 Welcome to the 13th meeting in 2017 of the Finance and Constitution Committee. We apologize for Neil Bibby. As usual cannot you ask a few to put on mobile phones in the mode that won't interfere with proceedings? The first item on agenda today is to decide whether to take item three in private. Members agreed to take item three in private. The second item on agenda is to take evidence as part of a Scottish approached tax railway access drove today by Trudeau Roberts yng Nghymru Cymru, Sandra Eden, sefydliadau y Llywodraeth yng Nghymru, the University of Edinburgh, and Susanna Simpson, head of private business at Pryde Waterhouse, Cooper's LLB. I welcome you to our evidence session this morning. We received written submissions, which have been useful for all three of you. The particular focus of the inquiry is on incorporations, but there are general issues that we want to explore particularly around human rights, and I'm glad to have Judith Robertson here for that purpose. Can I just bore down—I'm sorry to get straight into the numbers, but I've found a very interesting in Sandra Eden's submission, drawing out again the figure from the OBR about a potential drop in tax revenue of £3.5 billion by 2021 as a result of incorporations because the number is increasing. Sandra or MD also wants to—it's always difficult to extrapolate from that sort of number what the impact would be for Scotland. Normally we would apply something about 10 per cent, but I'm not sure that's applicable in these circumstances. Could you have a best go, perhaps, at explaining what that might mean for Scottish tax revenues, if it was 10 per cent? The estimated loss of tax and national insurance was just over £6 billion, and that was made up from the UK perspective by an increase in corporate tax revenue. That's where the loss of £3 billion comes from. You lose £6 billion, and you gain £3 billion from increased corporate tax revenues. Obviously, that plays out differently in Scotland. I did a kind of back of an envelope calculation, but I assumed that—this could be not particularly—it built back of the envelope assumptions—that if the £6 billion loss was half tax and half national insurance contributions, and we don't know that, it's quite difficult thing to do, but let's say it's half tax and half national insurance contributions. Obviously, Scotland isn't losing the national insurance contribution revenue, so it's only losing half of the scaled-down amount of £6 billion. Assuming that Scotland is losing half and assuming a population of 8 per cent of the UK, I estimated that it could potentially lead to a loss of £240 million by 2021. Subsequent to me doing this sort of scribble at the back of the envelope, I have seen figures from elsewhere—I forget at the moment—that suggested in the region of £200 million. It's not that far off. Those are the sorts of figures that you could potentially be looking at. It's a sizable sum, obviously, and I'm grateful for you doing that as you describe it back of the envelope type of work. Have you any feeling about whether, if this committee was to ask HMRC, for instance, or the Treasury to create an estimate for Scotland in the same way as you've done, but in a more defined way because they've got all the numbers behind them? Do you think that they'd be able to do that for us? I have no idea. It would only be with a quite high degree of uncertainty. All these things are because the incorporations are growing more slowly in Scotland than in the rest of the UK. That would have an impact. That might reduce the numbers a little bit. I have no idea whether HMRC would be able to do that or not. Does anybody else want to reflect on that at this stage? To say, I suppose, that reflects. There are a huge number of factors involved in the decision as to whether to incorporate or not, not just tax, but my area, but commercial. I agree with you that that makes it so difficult to predict the impact of that going forward. Some of the things that might impact on it are behavioural changes and behavioural impacts. Murdo wanted to pick up on that issue, so Murdo, what would you do? Thank you, convener. Good morning to you all. One of the things that is of interest to the committee is whether the rate of incorporation might be different in Scotland compared to the UK as a whole if it were driven by different factors, for example, at differentials in terms of income tax. We have seen the Scottish Government introduce an income tax differential for higher earners, which will have an impact, albeit a relatively modest impact by an impact nonetheless. To what extent do you think differential taxation in Scotland used by the devolved Government is likely to drive more people in Scotland towards incorporation compared to the rest of the United Kingdom, or is that unlikely to be a major factor? Maybe you can start with yourself, Susanna Simpson. I think that it depends on the level of differential introduced and at what rates, so it may be with the number of 40 per cent tax payers in Scotland. More people will be impacted if the change was at that rate, but equally if the change was at the additional rate it would be a higher quantum, but less tax payers affected. Mobility is clearly the key underlying driver in terms of income tax, because tax payers can vote with their feet and move, so it therefore depends on whether any such change will impact more numbers of tax payers rather than those who are higher earners. From a behavioural perspective, the key thing to remember here is that tax payers have more confidence and therefore let their behaviours be affected less if they know where the policy is going, why changes are introduced, how they are implemented and, ultimately, the impact felt. There is some empirical evidence that benefits to the economy as a result of tax changes. Therefore, tax payers are less likely to take behavioural decisions based on changes. That is my view. I looked at the OBR figures and a point that I did not make particularly clear in the paper but was that there has always been, primarily, a NIC differential between being incorporated and not incorporated. That has increased gradually but not dramatically, increasing a little bit faster. It is a steady move up the way, except for two particular tax-driven periods. One was the zero rate on very small companies. You can see an enormous spike in incorporations at that point. The other was a pre-emptive move that did not work when the thoughts on warranty avoidance rules were coming in for people who were really self-employed but working self-employed. You see those spikes but those are both dramatic, potentially dramatic changes. My feeling is that the tax-driven response is unlikely to be dramatic except at significant levels of change. You are going to say, well, what is significant? I have no idea. I do not know what would you feel 5 per cent, even possibly. I think that those probably would not be enough to stimulate people into incorporating unless they were going to incorporate pretty much anyway. To give you a very current example, there is speculation in today's papers around the reinstatement of the 50 per cent rate for additional taxpayers. If the Scottish Government, which has the power to do this, were to increase the additional rate from £45 to £50, do you think that that would be significant? Would that drive higher earners towards incorporation? I would need to see the evidence of the rate of tax paid by people who are in the position where they can incorporate or not. People earning a lot of money might be in the position where they are in companies that they would be in a company anyway. I do not know. Do you have any feeling about the micro companies—not the micro companies but the companies that we are talking about—who would be making that decision? There may not be the additional rate taxpayers. There may be more likely to be the basic and higher rate taxpayers. I do not know. I think that it goes back to my point that, if that changes at the additional rate end, there will be less taxpayers impacted, and they may well be the owners of the larger businesses. However, that is speculation. It depends on how much that is going to play through. They will be the more mobile ones. A lot of those companies would probably already be companies anyway, but I do not know that that is speculation. Mori, I am sorry, but did you like supplementary on that, did you? Yes, I was looking at both of the points. I will explore it a wee bit further. We are talking as if people have got the choice to wake up in the morning and decide not to incorporate, but, of course, it is more complicated than that. There are rules around that, because some work should be employed and others are clearly something that is required to be done through incorporation. I want to explore that a wee bit further and understand your view on the rules around that, which have been tightened up over time with IR35 and other steps that are continuing to be taken to make it clearer which side of that fence you should be on. Do you think that the rules there are clear enough, or do you think that the enforcement of them is not robust enough? If they were clear and robust, we should not be having that conversation because people should not have that choice. It should be a matter of fact whether you are incorporated or not. Now that there are some grey areas, I do not want to talk about that. I will take that one for starters. It comes back to the point that there are a number of factors in whether you incorporate or not. It is your point about what the drivers are on that event. My clients, for instance, are start-ups or scale-up businesses, so the true high-growth ones driving a lot of the economy up in Scotland will quite often take the decision to incorporate because it limits their liability. It allows them to roll up profits and invest at the beginning of that journey, which cannot necessarily be achieved using non-incorporated structures. I think that we should not lose sight of the fact that those are some very good reasons to incorporate roll-up-up profits differential in being able to decide when to distribute and bring stakeholders in or out. I think that there is a bit of work being done over the summer. The UK Government, Matthew Taylor, is leading a project to look at the drivers on self-employment versus employment and how that plays out into incorporations. It is interesting to see the results of that and to see what drivers they believe are non-commercial drivers, I suppose, in making that decision. In my experience, tax is one of the factors, but it is only one of the factors that is taken into account, particularly on those such-of-high-growth SMEs. My feeling is that the rules are terribly vague. You are talking about a continuum and the border lines on continuums are always difficult to apply. I was just thinking that one of the things that has really sharpened up in the UK tax system recently was the definition of residence for human beings, which used to be absolutely ghastly, didn't it? It was really vague and the HMRC guidance was not very helpful. The new statutory residence test is much more precise. Clearly, residence is a continuum, but now it is much more precise. The factors that have to be taken into account are how many factors you have to satisfy. I have not done the work here, but I would suspect that you could probably tighten up on that border line. However, it is difficult—it is a difficult thing for the HMRC to do, because there are probably a lot of people on that border line. It requires resources to keep an eye on it. I take the point, Susanna, about business. That is one thing, but I am thinking more of the scenario in which the king of the back of our minds is driving the rise in corporations, which I am working for a company. I do not like paying tax, so I will set up my own company and then sell my services back to this other company through my company. Employees are doing it, it is driven by companies persuading employees to do it, not just at the high end but at the bottom end as well, through the gig economy. That is clearly not following the spirit of the rules, whether the legality allows it with some grey areas. That is a very different thing from someone who decides to start up a high-growth business to invest in something. That is a very different scenario, so I am more focused on that. At the end of the day, the conversation that we are having is about that, which is driving incorporations and driving the tax, the £3 billion tax gap that you talked about. It is not that people are starting up high-tech innovative businesses, because it is people who are making the shift from employment to self-employment or incorporation, but they are not changing what they are doing. That is what I am trying to focus on. What you are saying is that the rules could be clearer and that enforcement could have more resource behind it? I would say so. The courts are developing rules as we go along, but sometimes you are better at taking another approach than the courts are verbal on. They are doing a good job against the rather vague concept, but the statute could create a set of factors. I agree with you on certainty. If there is more certainty around the residence test, if there is more certainty as to how the rules apply, the grey area between what is employment and self-employment tax pay is not very easy for taxpayers to work that out themselves as to whether they are self-employed or employed, so more certainty in that area would always be a good thing. On tax payers, can you exploit uncertainty against the potentially under-resourced HMRC? Can I take you back to the issue of behavioural change with regard to changes in taxation? I will take you back to the issue of behavioural change around changes in taxation. We discussed the potential for behavioural change around differences in income tax, but has there been any impact on the level of... I know that it is too soon to say, but would you speculate if there is likely to be any impact on the level of incorporation with the changes in dividend tax or the speculation around the... I know that the UK Government was forced to U-turn over national insurance recently, and they are refusing to give an assurance that that will not be changed after this general election. Does that change behaviour in terms of level of incorporation and how people set up their companies? Clearly, a tax being one factor in that decision, things like the changes in the dividend tax rate and the proposals and then the withdrawal of the proposals on national insurance contributions will have decreased the strength of that factor in making that decision. I think that, certainly from my client base, what we have seen developing over the last few years is less people applying the law in a way that clearly was not intended. They are now in the minority, I think, seeking to do that. There has been so much in the media around paying the right amount of tax, and I think that the public are reacting to that. I think that the commercial factors, the world is a very complex place to do business now internationally and domestically. I think that there are so many factors to get through in terms of that. Yes, tax plays a part in it and levers such as dividend and national insurance contributions changes have an impact, but I think that they are levelled out across the playing field of other commercial factors. I wonder whether, picking up on something that you said earlier, which feels that there is clear evidence that people are more likely to try to avoid tax if there is no clear signalling of policy on where it is going. Does that apply to this type of chopping and changing? Just to be clear, I do not think that I was saying that there is more evidence that people will avoid tax. I think that it is just that, from a behavioural perspective, if taxpayers can see a clear objective and transparency as to how things are implemented and the impact of what they are doing, they are less likely to change their behaviours, play more part in developing the economy generally as a result of tax changes. Okay. Anyone else have any thoughts on it? I think that the move to reduce the exemption of dividends from £5,000 to £2,000 was a sensible move. We see the reason to have a full exemption. I suspect that it is at the margins at £2,000. It is not that much money. It is a flat sum rather than a percentage that increases with your income increases. Okay. The other thing that I wanted to ask your thoughts on is just a very general question. Clearly, income tax was never fully devolved to Scotland. It is quite limited the control that the Scottish Government has over income tax. It is very important, as this discussion and previous discussions in the committee have shown, that you have a balance between income tax and corporation tax, national insurance and dividend tax. How limiting do you think it is? Do you think it is possible for the Scottish Parliament to be very radical on income tax when they do not have control over the other types of taxation as well? Sorry to jump in. I think that there are some significant constraints currently on the Scottish Government exactly as you say. There is no power up here currently in relation to capital gains tax, corporation tax, inheritance tax, national insurance contributions, particularly on the decision around incorporation point. All of those taxes play a part in that. Therefore, to have no power and control over that makes it very difficult in taking decisions on the income tax side of things. I think that all Governments are subject to those constraints. The UK Government is equally subject to those constraints in relation to EU law and things like VAT, which may well change going forward clearly. I think that there is certainly a limitation on the ability to make significant changes. Yes, I suppose with the rates, it is a fairly blunt instrument, is not it? All you can do is increase or decrease the amount of tax. You cannot take countermeasures. For example, with the issue of incorporation, income tax is one of the factors, but there are also NICs and corporation tax rates, which are factors in which you do not control. It is a limited tool. You take the risk. I think that the point is that you bear the risk. There are very few other levers that you have that you can mitigate the risk. Thank you. Liam, you wanted to answer some questions in that area and then we'll come with Patrick and the advantages and disadvantages. Yes, please. Thank you, convener. Good morning. At the outset, the question for Susanna Simpson, please, arising from something that Ivan McKee said, I have a concern that the debate becomes laden with value judgments about incorporation and that incorporation is avoidance of tax and tax avoidance somehow cheats the public person is immoral. Your paper is quite clear that the ultimate choice of commercial structure is primarily made in the light of commercial and family considerations with tax as a secondary consideration. My experience says that that is right, and I suspect that your experience says that is right. However, what I am concerned with is the objective data that says that that is right, or is this simply an experience from PwC? I must admit that it is my experience that we do not have and have not carried out any research in this area, so I cannot give you any empirical data. It may well exist out there, but not that I am aware of. Are you aware of whether anyone else is carrying out that analysis? Some of the evidence that we have seen previously would contradict that assessment and suggest that everyone is incorporating to avoid tax. You obviously take a different view, I would agree with that different view, but that is an experiential thing. Is there any evidence out there? Is anyone going to take any evidence on that to prove the point? The spikes in the OBR figures are from companies' houses. It is not only difficult to get historic figures from companies' houses, but the OBR figures show these spikes, which must be related to two tax matters—the spikes in 2002, 2004 and then again in 2006. A dramatic increase in the number of incorporations that were related to the zero rate of tax on the micro companies and predicted changes to the managed service companies, and they were trying to incorporate before that change came in in the hope that they would be excluded from the change. My point is that there is significant differences. There is a purely tax-driven behavioural response, and I think that the spikes in corporations that are specifically related to tax changes are evident. However, where the differentials are smaller, I do not think that that is true. A number of submissions have analysed how the impact of incorporation on a reduction in tax was a loss of, say, £6 billion, but an increase or a recoupment of £3 billion through a different tax. Are you aware of any other analysis of other spin-off impacts? For example, if I incorporate, I will use a local law firm to do it, I will use a local accountant, I will use local suppliers, I will rent a premises. If there is an indirect benefit to the local economy, none of which would have happened if I was an employee. My point is that if we take a very blunt analysis of tax take, is there evidence of what else is going on? A knock on advantages. I am not aware of any. Right. Do you think that someone ought to be doing that exercise? The other side of the coin almost is that we are aware of that. It is hard. It would be a very difficult piece of research to get good figures that would be valid over a period of years, I suspect. I do not know whether this is a piece of information that one would like to have loads more information about this. You need to have a much greater degree of certainty of the impact of the things that you are talking about. We would have all that information available for us because it goes to that certainty point, so you know the impact of the changes that you are making, whether that information is available. I just think that it probably ought to be available because if we have been asked to make a decision based on tax take, that does give one side of the coin and does not say, look, there is actually some positive impact potentially. I have one final question again on data and analysis. Is there any analysis that you are aware of on how many economically inactive people become economically active through the incorporation model that would not otherwise be employed? I am not aware of any data on that. We have done some research, and I have not got the numbers in front of it, but we have done some research on the impact of the gig economy, which is something that is driving that, so where you have, for instance, people coming back into work and working from home and choosing more likely to be self-employed to start off with part-time workers. That is changing and there is a lot more of that than there was in the past. They are more likely to be self-employed than moving into employment, but I do not have the data to prove that. From what you can recall, that sounds like anecdotal evidence, but does that tend to suggest that people are making a rational choice to choose that model to re-enter the market, or are they doing it based on your data because they are forced to or they have no other choice? I think that it is probably a combination of the two, because being self-employed when you are moving back into the market is likely to be a more flexible manner of operating than immediately going back into employment and being required to work full-time or almost full-time. That is my experience from speaking to clients, rather than based on anything empirical, but stepping back into the workplace is more likely to happen through self-employment rather than employment. It does seem to me not just from the last few minutes of discussion, but also from some of the evidence that we heard last week that there is a case for more research on a range of the aspects of the issue, particularly the grey area between what is being called the gig economy and what is often described as bogus self-employment, where you have someone in an employment relationship, but they are only given the option of having that through some form of self-employment and losing all of the consequent rights and protections that would come with employment, which many people would say would give real flexibility. I was looking at the list of advantages and disadvantages of incorporation in Susanna Simpson's written submission. It occurs to me that this is where we should be focused if we want to engage in some kind of meaningful attempt to make a difference in what is happening. It may be that the Government of any day does not wish to deliberately try and intervene in that way, but if there was an assumption that we have a Government policy that recognises that there is, to some extent, a tax avoidance element in incorporation or that that is one part of the motivation in some circumstances, is there anything that, first of all, the Scottish Government in a devolved context can do or, secondly, that the UK Government in a reserve context ought to be doing to alter the balance between the advantages and disadvantages in order to achieve its desired effect of supporting incorporation where there is genuine benefit to society and the economy, but disincentivising it where it is closer to that grey area around bogus self-employment. Can we intervene in the balance of those advantages and disadvantages to that effect? I see that as a question to me to jump in. I agree that that is a very good place to start to focus those advantages and disadvantages. You will note on the disadvantages list PAYE, so the tax factor in that is only one of the number of disadvantages. It comes back to the number of levers available to the Scottish Government as devolution stands currently given that there is only the lever over income tax rates currently and everything around capital gains tax, corporation tax, dividend tax rates are currently out with control, so there is a limit to the amount that the Scottish Government at the moment can impact. A lot of those are around legal limitations and, obviously, from a corporate perspective, Scots law and the laws legal system south of the border are very similar around incorporation, so there is probably more that could be done to change those underlying legal factors, but that is a much bigger decision or question to take on. One option, for example, might be for the Scottish Government to have either some restriction or some code that sets out in what circumstances people can access, devolved taxpayer-funded business support services, grant and loan schemes, public procurement opportunities or, in fact, the ability or the willingness of public bodies and agencies to employ people in certain structures or other structures that they would generally avoid. To what extent would that be a useful tool in giving a clear signal to the rest of the economy, here's what's on and here's what's not on? Going back to clarity, if that is set out as a clear objective within legislation or guidance, then the taxpayers, at least, are aware of the intention behind the legislation, but I can't give you a view on whether that's the correct policy or not, that's outside my remit. Not necessarily a correct policy, I wouldn't expect you to comment on that, but a policy with the potential to have an effect. Again, if there's a transparency of objective around something that's being done, then it's always increases clarity for the public. Do the other witnesses want to comment on these issues? I will in a minute, yes, but I'll put it in the context of my other remarks. One of the main guilty parties here is actually national insurance, which obviously is outside your remit. It is no longer the case that the huge difference between employer and employee NICs is justified by the differential in benefit entitlement. There used to be some sort of link at one level. I think that national insurance contributions actually have to be looked at across the board or scrapped. This is something that rumbles on. The problem is, of course, that politically it seems to be a bit easier—well, actually, the recent evidence suggests otherwise, of course, that it is a bit easier to get money through national insurance contributions and tax, but the last few months suggest that that's no longer the case. Do as we do, I suppose, in terms of encouraging people who have that employment relationship to have an employment contract? The recent events around national insurance—for me, it's a slightly underline an argument that was put at a previous session in this inquiry, which is that company law, as it stands at the moment, isn't up to meeting the requirements of the modern economy and that what's required is a more fundamental rewrite, perhaps more points along the spectrum between employment and incorporation or closing the gap in tax paid by people in different structures. Is a fundamental rewrite in company law required? I don't know. I'm not a commercial lawyer. I was going to come on to the human rights issues. Do you want others to come in first? We're finished with all the incorporation stuff, and I want to make sure that due to the chance to reflect on our paper, has anybody got any other incorporation questions at this stage? Well, we haven't. I know that, Susanna, you've got to be away for, I think, half past 10. If we're still in evidence session and you're still here and you need to go, please just feel free to make your exit at that time. Can we start somebody else off in the human rights thing? Sure, I'll come back in. I'll let you back in. Willie, you want to kick us off? Oh, thanks very much. Good morning. To bring Judith in to focus on the discussion on human rights, your paper that Judith said, taxation is a crucial contributing component of the realisation of human rights, and while that might not be so immediately obvious to many people out there, your paper makes clear that it's fundamentally at the heart of fairness in society. You also talk about the UN Convention on the Rights of the Child and Impacts on Women. My question to you is how do we assess those impacts more directly to illustrate the impacts that taxation changes may actually have? Data tends to be in the hands of governments and agencies and so on, but in terms of your agency, how do you reach out and analyse and present to MSPs or to the wider public about the wider impacts that changes in taxation policy can have with respect to human rights? Thank you for the opportunity to talk on the issue. I think that in direct answer to your question, there are a number of tools that are available at your disposal in order to do a human rights impact assessment of policy. It is currently a requirement of equalities legislation that an equalities impact assessment is done in advance of a decision being made on policy. The kinds of impacts that you've just been talking about in relation to incorporation, for example, give some lines into assessing both in terms of revenue—the return on the impact of a decision—and the drivers of change within a process. Those are some of the potential human rights assessments that we can make. The reason that we are talking about coming at this from a human rights perspective is that it provides both a framework that people can begin to understand. Again, the principles of certainty that people were talking about—transparency, having a conversation with the public and understanding from a public perspective of why we are doing what we are doing—I think that the human rights framework gives us a framework in which to do that. Clearly, it is underpinned by international law, so it is not just something that is good to have, it is something that has actually been something that, as a UK, as a state party, the UK has signed up to the Scottish Parliament and public authorities in Scotland are committed to through the Scotland Act. There is a legal framework that provides the basis and the underpinning of taking a human rights perspective, indeed to any policy, but in this instance you were asking about the Scottish approach to taxation from a principle perspective, as I say enshrined in law. It gives the Scottish Parliament a strong basis on which to be looking and assessing decisions that they make in relation to taxation. Those decisions coming from a range of international treaties provide a framework for having that conversation with the public. When you look across the landscape in different jurisdictions, can you see any evidence or data from other jurisdictions that show that their particular Government, for example, has introduced a measure that has a certain impact in society? Is that clear to us? Could we pick that kind of information up in order to help to guide us in our decision making in the years to come? There are examples from across the world, in fact. The South African constitution has brought economic, social and cultural rights at heart and centre to its constitutional framework. Within that setting, public authorities and decision makers have to take into account their impact on economic, social and cultural rights as well as on civil and political rights when they are making decisions. Back home in Scotland, the minister, Gene Freeman, has committed to bringing the right to social security into the heart of policymaking in Scotland today. That will have an impact on the way that policy is delivered in terms of communicating to people what their rights are in relation to social security in Scotland, the way that the system is designed, the processes that have been gone through to design that system and to establish that as it is already people's right. They already have a right to social security, but enshrining it in law and domestic law strengthens it domestically. On infringements, should they occur or are alleged infringements of people's human rights in relation to things such as taxation or fiscal policy or whatever? Where do people go for redress? Do they disappear down the legal route to the European Court of Human Rights and so on? Do they go in there and is it very difficult to achieve any kind of redress if people feel or there are judgments in fact made about human rights issues in relation to those matters? We can keep it general or make it more specific to taxation explicitly, to level that up to you, but one of the fundamental principles of our rights-based approach is bringing in effective accountability, effective redress and ensuring that within a system that the Scottish Government and Parliament decide to establish that the systems of redress are explicit. It is clear how they can be accessed, resourced and funded, effective monitoring and a transparent process by which people can access justice. In the context of taxation, you would be making an assessment of the principles that would say that we are coming from an issue of resource take. We are looking at the resources that we are seeking to generate. We are looking at what we want to spend those resources on, so how fair is that expenditure process and how accountable and transparent are we making the systems by which people can A, understand what is happening. People have talked here about certainty, rationale and transparency and can understand what it is that they are being asked to contribute to and crucially why. There is a clear system whereby they can make appeal. That system is affordable, accessible and people are aware of it. They can access their rights. I am not being very specific, as in here is a specific system. What I am saying is that there are principles that, in any aspect of Government policy, you can work from. Given that you have established a national human rights institution as a country, we are signed up to constitutionally to endorse our international treaties that the UK, as a state, has signed up to, we have an obligation to bring those matters into the way that we do business in Scotland. Where will we stand if the UK scraps the human rights act? It is perhaps not so clear at the moment, but that was their stated intention recently. The Prime Minister said that we should withdraw for the European convention on human rights saying that it adds nothing to the prosperity of the country. Why are we going to judge or measure any of that if we move away from that human rights act altogether? Our human rights protections will be severely weakened if that happened. Clearly, there will be very little backstop, very little basis on which those kinds of principles and decisions, which internationally we have signed up to—I cannot emphasise that enough. Those are not commitments that we have come by lightly. They were negotiated internationally. We were part of those negotiations and, in many contexts, actually setting the terms of the debate. That was a political process internationally that the UK has committed to. The protections that are provided by the convention and by the human rights act are strong, important and, in fact, from the perspective of the human rights commission and many other national human rights institutions, should be strengthened, not weakened. We are not fully protected in relation to international human rights standards. We do not have in the UK those protections and any attempt to weaken them should be resisted and step back from them. In any setting where that might happen, then public authorities in Scotland, including the Parliament and the Government, have a duty to ensure that it does everything within its power to put in place those protections that it can. That would be a recommendation from the Scottish Human Rights Commission as well. James, I think that you were interested in transparency issues. That has been mentioned a couple of times. I will bring you in as a first supplementary and then Adam. Okay, thanks a lot, convener. I was interested in the points that you made and also the points on your submission about transparency and public participation. Obviously, the decisions made around taxation have a big impact. They have an impact on families and individuals in terms of how much taxation they pay and therefore an impact on their household income and also the impact on the level of budgets and therefore how much we are able to invest and spend on communities. A lot of the discussion around this ability that we have had this morning can be quite technical. I think that there is a big issue about people on the ground being able to interact with that. What do you think can be done in terms of more transparency, what can be done to make more information available in a more understandable format so that people can participate with the decisions around taxation and how they will impact on their lives? I think that that is an answer that we could all have a view on. From a human rights perspective, again, we have a duty to provide information in a way that is accessible to all people in our society. It does not discriminate and it indeed supports people's access to that information. In terms of participating in decision making and contributing to the thinking and analysis and why decisions might be made, we have a responsibility to do that. There are many things that we can do in terms of engaging all sorts of NGOs and community organisations in the conversation around the principles of our tax system or any other system of policy, revenue system and the whys, the principles on underpinning and what the money is going to be spent on. That is what enables citizens to sign up internationally, where government revenue is raised by a system of taxation. The population's investment in the government process is far more increased than if, for example, the finances is coming directly through natural resource revenue or some other means. That dynamic of a citizen's contract with the state and investment in the state as an effective delivery vehicle, not for me but from a human rights perspective, is a fundamental dynamic. Those processes of engagement, those processes of participation are crucial. I can describe some specifics. There are very good ways internationally and domestically and in England. Indeed, to be honest, through the community empowerment legislation where budget has been allocated to a participatory budgeting process, we have made decisions where we are going to empower communities to participate in ways of spending that budget. That is a very good example of enabling that participation. How we monitor that participation, how we monitor the quality of that participation and the effectiveness of it and the degree of participation are all resource issues and implications that have to be dealt with in decision making. However, there are myriad examples of good practice, in fact. Any NGO who is working with people who are vulnerable, who has issues in relation to receiving information, understanding it and communicating it will have plenty of really good practice to communicate difficult concepts, but they are not that difficult. People understand making a contribution and getting something back from that contribution. That is not fundamentally a difficult concept. We make it very, very complicated, actually. We really make it complicated. Our tax book is massive. One of the lessons of the principles of a human rights approach is simplifying the process so that people can fundamentally understand it. Indeed, we can fundamentally understand and predict outcomes of decisions much more easily because the complexity is reduced. You want to contribute to that as well. Just one thing in support of something that you said is that there is evidence to show that the greater degree of trust that is used loosely in your Government is directly correlated with voluntary tax compliance. The more people believe that you are doing a good job and that you are spending the money properly, the more likely you are to get people paying tax without the arm of the back. The other thing that might be thought about is something that is very visible. The economists do not like it, but these are hypothecated taxes, where you raise a particular amount of money and you commit that to a particular budget that the Lib Dems have talked about. The economists say that these are bad things because you should be spending the money where you should best spend the money rather than actually committing yourself in advance to spend a particular portion of money in a particular way. If you are talking about visibility and an easy way of people understanding where their tax is going, you could say that an extra penny is going to go into cat and dog homes. As I say, they are not generally regarded by economists as particularly good taxes, but economists do not know everything. I agree entirely with that. I am particularly coming on to the hypothecated taxes. I think that we have a great opportunity in Scotland starting from scratch without a huge bulk of legislation behind us as we move forward. We have already set out Scottish Government principles around taxation. I think that that is really helpful and simple, as Judith has said, as well as the principles that drive behavioural movements from the people impacted by it. Going into the hypothecated taxes, I agree, ring-fencing the receipts that are coming out of those taxes and things like the soft drinks levy. We have gone down that route and the proposals in that regard make it very clear as to where the Government policy is going and therefore has the intended effects on behaviours. Adam, do you have a supplementary question from the others? Yes. This is just arising out of the exchange a few moments ago between Judith Robinson and Willie Coffey. Judith, you answered Willie's question about enforcement in a way that you yourself described as rather generic. I just want to drill down into a bit more of the detail of that, because human rights law is not generic about the enforcement of human rights, is it? It is quite specific and quite particular in the sense that effective judicial protection of human rights is itself a human right. That has been the case in the jurisprudence of the European Court of Justice for decades. It is, of course, what we see in article 13 of the European Convention, and you agree with that, I assume. Would it therefore be your position that any putative human rights approach to either taxation or to social security, which you mentioned earlier, would have to include a right to effective judicial protection for it really to be a human rights approach? Ultimately, yes, absolutely. However, there are a number of things that you can see. I would say that a judicial approach gives the final backstop of protection. It is the last, for many respects, place that you would want people to end up. Ultimately, one of the intentions of human rights approaches is to influence and affect all policy, so that it is not just about a judicial backstop, it is about a process that enables a consideration and a reflection and a review. Policy is one of the things that impact, for example, internationally, the full incorporation of the Convention of the Rights of the Child, so full incorporation basically means that it is enshrined in domestic law, which currently is not the case in Scotland or the UK for the Convention of the Rights of the Child. It impacts all of policy, so it is not just the judicial backstop that is fundamental, but it is the process up front that changes the way policy is made and changes what policies are put in place. Potentially, the threat of a judicial backstop is one of the things that drives that change. Now, that is a legitimate process, but I suppose that one of the reasons that that fundamental piece was put in place was because of the reason that human rights law was put in place in the first place, was that there was a recognition that states could abuse their power to the detriment, the vast detriment of their populations. So, putting in place a protection that gave a citizen the fundamental right to hold their state to account via a judicial process was a really important principle of human rights law. For me, seeing that ability, that is the last recourse that we would be looking for, but having it in place is powerful. It sends a powerful message to the citizen that we are going to be held responsible for our actions. Not merely is it powerful, but it is essential if you are serious about having a human rights-based approach to either taxation or social security. I am conscious of the time that 26 minutes passed. Do you want to make it easier for you before we get into the next set of questions? I will come to Patrick Ash. This is a question for Judith Robertson as well. In the submission that you put in, it says that states should take strong measures to combat tax abuse. If they don't, then they are not fully realising economic, social and cultural rights and so on. A quote from the submission was that tax abuse is not a victimless crime. If we are saying that the tax gap in the UK is estimated, the most recent one that I could find was in 2014, and it was £120 billion a year. Obviously, most of the powers that are enforcing that are held at the UK Government level, but clearly that does have an effect on Scottish Government public finances. Do you see a link between the UK Government's failure to close that tax gap and Scottish human rights? You come to mention it. Any, again, coming back to one of the principles, the human rights principle of transparency and accountability. That gap, where there is an expectation that the revenue would be generated and the revenue is not generated, means that it is harder for any Government, including the Scottish Government, to put in place policies—health, social care, education—to support the policies that deliver people's rights on the ground. Ultimately, that is where we want to get to. That is what the human rights framework is intended to do. It potentially removes resources. That is a global phenomenon. I have to say that it has not defended the UK Government. Clearly, the UK Government is in fact one of the international drivers of some of those processes of enabling tax avoidance. Domestically, it removes potential revenue from public authorities to spend. Therefore, it limits the capacity of those authorities to deliver people's rights. There is a direct correlation. In a Scottish context, if we are taking an approach to taxation here, ensuring that that tax is paid, monitored and adequately collected, and then being held to account for that expenditure is an integral part of the process. There is a bit of a dichotomy developing there between if Scotland takes a different approach on tax—more of a rights-based approach, for instance—and then the UK Government if we just use the tax gap as one example is taking a different approach on that. We know about the secrecy jurisdictions in London and so on. You have got two differing approaches. Is it possible for them to work and be compatible within one island? Yes. I would say that that is absolutely possible. That is not without its challenges. However, as a Parliament and Government, you will have to make a choice about what you are having this conversation about. Is there a Scottish approach to taxation? Ultimately, there will be a Scottish approach, no matter what that is. You will make a decision about that process. From my perspective, the Scottish Government and Parliament can make a decision that is advancing people's rights, being progressive and making that progressive realisation possible, or having the potential to do something that goes in the other direction. That is a political decision, but we are advocating that we go in a progressive direction. It is possible to be different. You have achieved that in many other areas of policy. I say no reason why you cannot do it in taxation. Patrick, I am coming to you now. I am sorry that I did not bring you in earlier on this. I am trying to make sure that I was getting everybody else in the room involved in the conversation as well, but I know that you have signalled up an interest in this area as well. That is fine. The enforcement angle that I would like to pick up on first of all is to help me to understand the extent to which citizens can take action against Government on human rights grounds in relation to fiscal decisions at the moment. They have clearly had some success in doing that on welfare issues. For example, when people were effectively required to work without pay under threat of sanctions, a series of successful court cases were taken against the UK Government on that. If that level of human rights argument can be brought to a court in relation to welfare, is it not possible today to bring that level of human rights argument to a court in relation to a Government decision about taxation? To be honest, I cannot fully answer your question, Patrick. To be honest, it is a good question. I can go away and do a bit of research and come back to you with a specific answer in principle. I agree with you. I do not think that there is any reason why somebody could not. It might be quite an indirect route. It might be quite hard to argue. It might be easier in an instance of a hypothecated tax where you are making a direct correlation between what the money raised is being spent on. You are looking for a human rights impact. There may be instances in relation to the right to property, the right to ownership, in which some of those arguments about property rights have been used to challenge a taxation decision. There may be instances both domestically and internationally where that has been done. I am not aware of the direct ones. I am not aware of attempts in the UK to do that, either, which is why I was asking whether it is possible. I think that that has been the case, both on property and on the right to human life. In fact, one of the UK cases went to the Grand Chamber as two sisters who were trying to claim an inheritance tax relief when one of the elderly sisters died, because they could not marry, so they could not. The answer is that it has been a relatively weak tool to the court, because of the large margin of appreciation that the court has given to national jurisdictions to impose tax. So, in very long delays or retrospective taxation, quite unusual types of things have been successful, but on the whole you can design your own tax system. In trying to move to a stronger situation in respect of the ability of citizens to exercise these rights and challenge government decisions on tax, it is part of the complexity, the fact that we have tax decisions taken by the UK Government, the Scottish Government and the local government. For example, a person who argued that their cumulative tax burden, including things such as council tax, which is set at a local level, that their cumulative tax burden was higher than somebody who was much wealthier, and that that tax burden overall was what was depriving them of the ability to exercise their human rights or to access their human rights. To whom would they bring that challenge? At the moment, you might want to do that under equalities legislation, whether or not they were discriminated against because of the cumulative impact of a piece of policy, whether taxation or welfare reform or whatever. That is something that has been advocated for by the Equality and Human Rights Commission in relation to really understanding the impact of policies to do that cumulative impact assessment. At the moment, because under the Human Rights Act, for example, it is principally civil and political rights that are protected explicitly, there is limited protection around economic, social and cultural rights. We are advocating that the Scottish Government, Parliament and the UK Government incorporate those rights in order that those questions can more adequately be explored. Scottish ministers are unable to take actions that breach people's human rights. It is not just that this Parliament cannot pass legislation that does so. Ministers cannot act except in compliance with human rights. That is not true, as far as I understand it, of UK ministers' actions. I do not know whether it is true of local councils in making their tax decisions. It is true of UK ministers too. Neither UK ministers nor local authorities in England, Wales or any other part of the United Kingdom are lawfully able to breach people's human rights under section 6 of the Human Rights Act. Thank you. I am grateful to the witness. I am trying to get a sense of where the challenge would be directed if the tax decisions that are affecting a person's human rights are the result of more than one level of government. I am not a lawyer. Forgive me, we can get this with the lawyers, but I do not think that the route is—if we are going through a court process, the decision maker is the one that is impacted wherever the decision is made. I think that that would have to be through the Scottish National Court process. I just wanted to ask as well about the basic principles and to see if I understand the general thrust of your paper. The principles that the Scottish Government proposes for taxation policy are largely about the direct fiscal impacts, proportionate to the ability to pay certainty of taxpayer, convenience, ease of payment and efficiency. Those are about the individual taxpayer and how they are directly affected by tax policy. It seems to me that you are arguing three things about these basic principles. I would be grateful for your view on whether I understand that right. It seems to me that you are firstly arguing that there should be a principle of sufficiency, that tax policy must be sufficient to raise revenue that meets public need in respect of providing people's human rights and ensuring that those are not breached. Secondly, that indirect effects of tax policy on people's human rights should be included as a principle, that the effects of tax policy need to be compliant, not just the operation of it. Thirdly, there should be a principle of accountability. Is that broadly correct? Are you asking that the Scottish Government should specify those principles of tax policy? Broadly, that is correct. The article 2 of the International Covenant on Economic, Social and Cultural Rights effectively demands that each state party undertakes steps individually and through international assistance and co-operation, especially economic and technical, to the maximum of its available resources. That is to seek to maximise those available resources as well. In order to achieve people's economic, social and cultural rights, that is just within one treaty. There are many treaties where, in reference to that process of raising the revenue to do the work that the treaty demands, are highlighted and made public that we have signed up to. We have an absolute commitment and duty to deliver against those recommendations to progressively achieve the full realisations of rights that are recognised in the covenant. That, for me, is the fundamental underlying principle of any tax system that we are seeking to achieve. Making transparent and accountable connections between the revenue being raised, what the money is being spent on and what we are seeking to achieve by that money. Taxation is a means to an end. It is not an end in itself. Enabling people to better understand the end achieves more that investment in contributing to it. We have a pretty toxic relationship with taxation in the public narrative in the UK. In other countries around the world, the relationship to taxation is valued very differently. It is valued as seen as something that people are proud of contributing to, something that people value. They are open about it. In some of the Scandinavian countries, the entire tax contribution is made public. We have a very enclosed attitude and relationship to this issue. We have the opportunity to change that in Scotland. One of the ways to do that is to be transparent, accountable and explicit as to our intention. The principles that you have outlined are good but, in my view, not sufficient in order to achieve what I have just described. I think that we have an opportunity to achieve that and bringing a rights-based approach to doing that. We have a duty to do that—that is the key issue, clearly—but it also provides a legitimate framework in which we can start to communicate to citizens about those issues much more clearly. If we took all of Government policy within that framework, or all of it that is relevant within that framework, which is frankly most of it, then all of that conversation would start to resonate and have a different kind of meaning for people. That relationship between taxation and expenditure would be a different kind of conversation. Some of this relates to Sandra Eden's earlier comments that there is research demonstrating a link between the level of trust in Government and voluntary tax compliance. I would find it valuable to get a reference to that research if it is available. There appears to be a correlation. I am not saying that it is necessarily a causative correlation, but there is a correlation. It would be really interesting to see the reference to that research. It was old EU stuff. I can dig that out. That would be really helpful. Thank you. I have a couple of quick supplementaries. It was a follow-up to Patrick's first line of questioning about taxation and human rights. Is there ever any level of taxation that would be deemed to be a breach of human rights? For example, if the Government set a confiscatory rate of tax, say 98 per cent, or even 100 per cent, could that be challenged under human rights as a breach of the right to property? I think that it could be challenged whether or not it would survive the challenge depending on the rationale for doing that and based on the rationale for doing that. It might be something to do with how that money was generated and so there could be extenuating circumstances. I suppose what human rights law gives you is the opportunity to have that conversation, to have that debate, and to see whether it is proportionate. Is it contributing to the progressive realisation? Is it justifiable from a rights perspective? Clearly, under this conversation, I cannot make that assessment, but it gives you that space to really look at the balance of rights and the reasons, the rationale for those decisions being made, and to have that conversation up front. Before you make that decision, is it justifiable in human rights terms to take that action in this setting for that reason? I have a quick supplementary question. It is slightly off-topic, but I was very interested when you were discussing the possibility of whether the UK Government could act against individuals' human rights. I was immediately thinking of the welfare reform, the bedroom tax, where the UN declared that that was a systematic violation of the rights of disabled people, and I know that it was challenged in the High Court. Is it being appealed in the Supreme Court, or has that process worked right the way through yet? Many people consider that to have been a breach of the rights of disabled people, and yet it is still currently policy, is it not? It is still currently policy. At the moment, no changes to that policy have been made on the basis of either the intervention from the UN or as I'm far and nowhere from the court. Against people's human rights? Oh yes, absolutely, absolutely. Technically, it's not a tax, really? No, no, no. I know that it's slightly off-topic. I know that it's called the bedroom tax, but it's actually welfare reform, yes. A quick link back to incorporation, if I may. You've talked to some length about the transparency in how we spend tax and that people should understand that. Can we extrapolate from that, or then not to be similar transparency in how we raise tax from people, and from that to ensure that everyone can make an informed and unfettered choice about what vehicle is most appropriate for their circumstances, whether it be employment, self-employment or incorporation? Absolutely, I have to be honest. I would absolutely say that transparency in all those processes—I'm clearly not a tax expert—but listening to that conversation, one of the things that really struck me was the lack of certainty. In a context where there's lots of grey areas, that does not enhance transparency or accountability. It makes it really difficult to either challenge either an individual for their decision or an organisation for their decision because there's lots of uncertainty. I would say that transparency really doesn't matter where you are on the system. Being able to make it very clear, explicit and transparent is a key principle. I think that the prior thing is that you should be actually looking at how you tax those people and be taxing them in a similar way. Similar people should be taxing them in a similar way. That is another principle of equality and non-discrimination in a process, which would also apply to the structure of the taxation system. The recommendation from many international UN experts is that progressive taxation systems are more likely to lead to human rights outcomes because they are taking less from those who have less. In fact, they are not more likely to. They will lead to better human rights outcomes because those who can afford to contribute more are contributing more and those who can afford to contribute less actually do contribute less. The cumulative impact that Patrick Stewart described or was referring to of a tax burden—whether that be through indirect taxes such as VAT or direct taxation—is a really important outcome, is a really important indicator of having a direct human rights impact. The UK tax system overall is mildly regressive when you take into account consumption taxes. If you look at the top 20 per cent and the bottom 20 per cent, it is mildly regressive in total. We have now got to the natural end of that particular evidence session that we have had this morning with the witnesses. I thank the witnesses for coming along this morning and contributing to our deliberations. At the start of the meeting, we agreed to take the nice title in private and therefore now close this public part of the meeting.