On Taxes and Turmoil…

…or why reading the interpretation section is always important.

I haven’t blogged (yet) about the Scottish Labour Leadership Race. I probably won’t (until it’s over anyway) – though I did go on a short twitter rant last week about how dreadful the race had been up to that point. It ended with a call for both candidates to  improve themselves and their campaigns, and noted that Anas Sarwar had, just that day, released his tax plan, which is the substance that the campaign had long been lacking.

The week after, Richard Leonard released his tax plan, with the centre-piece being a “1% wealth tax” on the richest 10% – with the aim of raising £3.7billion. That is an eye watering amount.

However – bluntly – this cannot be done in the Scottish Parliament. I want to talk about why.

The Tax

Before I go on, I want to be clear what we are talking about here. It is variously described as a ‘windfall tax’ or ‘wealth tax’ – as opposed to an ‘income tax’. It is not a tax on income (ie. waged, salaries, dividends, investment returns); it is a tax on wealth. It is explicitly differentiated from a tax on income and is explicitly a tax on “…those with over £1million of wealth…”.

So, we are forced to ask, what is wealth?  It is different from assets which enter a person’s hands in a certain period (that’s income). It can be described as the total assets that are in someone’s possession, and indeed, may well have been for many years. I think that that is a fair working definition. But what does this mean? Income is (most of the time) easily determinable. Its a salary, a wage, a return. It has a broadly definable value and is almost always in some cash amount. What a person’s ‘wealth’ is can be is a bit more elusive.

Some of it is simple. My wealth is the money in my Bank Accounts; Houses I own; cars; chattels; investments etc. But there are more complicated areas. What about assets held in trust for someone else? Legally, the trust is separate from the beneficiary – will this still be the same? Similarly, on a practical level, there are those who are money rich but cash poor. How would the policy operate in that regard? I ask these questions, not because I particularly disagree with the policy (nor with the sentiment and aims behind it), but because they have both practical and legal questions and consequences.

The Scotland Act and ‘Devolved Taxes’

The Scotland Act 1998 was amended by the Scotland Act 2016 to give Holyrood some tax powers. It doesn’t have free reign on tax, but it now a much more ‘tax responsible’ Parliament. However, to determine the extent of Holyrood’s Tax power, we muct pay special attention to the way powers held to be devolved or reserved in the Scheme of Scottish Devolution.

The general rule (as laid out in s.29 of the Act) is that a law of the Scottish Parliament is not law insofar as it is outwith the legislative competence of the parliament. s.29(2)(b)  states that a provision is outwith the Scottish Parliament’s competence if it relates to a ‘Reserved Matter’ (outlined in Schedule 5) of the Act. Therefore, it can be inferred that if something is not listed as a ‘reserved matter’ it is ipso facto a ‘devolved matter.

Turning then, to Schedule 5 of the Scotland Act 1998 (as it has been amended by the 2012 and 2016 Acts), we must see if taxes are lists as a reserved matter. If they are not, then the Scottish Parliament’s tax power is unlimited; if they are, then it is limited. Schedule 5, Part II, Head A – Financial and Economic Matters, Section 1A lists “…taxes and excise duties…” as reserved. However, it does state that there are exceptions for “Local taxes to fund local authority expenditure” (i.e Council Tax) & “Devolved Taxes”. So, taxes in general are reserved, however there is a species of tax, “Devolved Taxes”, which are devolved – and so within the legislative competence of the Scottish Parliament.

The question is now, then, ‘What is a Devolved Tax’? To find the answer to that, we must look at a section, and indeed a whole Part of the Act, that was added in 2012 when the Scottish Parliament’s Tax Powers were expanded for the first time. Part 4A of the Act exhaustively details the tax powers of the Parliament and the powers the parliament may exercise in relation to those taxes.

The part starts with s.80A, which is an overview of the part. s.80A(4) states that “In [The Scotland Act 1998 as amended], “devolved tax” means a tax specified in [Part 4A] as a devolved tax”. So, if a tax is a devolved tax, it must be listed in Part 4A as being a devolved tax. There is, however, a corollary to that in s.80B which states that an Order in Council (a kind of Secondary legislation) may amend Part 4A to “specify, as an additional devolved tax, a tax of any description” – meaning there is a possibility that the Scope of Part 4A may be expanded.

What taxes, then, are listed (exhaustively) as devolved taxes in Part 4A? In addition to the Scottish Rates of Income Tax, they are:
– Tax on transactions involving interests in land. [s.80I]
– Tax on disposals to landfill. [s.80K]
– Tax on carriage of passengers by air [s.80L]
– Tax on commercial exploitation of aggregate [s.80M]

It is clear, that for wealth tax purposes, none of these are sufficient. The only one that would be even approximately near to the purposes would be the ‘tax on transactions involving interests in land’  – and even then, we are some way off. It is a tax on the transaction, not on the land itself. If no transaction is made (i.e the land is not sold or gifted) then no tax can be levied. It is not concerned with the value of the land, but the value of the transaction itself (which is what LBTT in Scotland does just now).

Therefore, it is clear, that a ‘Wealth Tax” is outwith the current legislative competence of the Scottish Parliament.

A new Devolved Tax

As noted above, there is a power under s.80B to add new devolved taxes. Let us examine that in more detail:

80B) Power to add new devolved taxes

(1)Her Majesty may by Order in Council amend this Part so as to—
     (a) specify, as an additional devolved tax, a tax of any description, or
     (b) make any other modifications of the provisions relating to devolved taxes which  She considers necessary or expedient.

So by Order-in-Council, a tax may be specified as an additional devolved tax. How, would this be done, then? Schedule 7 of the Scotland Act 1998 states that any subordinate legislation (such as an Order-in-Council) are subject to the ‘Type A’ procedure. This, as detailed in paragraph 2 of Schedule 7, means that a draft Order-in-Council must be laid before and approved by the House of Commons, the House of Lords and the Scottish Parliament.

However, moving into the realms of Statutory interpretation for a moment, would it be competent to specify as a devolved tax, a tax not currently in existence? s.80B(1)(a) does say that a tax “of any description” may be designated as a devolved tax, and Westminster does have the power (reserved) to levy a wealth tax (though it chooses not to exercise it), so the power is there, though dormany. However, it is a novel and possible contentious legal argument which, politically, would lead to a discussion about the proper scope of the Scottish Parliament’s legislative competence.

Human Rights

For all the talk of devolved and reserved powers, it is not only Schedule 4 which bounds the Scottish Parliament’s competence. s.29(d) states that a provision of an Act of the Scottish Parliament is outwith its legislative competence insofar as it is “incompatible with any Convention rights…”. Convention Rights are stated in s.126 of the Act (its Interpretation Section) as being those defined in the Human Rights Act 1998. Section 1(1)(a) and (b) of the Human Rights Act 1998 state respectively that “Articles 2 to 12 and 14 of the [European Convention on Human Rights]” and “Article 1 to 3 of the First Protocol [to the European Convention on Human Rights]” are Convention Rights. This would include Article 1 of Protocol 1 to the ECHR [A1P1].

A1P1 states:

(1) Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

(2) The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

This has the effect that people, companies and other legal entities (e.g trusts) cannot be deprived of their property except when the act is:
– In the public interest; and
– subject to the conditions provided by law; and
– subject to the conditions provided for by the general principles of international law.

One of the principles of International Law, and ‘Convention Law’ is that of legal certainty (i.e that people should know what law applies at a particular time). It is arguable that by taxing wealth held by somebody acquired when there was no (further) tax liability, that they would be a lack of legal certainty and so the provision could not be deemed proportionate. It is certainly true that the European Court of Human Rights (and UK Domestic courts) acknowledge that not all retrospective legislation breaches A1P1, but it is usually accepted in the context of correcting a tax loophole or unintended tax avoidance scheme – not in the imposition of an all new species of tax liability. It is more likely than not that this would be held to be too large a deviation from a principle of legal certainty, and so incompatible with the general principles of international law as applicable to the convention.

This would mean that the Legislation imposing a new tax liability on wealth accumulated would be held as in contravention of A1P1. It would, therefore breach convention rights and so, therefore, be outwith the scope of the Scottish Parliament’s legislative competence.


In conclusion it would appear that, as the Scotland Act stands, Richard Leonard’s proposal to create a ‘Wealth Tax’ of 1% on those who own more than £1million in wealth is outwith the Legislative competence of the Scottish Parliament as it is an attempt to create a new tax which is not a “Devolved Tax”as currently defined.

It is possible that ‘a tax on accumulated wealth” may be created an “additional devolved tax” by an Order-In-Council which is approved by the House of Commons, House of Lords and Scottish Parliament. However, any such steps would most likely be challenged on the grounds of its compatibility with Convention Rights (as defined in the Scotland Act 1998 and Human Rights Act 1998), specifically, Article 1 or Protocol 1 to the European Convention on Human Rights due to the legislation not meeting with the general principle of International law, which is that of Legal Certainty.




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