tax powers is a complicated process that introduces volatility and uncertainty. We need to better understand the volatility of our tax base.

The Discussions

Firstly, members feel the desire of Parliament and Government to have a debate around tax is very welcome. However, there is a prior step that needs to be taken for people to be able to engage fully with the debate around what money goes where and which taxes to alter, and that is around transparency. With data relating to budget-setting and tax decisions not being readily available, it is hard to really get under the headline figures. If in Scotland we want to have a grown-up, useful conversation about money, then the members we spoke to felt that Scottish Government really must take more steps to share this information.

Secondly, there is the feeling that Scottish Government priorities are still dominated by trickle-down economics, with the inclusive growth agenda being dropped for reasons of economic expediency. The organisations we spoke to believed that, instead, Government should be focussed on how to fund and create a fair society. This involves looking at taxes, and looking at the shape of the economy. What kinds of jobs and businesses are to be prioritised? What behaviours do we want to encourage? This is particularly important in the context of demographic change and increased automation – how do we make our economy fit for our society in the long-term? While we have seen some progressive policies in this direction, the sector were of the view that these policies have been tweaks rather than significant changes. There needs to be a more concerted in this direction if we are to secure long-lasting, positive change for Scotland.

Thirdly, there is a necessity to change the conversation around tax. Some in the sector and civil society more widely have been attempting this for a number of years: tax can be a means to a positive end. Some felt it’s worth noting that, in the UK and Scottish the political and public debate, we put the emphasis on the progressivity of tax systems rather than on the end result. This compares to some other countries in Europe, where tax systems are flatter (although often at a high rate) and so are not particularly ‘progressive’ in design; however, the end result can be more egalitarian in the UK due to high spend on public services. While the Scottish Government and Parliament have done much to articulate the end goal of a fairer, more socially just Scotland, members felt that much more can be done to link that vision to tax and spend decisions. Doing so would enable some of those tricky choices around tax and spend to be met with understanding and support across society.

Finally, the members we spoke to were supportive of having this conversation around tax and spend, and were keen to continue it. They know that if Scotland, with its new powers, could now grasp the nettle and move beyond tweaks to reforming our economic and tax systems, we would be in a good place to face the next twenty years of devolution.


From these initial conversations with the sector, a key point to emerge was that this is the time to stop talking about simply building a fairer society; rather we need work out how to fund a fairer society. We need to use this opportunity for a more rational, less politicised (we can but hope) debate on the use of tax powers and how we spend income. This must start with a fundamental debate on what we want to see these powers achieve.

What are the Scottish Government and Parliament’s Tax and Spending Options?

This paper has been written ahead of our joint SCVO network and Scottish Government meeting in September 2017. It considers tax and spend options given the further powers devolved to the Scottish Parliament. These are discussed within the context of the Scottish Government summer refresh and the current poor performance on areas such as poverty, inequality and a shift to prevention.

Spending allocation options, open budgeting, tax options and Brexit are all discussed. The paper ends with a set of questions to open the discussion.

Setting the context

The Scottish Government is undertaking a policy refresh[1], but as we have all said many times before, what are the priorities in terms of desired outcomes, and does the budget reflect that? In particular, given that the Scottish Parliament now has more powers – including significant tax raising powers, as well as powers over social security – shouldn’t it be using them? After all, why campaign for more powers and then keep them all locked away? If we are to tackle some of the significant problems in our society – poverty and inequality, say – then we must persuade politicians to use the full gamut of options open to them, as well as carrying on with our own efforts.

The Christie commission concluded its work 6 years ago, and yet we are still far from public service reform; and budgets have not been adjusted to reflect a supposed desire to move to prevention. As we move into the new landscape of self-directed support and personalisation, how can that be reflected in budget-setting? How can we, as a sector, ensure that changes in desired outcomes are really reflected through the budgets? Furthermore, new powers over social security are now being worked through by the Sottish Government ahead of implementation; yet we are already hearing of serious concerns from the sector, with the promised person-centred approach seeming to be far from actuality. Plus, the Scottish Parliament now has power to introduce any new tax (and, indeed, any new benefit in devolved areas) that it wishes. So why isn’t it?

There is a clear role in all of this for the third sector. We are a strong voice for change in our society, so it’s time for us, now, to grasp this nettle and take on the debate that no-one else is. Now is a chance, before the next budget rounds, for us to decide what tax and spend commitments we need the Scottish Parliament to deliver, in order to improve Scotland for everyone.


Alongside tax, which we address below, there is spend. It is vital that we consider how the budget is structured, as moving a little bit of money here or there is unlikely to get the results that Scotland needs. Rather, we need to help Scottish Government focus on what outcomes should be sought from Scottish Government spend and, once these are decided, encourage them to ensure that their spending reflects those priorities. It’s no good saying you want prevention if the real money doesn’t come anywhere near it. Of course, assuming there’s no extra money to be had (and yet there could be, if we altered the tax system) that would mean disinvesting from current spending areas. And while no-one likes that conversation, looking at how we can shift money so that it follows priorities, is key.

Spending allocations

As a starter for ten, let’s consider four areas the third sector could focus Government towards. These are listed due to their impact on our communities, regardless of whether or not the third sector would gain financially from these areas. (For headline figures on the current budget allocations of the Scottish Government’s budget, see Appendix.)

Tackling poverty and inequality: All budget spending should surely focus on combatting poverty and inequality. Can we, as a sector, ensure that these threads be the driver of the entire budget? And how can we make sure that the new Poverty and Inequality Commission[2] has a remit to be involved with national spending decisions, rather than just being a talking shop or a creator of small-scale poverty and inequality reduction schemes?

Employment: Sustainable and meaningful paid employment is an extremely important way people can empower themselves and secure their life chances. Is there sufficient focus on this in the Sottish Government budget? Considering the health, wellbeing and economic impact of long-term unemployment, the prevention agenda is pertinent here too. Should we put some of our energies here?

Education: Closing the educational attainment gap is a laudable ambition. Many of our members welcome the recognition that educational inequality has its roots beyond the school gate and that action to tackle child poverty is an integral part of achieving the overall aim – should we encourage greater spend in this area to match this reality?

Health & Social Care: Whilst protection of health services and efforts to protect workforce numbers and working conditions/pay can be welcomed, many health charities feel that emphasis is still placed on primary care services and treating the symptoms of ill-health, rather than tackling the root causes via a preventative approach. How can we successfully encourage a genuine move in spend to a truly preventative model? Is it the case that moving money is sufficient, or is, in fact, more money needed across the whole sector?

Finally, in our response to the Scottish Government’s budget proposals for 2017-18, John Downie suggested that “The Scottish Government should have directly funded the third sector [rather than focussing mainly on Councils] to help deliver better outcomes, help communities become more resilient and empower citizens to shape and take decisions that affect them.” Is this something that we, as a sector, want to get behind and pursue? And, if so, how should we best go about doing this?

Open and transparent budget-setting process

Some in our sector are keen to open-up the budget-setting process. The Scottish Parliament’s Budget Process Review Group recently reported[3], and concluded that ‘cultural change’ and a new budget process were the best way forward.

However, whilst the Group’s call for improved scrutiny both pre- and post-budget is welcome, they focussed predominantly on the role of parliament in the budget-setting process, rather than the wider public. This does not represent a fully open and participatory human rights based approach to budget-setting[4].

SCVO has been working closely with various members on participatory budgeting, open government, and the National Performance Framework. From this work, our suggestions include that, in order to shape better outcomes, an open and participative human rights based approach to policymaking should be mainstreamed throughout Scottish public policy, including Scotland’s budget process.

In our submission, we suggested that the Group use their review opportunity to make certain that Scotland’s future budgets are increasingly conducted openly, created in partnership with communities, and scrutinised by society as a whole. Although this approach was not taken up by the Group, we still firmly believe such an approach will lead to better budgetary decision-making, and, as a consequence, improved outcomes for Scotland.

Of course, each year we welcome the opportunity to meet Scottish Ministers in a pre-budget meeting with the third sector. Yet, as we said in our submission to the Group, meetings such as these cannot be the only way to feed into the budget process before the draft budget is published. Rather, given the high level of democratic engagement that Scotland has recently enjoyed, we should seize the chance to bring people from all walks of life into the process of planning the budget. An open budget process could bring new ideas to the table, and ensure that priorities for spending reflect the needs of people and communities.

An open approach – however it is implemented – must also move to the community level. With ever more significant amounts of spend being decided upon at ‘locality’ level (such as at health and social care partnership level), people need to be involved in budget discussions so that genuine local priorities are met. This would also further the Scottish Government’s ambitions around community empowerment.

Furthermore, a more sizeable percentage share of the total public budget (in the region of 10%) could be allocated to participatory budgeting; this compares to the current ambition[5] of the Scottish Government to see 1% of local government spend undertaken through participatory approaches, which they are supporting through their Community Choices Fund. It would be positive to see this proportion grow across all Governments, including central Government, and to have this come not from a special fund that is hived off for this purpose, but rather as a mainstream approach to budget-setting. This more radical approach to participatory budgeting could enhance local democracy, tackle voter apathy, ensure decisions are ground up and increase community capacity and social capital. Of course, efforts would need to be made to ensure communities had the requisite support to fully engage – a role the third sector could surely fulfil.



While SCVO and the vast majority of its members have no expert, technical knowledge on taxation, we do feel that general taxation is important. After all, how can we obtain the fair society so many in our sector fights for without looking at taxation?

Beyond the principles behind any taxation system – which we have often repeated (see, for example, here: – there are specific taxes that we could look to. Indeed, there are a number of taxation areas that the sector clearly has an interest in, and we consider the main ones below.

Tax options

Land value and property taxes: Housing has become an increasingly important element of wealth and income inequality. Therefore, we need to tax land and property as well as income. The power to do this resides in Scotland, and there is support for such a tax amongst some third sector community, democracy and environmental groups here. With so much of the ground work on this tax being already done, this seems like a good place for third sector campaigners to keep pushing, and for the Scottish Government to seek to implement.

Income tax: The Scottish Government has powers over rates and bands. That means there’s the potential to influence the progressivity of income tax – through, for example, raising the rate of tax for the top band. That could help reduce inequality (although not greatly, given the small numbers of individuals involved). However, it would also send a signal about the kind of Scotland we want to live in. And, of course, additional bands at suitably increased rates could be added too, ensuring an increased tax take overall.

It is possibly worth noting that, currently, the most equal societies across the world aren’t actually those with the most progressive income tax systems. Instead, they are countries with lower income inequality and high income taxes (in UK terms) for earners who earn only slightly more than the average wage; these much broader-based high taxes are then used to invest in public services[6]. Of course, that does not mean we would have to follow that same pattern here in Scotland, but it does suggest that a decent overall tax take is necessary to invest in public services and create more equal societies, and that having reasonably high taxes across the board can be a successful way of doing this.

VAT: The power over VAT resides at a UK level, but Scottish MPs should have some influence there, particularly given current UK political realities. Assuming that Brexit goes through, there might be some scope to adjust VAT in the UK. Whilst any trading agreement is likely to insist on VAT regulations that fairly closely mirror those within the block for external trade purposes, VAT internal to the UK has greater scope for change. Given that this is one of the most regressive taxes in the UK, changes on this front would be welcome. And, indeed, the Tampon Tax Campaign has recently shown how campaigning in this area can (indirectly) bring money to good causes[7]. However, the Treasury currently receives about a fifth of its tax take from VAT, so scrapping it won’t be on the cards. But perhaps there will be scope to reduce it within the UK on more essential goods and services, thereby reducing its impact on poorer households.

There might also be space for getting rid of some of the complex VAT regulation faced by charities.

Inheritance tax: If, as a society, we are serious about addressing wealth inequality, then we need to look at lowering the inheritance tax threshold. As is the case with VAT, Scotland does not currently have power to change inheritance tax. Yet, with both a weak UK Government and possible opposition support, this is an area that Scottish Government could start to lobby for change on – and we could encourage them to do so.

Corporation tax: Corporation tax (another UK-wide power) needs to remain at a decent level, in order to ensure the state can invest in those things which are good for society (and business), such as skills, healthcare and infrastructure. A move away from the ‘race-to-the-bottom’ conversation on corporation tax by politicians in Scotland would be welcome. This changing the debate, talking about the importance of businesses contributing to society through taxes, is something that the Scottish Government could do now despite not having powers in this area.

Other taxes: The Scottish Government does have a general power to create additional taxes. While income and wealth taxes are important for redistribution and investment in public services, we can also use tax to shape behaviours (such as those in relation to the environment, as SCVO has discussed previously – see, for example, However, the current Government’s stance on Air Passenger Duty suggests that introducing these kinds of taxes, particularly where they affect businesses, is not currently part of Government thinking[8].

Loopholes: Oxfam and Christian Aid are working on corporate tax avoidance, most of which is at a UK level. However, as part of the Open Government strategy – which SCVO has a significant role in – the Scottish Government could certainly look to see what it can do to promote greater transparency in this area

Limitations of tax

Earnings inequality has been rising faster than overall income inequality, so we need to think about ways to address inequality before tax as well as after it. In that context, employment legislation, financial regulation, and corporate governance are all important. While the powers over those all sit at the UK level, Scottish Government could offer views on what should be done. Plus, they could be creative in encouraging different behaviour – as they have, to a certain extent, with Scottish procurement legislation.

A note on Brexit

Finally, the continuing uncertainty over the decision to leave the EU is causing concern within our sector, not least due to speculation about the continuation of funding streams. Whilst the UK Government has committed to the creation of a United Kingdom Shared Prosperity Fund, which will ‘replace’ EU funding, quite what the form of that will be – or even whether Scotland will receive a share – is still up in the air.

We also have well-founded fears about human rights protections, equalities legislation, medical research, transnational networks, international aid, the environment, freedom of movement and an increase in demand for third sector services should the economy continue to perform poorly and the cost of living spikes. Perhaps more prosaically, any future changes to VAT could also have a significant impact on the sector (see discussion above).

Four (slightly lengthy) questions to open the discussion

(a) Should we be encouraging the Scottish Government to spend in specific policy areas and, if so, how should we go about doing that?

(b) If yes, what are your top priorities for the Scottish Government spending review and budget, beyond keeping the third sector budget secure? Should the focus be on poverty reduction, on inequality, or on something else entirely?

(c) How can we best help Government to avoid just tinkering around the edges with spend? Should we encourage them to follow the Northern Irish model of ‘Bend the Spend’[9]?

(d) Should we encourage more third sector investment, or direct, ring-fenced spend into third sector services as opposed to going via local authorities? Or directly to communities? If so, why? And how (grant, loan, commissioned etc.)?

(a) Is there a way that we can achieve a more open budgeting process, wider than the Parliamentary focus of the Budgeting Review Group discussed above?

(b) Should we be calling for human rights based budgeting, as in Vermont?

(c) How can we ensure equality impact assessments and the National Performance Framework are genuinely used to inform decision-making within Government and Parliament[10]?

(a) How can we encourage the Scottish Government to use the tax powers they have more effectively, in order to create a more equal society? Should we?

(b) Which specific taxes, if any, do you think we should push the Scottish Government on? Or should technical choices about taxation (rather than discussions regarding principles) not be our focus?

(c) Is there a role for us to play in changing the conversation around tax, and in stressing the importance of tax in creating a more equal society? Or is it impossible to say what the third sector as a whole thinks about taxation – are there, say, some in the sector who would prefer a low-tax, small-state, country? Need we pay heed to that?

(a) What does Brexit mean for this conversation (if anything)?

(b) Should we pursue beneficial changes for charity-related VAT with English colleagues, given Brexit, or does that risk taking our eye off the broader picture?

(c) What about other international approaches, such as Sustainable Development Goals? Do they have a part to play in this conversation? If so, what?

Jenny Bloomfield

Policy Team

August 2017.





[4] Such an approach is undertaken in Vermont. See and


[6] See OECD.Stat, Table I.7, which highlights the threshold at which the top marginal tax rate kicks in: In the UK, the threshold at which someone pays the top tax rate is when they earn 4.1 times the average UK wage, whereas in much more equal Northern European countries than the UK (as determined by the Gini coefficient) such as Denmark and Norway, their country thresholds are at 1.2 and 1.6 respectively. In the case of Denmark, that tax rate is also significantly higher than in the UK (55.8% versus 45%); in Norway it is lower (but still high), at 38.7%.

[7] The results of the campaign are currently being ‘put to hold’ due to Brexit, but as an interim the UK Government provides funds to women’s groups totalling the hypothecated amount of VAT the Treasury receives from sanitary products. See and

[8] The Government’s stance on APD is particularly disappointing, and has been criticised by the environment sector; reductions in APD also works against the Scottish Government’s own climate change targets.

[9] Northern Ireland’s ‘Bending the spend’ work – which seeks to target spending from all Government departments at disadvantaged communities, with departments compelled to demonstrate year on year how they target ‘social need’ (focussing on inequalities in income, the labour market, health and education, tackling employment and employability) – is one way the Scottish Government could ensure all portfolios actively work to reduce inequality and ensure that anti-poverty strategies are mainstreamed. See HoC Select Committee on Work and Pensions: Note of Committee Visit to Belfast, 22 Jan 2004.

[10] As recommended by the Budget Review Group, as well as by SCVO and others in the sector.