Taken together, the powers in the Scotland Act 2012 and the Scotland Bill have significant implications for the Scottish Parliament’s financial responsibilities. In December 2014, I published my first report on the implementation of the financial powers in the 2012 act. The report that I am bringing to the committee today provides an update on progress since then.
Earlier this morning, we discussed HMRC’s preparations for the Scottish rate of income tax. My report on the Scotland Act 2012 notes that the Scottish Government and HMRC are working well together and, as you heard, it reflects the findings of the Comptroller and Auditor General about HMRC’s preparations for the Scottish rate of income tax. Therefore, I will focus my introductory remarks on the two other areas in my report: how effectively Revenue Scotland implemented the two new devolved taxes and how the Scottish Government is developing its financial management and reporting to accommodate the new powers.
First, on the devolved taxes, I am pleased to report that Revenue Scotland successfully implemented the two devolved taxes on time. Revenue Scotland effectively managed the risks that were highlighted in my report in December 2014 and ensured that the IT system and people needed to collect and manage the taxes were in place by the time that the taxes went live in April 2015.
It cost £5.5 million to implement the devolved taxes, which is £1.2 million more than was originally estimated in the financial memorandum to the Revenue Scotland and Tax Powers Bill in December 2013. The increase was due mainly to the need for additional staff to provide the skills and support that were required to deliver the project in the time available.
Revenue Scotland has established arrangements for making sure that taxpayers pay the right amount of tax, but it is too early to assess their effectiveness. Revenue Scotland is monitoring the amount of additional tax that it recovers through its compliance activities, and it will report that amount annually as part of its public performance reporting.
More generally, Revenue Scotland is refining its systems and processes, taking account of its experience in setting up and administering the two devolved taxes. It has identified lessons learned and is applying them in preparation for further devolved taxes.
Secondly, on financial management and reporting, the Scottish Government has made good progress in modifying its arrangements to accommodate the powers in the Scotland Act 2012. As we know, some arrangements are still being developed, and that seems reasonable, given that the new fiscal framework is yet to be agreed with the UK Government. Once it has been agreed, it is important that the Scottish Government moves quickly to fully develop its financial management and reporting arrangements to underpin it. I have made two recommendations in my report to that effect.
As always, my colleagues and I are happy to answer the committee’s questions.