A tax on sugar could be introduced to fund a 2p cut in income tax north of the border, MSPs have been told.
Ben Thomson, the former chair of the think-tank Reform Scotland, called on the Scottish Government to use the new tax powers it gets in April creatively.
Cutting the rate of income tax by 2p north of the border would cost about £660 million a year, he said, but would send out a “fantastic message that Scotland is open for business”.
It could be paid for either by introducing a new levy on high sugar products or by reforming the council tax system, he said.
From April next year, the UK Treasury will deduct 10p from the rate of income tax in Scotland, with MSPs then deciding whether to keep the rate the same as the rest of the UK, raise it or lower it.
First Minister Nicola Sturgeon has already hinted that her administration will not use the powers, as changes would have to be made to all tax bands rather than being targeted at high earners.
That ability will not be transferred north until later, with the latest Scotland Bill which is going through Westminster proposing to give MSPs control over the rates and bands of income tax.
Earlier this month Ms Sturgeon said: “Next year we will get limited power over income tax that will not allow us to make changes on one band of income tax without also making the same changes on all bands of income tax. So it’s a very limited power we will get next year which is why I want to see the additional powers come as quickly as possible.”
Mr Thomson told MSPs on Holyrood’s Finance Committee it would be a “great disappointment” if Scotland simply “mirrors what happens in the rest of the UK” after April.
He said: “It seems an immense opportunity to actually do something with the taxes that we have, and use them to provide a better tax system.”
Cutting income tax for Scots would “give a really good message that you’re doing something positively”, he said, and added: “The second thing is there will be a choice in the next few years for a percentage of people to decide where they want to pay their taxes.
“Having a slightly lower tax will encourage people to see being designated as Scottish resident and deciding they want to pay taxes in Scotland. If the Scottish rate of income tax were to go up it may actually push some people to decide to pay their tax south of the border rather than north of the border.
“But lastly the reason I’m suggesting a reduction is it sends out a fantastic message that Scotland is open for business and it’s not all about let’s have more and more taxes.”
He went on to say there were a “few things” Scotland could do to fund a 2p cut in income tax, including reforming the banding system for council tax and ending the payments freeze introduced in 2007.
“Council tax is something of a guddle, we’ve had the bands in place since 1991, the bands don’t make sense,” Mr Thomson said.
“It’s a fairly regressive tax in that people who have wealth pay, as a percentage of their property, pay a lot less than people who are at the bottom end of the scale.
“That’s the first thing about council tax, the banding is a guddle. The second thing is the council tax freeze has distorted things. It has taken away responsibility from local government. I was looking through the statements of all five parties in the Scottish Parliament, all of them in the last six months have made reference to their commitment towards localism and passing powers down to a local level, this is a fantastic opportunity to actually do that.”
He said you “could actually match the 2p cut by addressing the council tax” before going on to raise the possibility of funding an income tax cut with “taxes that would change real behaviour in Scotland”.
He told the committee: “One I have suggested before is a tax on sugar. Why don’t we do things differently? We did things differently when it came to smoking and actually people around the country, the whole of the UK, said well done.
“Sugar is now a major problem and our NHS is suffering from the huge increase in diabetes, perhaps looking at sugar in the same way as we treat tobacco, if we put the same rate of tax on sugar as we do on tobacco we would again be raising about £700 million.
“So I’m not saying council tax is the only way to do it. Let’s do some creative things with the tax powers we’ve got rather than just keep the Scottish rate of income tax exactly the same as it is south of the border.”