 It is time for this debate as it is being said on International Day of Women and Girls in Science. PowerPoint of order. Presiding Officer, I am aware I made a point of order this afternoon on business in Among the Office for Education and Skills for the Cabinet Secretary. I would like to point out in the Spirit of Fairness that I am grateful for the very direct and immediate intervention of the Office for the Administgeons of Parliamentary Business, rysgwlad o'r rhaid i'r ddaisgafolau rai, ac mae gafodd ddau oedd wrth gael ddau, rydyn ni'n rhaid, ar 25 ddau. Felly, rydyn ni'n ddau'r ddau'r ddau'r ddau'r ddau'r ddau'r ddau'r ddau'r ddau i'r ddau, ac rydyn ni'n ddau'r ddau'r ddau'r ddau'r ddau'r ddau'r ddau'r ddau i'r ddau'r ddau'r ddau, i ddim yn cymdeithasol i gyd, fyddai'n gweithio ychydigrwyno ar gael. bob amddwg yw'n gwybod a'i dweudhaeth wrth adeiladau ti'n gweithio'n viadfaith ynndyn y gwerth iawn. Onw'r regimes yma yn angen ei amdannu gan chi, a ddim yn dweud sut yn ei cynnig. Mae'n fwy mwyn o'i cymateb cydweithio i'r lleol, lleiannol i'i cydweithio i'r lleol. Mae'n fwy mwyn o gen i chi, dweud amdannu'n llyth i chi'n gweithio i chi'n cymryd cyfan ein cydweithio i'r lleiannol, I invite members who wish to speak in the debate to press their request-to-speak buttons. I call on cabinet secretary John Swinney to move the motion. I would like to draw the Parliament's attention to the procedural connection between this debate and rule 9.16.7 of the standing orders, which states that the Scottish rate resolution must be agreed before stage 3 of the budget bill is able to proceed. This rate resolution debate is set against a backdrop of one of the most challenging periods for the economy and public finances that we have seen since devolution almost quarter of a century ago. Over the course of the last year, we have seen Russia's illegal invasion of Ukraine, a cost of living crisis, spiralling inflation and a continuing economic impact from Brexit, all while recovering from a global pandemic. We have been forced to navigate all of that essentially with our hands tied, giving the limited fiscal powers at our disposal. Not only are we unable to borrow to support businesses and households in these challenging times, but we also have no legislative powers over key policy areas that would support the wider economy such as the energy market and immigration. Therefore, in the 2023-24 budget, we have taken the difficult but necessary decisions to allow us to protect our vital public services, upon which so many households, communities and indeed the Scottish economy relies on. We will cautiously support the resolution today, but since it is an emergency, we understand the need to protect the public finances. However, if the public finances improve and the economy improves, is it the Government's intention to restore the lower levels of taxation before this resolution? Minister, I want to thank Mr Rennie for his support for the resolution, for his constructive engagement and indeed for his enthusiasm when he wants to start talking about the 24-25 budget at this stage. As I am sure he appreciates, we will set out decisions on tax policy at each budget in turn, which will take into account a number of factors, including the prevailing economic conditions. However, at this point, vital and now more than ever, we are guided by the principles of our framework for tax, which we published in December 2021, and one of those principles is engagement. That is why I heard of the Scottish budget that the Deputy First Minister and I listened to a range of stakeholders, and we thank all those involved for their input. We heard a consistent message from our engagement that we need to use tax powers to support and invest in our public services, to reaffirm our commitment to reaching net zero emissions, tackle child poverty and to support the economy. Our income tax policy for 2023-24 responds to that, seeking to strike a balance between ensuring that there is enough money for public spending and acknowledging the challenging economic conditions facing households and businesses, and to support Scotland being a great place to live, work, study and do business. Our proposed income tax policy for 2023-24 is for there to be no changes to the starter, basic or intermediate rates and bans to protect those on lower incomes. We also propose no change to the current higher rate threshold of £43,662 and lowering of the top rate threshold from £150,000 to £125,140. Finally, we propose raising the higher and top rates of tax by one pence, bringing them to £42 and £47 respectively. We have estimated that the income tax policies that I am asking members to vote for today will raise an additional £519 million for the Scottish budget in 2023-24. Those policy changes that are grounded by our principles of taxation will enhance the progressive approach to tax that we have taken to date. The majority of additional revenue raised from those changes will come from those individuals and households in the top two income desiles. Our approach will mean that we can continue supporting our leading social contract with the people of Scotland while ensuring that the majority of taxpayers still pay less in income tax than if they lived elsewhere in the UK. Crucially, as set out by the Deputy First Minister in his budget statement in December, the changes announced for 2023-24 mean that we will be in a position to exceed the health resource abarnate consequentials received from the UK Government with substantial additional investment for our national health service. Our NHS is a precious public asset, and by choosing to raise more revenue from tax to invest in vital front-line services, we are making an investment that will benefit all of us. I would like to close by reminding members that not only have we had to make these income tax policy choices in the difficult economic climate that we face, but within what has been frankly political chaos set by the UK Government in the past year. 2022 saw a total of four UK chancellers in the space of four months. We saw constant new turns on tax policy from UK Government ministers, and we should not forget the ill-judged tax cuts from their short-lived and mini-budget in September and the impact on financial markets that many in Scotland are still facing as a consequence. That chaos presented significant challenges for developing our transparent income tax policy in Scotland. The UK Government's financial plans look increasingly bleak, and there is no doubt that that will present significant fiscal challenges for us here in Scotland. The OBR estimates that the UK has entered the recession, but will last for over a year. Just last week, the IMF suggested that Britain will be only the only G7 economy forecast to shrink in 2023. This Government is clear on what its priorities are. We are choosing to invest in the economy, to invest in our leading social contract and to invest in the people of Scotland. That is why I ask members today to vote to ratify the proposed changes to Scottish income tax set out in the budget 2023-24. I now call on Liz Smith. The minister is quite correct that there is a convention in this Parliament. It is rule 9.16.17 of standing orders that a rates revolution absolutely must be passed before stage 3 of a budget process so that that can happen. I think that it is very clear that there are strongly different views about tax policy. In fact, I think that Mr Rennie has just opened up another difference of tax opinion. I will be interested to see what he is saying this time next year about liberal party policy. We do have that difference of opinion, but of course there is the restraining order upon us that if we were to vote against a resolution it does actually mean that we would be prevented from collecting any tax of whatsoever. Of course, I think from that angle that, particularly just now, that would send out an irresponsible message because it means obviously a time of great economic difficulty and of people who are under the caution with raising sufficient revenue. That is a difficult thing and I think that it would be irresponsible to vote against it so I can put on record that we will not be opposing the rates resolution, but I do want to put on record that we have very considerable differences of opinion with the Scottish Government about tax. Now, Presiding Officer, in recent weeks this Parliament has witnessed several debates, whether in the chamber or in the committee, about the economic priorities that will be required as we continue our efforts to tackle the very difficult economic circumstances that the minister has referred to. The fallout from the war in Ukraine, the many problems of supply change and energy cost labour markets and having to adapt to a post-Covid and post-Brexit landscape and, of course, the significant changes that happened with UK Government policy in fiscal terms. Despite our differences and the committee's report, I think that we have agreed on some main objectives in this, especially in relation to addressing the skills gap and retraining and in terms of encouraging different policies that will promote economic growth and also to ensure that we can do something about the labour market in flexibilities. I am grateful to both the cabinet secretary and to the minister for engagement on that basis, because there is a huge issue about people leaving the labour market post-Covid, either because of long Covid issues or because they have decided for one reason or another that they wish to come out of the labour market. We had an exchange at stage 2 and I do share the cabinet secretary's concern about that. Of course, we are especially keen in Scotland to ensure that it remains a very attractive place in which to work and to live and to invest, and I think that it is very important that that is something that is right at the centre of our delimination. I am grateful to Liz Smith for giving me an interest in the line of argument that she is developing, because essentially she goes into territory where the tax system can be utilised to try to create incentives, but she will appreciate that that is not within our range of responsibilities. Without me trying to make a big constitutional song and dance about it, does she accept that those are legitimate areas where additional flexibility might be of use in trying to address the very specific and real issue that she raises in relation to participation in the labour market? Yes, I do, cabinet secretary. I think that tax incentives are absolutely critical and we have had some considerable differences of opinion about the behavioural aspects of different tax policies, and that is something that I am sure we will rehearse again as time goes on, but you are quite right. It is important that incentives are very much part of the tax decision. Taxes, the decisions that you make about them, are very much about the choices that you have chosen. You have taken different decisions on tax policy from what we would like to see, and we are particularly concerned about what the Fiscal Commission's recommendations are about where we have to focus in light of the statistics that they have produced for the next few years, because there are some really worrying trends coming down the track for that. I think that there are a lot of issues that we have to think about. We also have to think about the fiscal framework, which is due to be renegotiated. The cabinet secretary signed that fiscal framework back in 2016, and I think that there is a lot of interesting debate to be had about that and ensuring that the fiscal situation for this Parliament is as effective in line with what the UK is saying to us. There is general agreement that there are issues about quite a lot of aspects of what we need to focus on. Obviously, the political debate is going to continue about how we address those things, but I can put on record again that we will not oppose the rates resolution when it comes to decision time. I would like to begin by saying that I thought that it was deeply unfair of the cabinet secretary to make the minister of finance chuckle as he got to his feet. Tax is a very serious business, and I thought that the cabinet secretary was a serious man, but I will put that on record. I am very happy to confirm that I was not in any way deliberately trying to make the minister chuckle. I was just somewhat discomforted by the fact that I was having to move the resolution. I thought that a speech was due to follow, but thankfully the minister came to my rescue a bit. In fairness, I think that that is a matter for the minister of finance, and we will hear from him later. In a sense, I am pleased to see those proposals come forward. Ultimately, what we are seeing is that the powers are granted by the 2016 Scotland Act being used. We have some £19 billion being raised directly by those powers exercised by the Scottish Government. That represents some 35 per cent of all revenues available and 44 per cent of revenue funding. It is important that we see that bit of the budget, that part that is under its control, being used and exercised. Indeed, the other day, the cabinet secretary described this as being in the foothills of variation of tax policies. I am someone who is pleased to see that. That is what devolution is about. I would also note that those are progressive measures. Tax is a part of the social compact for those who benefit from public services are asked to contribute. Those who have the ability to pay more do so. Scottish Labour will be supporting the rate resolution this evening. I note that the use of the top rate of tax was something that we called for back in 2019. That brings me to the next point. Reflecting but not necessarily completely mirroring the comments from Willie Rennie and Liz Smith, we need to look at the effectiveness of the powers. The behavioural impact needs to be studied. I suspect that they might be overstated, but we need to examine in detail whether or not the behavioural impact will take away from the mechanical increases that would have been predicted. Likewise, we need to look at the effects of fiscal drag, which I think is of concern to the finance committee. In particular, the interactions between the Scottish bans and rates and other taxations, particularly national insurance, which we have some anomalies now in our tax regime. Finally, we need to look at the fact that the inflection point at which we start paying more tax in Scotland compared to the rest of the UK is £28,000. That will take in people who are in promoted post and teaching profession nurses. We need to examine all those issues in the round and be evidence-led to ensure that we have a progressive taxation, but it is also effective. I think that it is important that we assess that. Ultimately, I believe that, while that is progressive, raising taxes is not a benefit in and of itself. While I absolutely support the right of the Scottish Government to have a different taxation policy from the UK Government, that is really important. If we are going to have a sustained higher level of taxation, we need to continue to test and challenge to ensure that we get commensurate benefit. I would seek to do that. Finally, the clear point of fact with the fiscal framework is that it operates on the basis of average tax receipts per person in Scotland and their growth being higher than the rest of the UK. If that is sustained, we have greater tax receipts and more money to spend in Scotland. I would say to the Scottish Government that we need an increased focus on growing jobs and wages, because that will ultimately be good for the exchequer in Scotland, but it is also good for Scottish people. We will be supporting the right resolution. These topics are ones that I would seek to explore in months and years to come as we explore tax devolution and tax variation in Scotland. I would like to start by picking up on an issue that has dogged our debates on taxation in recent years. It has not come up this afternoon, but it did during last week's debate on the budget, and I did not have time to pick up on it then. It was whether or not Scotland is better off as a result of income tax devolution. We are all at the stage now where we recognise that, as a result of the specific arrangements in the fiscal framework, it is true to say that, in recent years, Scotland ended up with less revenue to spend on public services than if income tax had not been devolved. That is completely separate to the question of whether or not we have benefited, our public finances have benefited as a result of the changes that we have made to income tax through that devolution. It is absolutely true to say—I will come on to this later on—that our public services have substantially benefited from the progressive changes that we have made. I think that we benefit the debates that we have on tax in this Parliament to recognise the significant difference between those two, particularly when, I believe, there is a cross-party consensus on the need to reform the fiscal framework. As I said last week, despite the immense challenges, that is the greenest budget in the history of the Scottish Parliament, and that is funded in part by the most progressive tax system in the UK—a point confirmed just earlier today by the Institute for Fiscal Studies. By raising the higher rate of income tax and the additional dwelling supplement, the highest earners and those buying holiday homes and extra properties will pay a bit more to fund the public services that are so desperately needed during this cost of living crisis. Scotland has extremely limited devolved taxation and revenue raising powers. We certainly need more powers over tax borrowing and a more functional reserve, but we have an obligation to make the best use of the powers that we have. In 2018, the Scottish Greens worked with the Government to deliver progressive changes to income tax. We award the tax paid by the lowest-paid workers and increased it for those on higher incomes. Our public services are better off to the tune of £1 billion as a result of the progressive changes that we have made in the past couple of years. Given the monumental pressure that the budget is under and the need for high-quality public services during this economic crisis, we need to go further. I am proud of the agreement that we reached on those further changes, which will raise more than £1 billion for our public services. We might be in a cost of living crisis, one pushing many households to crisis point, but there are plenty of high-income and wealthy people in this country who can afford to pay a bit more. Those on the highest incomes can afford an extra penny on the tax rate paid on the top slice of their salary, and those in the position where they can buy a second home or a holiday home can absolutely afford to pay a bit more on that purchase. It is incumbent on those who are opposed to those progressive changes to both explain why they think that the most privileged people in our society shouldn't be paying a bit more right now and to explain what they would cut from the budget if they were to prevent those changes. I welcome in particular the contribution that Liz Smith made to this debate, recognising the challenges that would be posed by voting down the rates resolution and the position that the Conservatives have come to. I absolutely agree with the points that Ms Smith made about labour market participation. I would commend to the chamber the study by Sheffield Hallam University on this that found that there is a substantial number of people in Scotland, perhaps in the tens of thousands, who would like to work but are currently on incapacity benefits because they are unable to find the kind of employment that meets their needs as a disabled person. Those are not people who are trying to avoid being in work. Those are people who have not yet put the right employment support in place for them to join the labour market and for them to contribute to our public finances through their tax revenue. In the period leading up to the publication of this budget, both the STC and Unison produced their own papers on tax reform. Both sets of those papers advanced the principle that those who have the most should contribute the most. And while most of their specific proposals were for long-term legislative change, rather than for this budget, I believe that they deserve a large share of the credit for these immediate-term progressive changes to income tax and the additional dwelling supplement that we are voting on today. The long-term changes that they have proposed will not be lost as we move rapidly from one annual budget cycle to the next. Despite the challenges, this budget delivers for people on planet. It includes a record £2.2 billion to tackle the climate emergency. It delivers more affordable public transport, it provides essential support to children and families, and it does so by having the wealthiest in our society pay a bit more. That is something worth voting for. Thank you. I now call on Alex Cole-Hamilton. Thank you very much indeed, Presiding Officer. Scottish Liberal Democrats have considered the vote on the rate resolution separately to that which will come on the budget after recess. In this debate a year ago, few would have predicted double figure inflation or that Vladimir Putin would invade the sovereign territory of Ukraine, and nobody could have foreseen the extent to which the incompetence of the Conservatives would trash the economy and the public finances. Public services have had to brace themselves against these winds. It has been a protection operation, in the words of Sir Anton Muscatelli, as he told the Scottish Parliament's Finance Committee. But it is essential to grow the economy, because Scotland has underperformed relative to the UK since tax powers were first to be involved. The Scottish Fiscal Commission believes that ministers may already be losing out almost £700 million of income tax revenue, and worse still, it is expecting Scotland's economy to grow more slowly over the next 50 years. Today, IFS analysis shows that average net household income will be reduced by £110 next year through the tax and benefit changes. The bottom third of households with children will gain on average around £1,200 a year due to the child payment, but poorer houses without children will, in the IFS words, see virtually no change in their incomes. They have rent-a-pay, rising food and energy bills, which is why we need to see progressive changes to the budget such as a new national emergency insulation programme. We have supported modest tax rises previously to deliver essential investment, and we will do so today as we are in an emergency. However, for those on the higher end, the cumulative effect of tax changes matters. Next year, someone earning £50,000 will pay over £1,500 more in Scotland than if they lived elsewhere in the UK. Somebody earning £150,000 will pay on with £4,000 more. These are talented people, and we are already short of the consultants we desperately need in our NHS, cyber analysts, tech innovators and the best engineers. I do not believe that one-off defined and limited tax rises have a significant impact on behaviour, but they need to be confident about the future intentions of governments. I think that is where the intervention of my friend and colleague Willie Rennie came from. If they think that they have lost control of the tax rises, the confidence drops and that affects that behaviour. When these individuals come to way up where they want to live and work, it could cost us dearly if the Scottish Government has lost that confidence. They are mobile and there are opportunities elsewhere in the United Kingdom. It is an imperfect science, but I am not convinced that the Government understands what they are thinking and their behaviour really matters to that tax take. Where is that evidence? I think that higher tax payers are worried about the long-term intentions of the SNP Government. The presence of the Greens does not reassure them. It adds to the uncertainty about the direction of taxation and the perception that the Government may go much further and take tax to extraordinary levels. They do not know what is going to happen next. The social contract is also being stretched by Government incompetence. The ferries have become a symbol of that, then the Scotland wins the best chance for generations to bring serious money into the public purse, but Scotland's prize seabed was sold on the cheap. I fear that the national care service will be the next shambles. I worry that we are coming to a tipping point that some will say that enough is enough. I am telling the Scottish Government today that you cannot guarantee our support if you bring forward further tax increases. Scottish Liberal Democrats fought for tax powers for this Parliament. When we proposed a moderate penny for education in 2016, it was for a defined purpose and period. It was designed to make education the best again, driving the economy and growth. Now there is a crisis in every corner of our NHS and social care. It is unprecedented, so we can see the logic in a penny, a further penny that is, for health at this moment in time. Putting aside the refusal of the SNP Government to acknowledge their role in bringing back— If you could please conclude, Mr Cole-Hamilton. You can see the necessity in fixing. I would like an answer from the cabinet secretary in their closing remarks. Will those tax increases remain if that health crisis abates? I do not think that that answer was given to Willie Rennie, so if he can find it in himself to give it to us in his closing remarks, I would be very grateful. Thank you and I call on Tom Arthur to wind up up to four minutes, minister. Thank you, Presiding Officer. I am conscious that it is me that stands between members and recess, so I will keep my remarks as brief as possible. I begin by thanking and voting across the chamber for their contributions this afternoon. I also welcome that no member is intending to vote against the SRR and welcome that pragmatic approach. If you could just give me one moment, I would be grateful if members who are just coming into the chamber could do so quietly and if conversations could cease. I will say just to build on the response that I gave to Willie Rennie's intervention in direct response to Alex Cole-Hamilton's question. He asks about what our future policy will be on tax and different budgets. As other members have eloquently summuried the very changed landscape that we found ourselves in over the past year, I am conscious that it was only three years ago that we became familiar with the term Covid and we still have three years to run until the next election. I think that members would agree that it is a sensible, prudent and practical approach to recognise decisions around taxation are best taken at the budget in line with a range of circumstances. I will give way to Mr Rennie. I completely understand that point. The world is unpredictable, but I hope that he understands our point about the balance. We need to have proper evidence to make sure that in future years we do not create behavioural change with a cumulative effect on tax and that we consider the possibility of reversing tax changes that we have brought in an emergency. I hope that he understands that. I do entirely. That speaks to the importance of the independent and robust assessment and forecast provided by the Fiscal Commission and the Government's own process of engagement. It is also hearing to the principles and objectives that are set out in our framework for tax. I recognise that the devolution of income tax affords us the opportunity to take a different approach in Scotland. Devolution affords us the opportunity to take a range of different approaches across a range of areas. Our powers over income tax and taxation more widely are central to enabling us to do that, to fulfil that commitment to delivering the best social contract that we possibly can. I would note the recent findings from the IFS report that recognise that the Scottish Government's changes to the income tax and benefit systems over the past six years will make the Scottish system considerably more progressive than that of the rest of Great Britain. I would also recognise that, from the same report, the findings that, since 2017, the poorest 10 per cent of households will see their incomes increased by £580, 4.6 per cent per year, compared with the rest of the UK, England and Wales, where the richest 10 per cent will see their incomes fall. Amongst the poorest 30 per cent, Scottish reforms to the income tax and benefit system are set to raise the income of households with children by around £2,000 per year on average. That is made possible because we have those powers over income tax. It also speaks to the point that powers are for a purpose and they can affect real change and, in this change, material change changes the circumstance that individuals on low incomes find themselves in. I conscious that we are out of time now, but I want to once again thank members from across the chamber for their constructive input and, indeed, to thank them for their support or at least lack of opposition to the Scottish rates resolution. That concludes the debate on the Scottish rate resolution. We will now move on to the motion. Rule 11.3.1 requires that the question on the Scottish rate resolution be put immediately after the debate. The question therefore is that motion 7853, in the name of Tom Arthur, on Scottish rate resolution be agreed. Are we all agreed? The Parliament is not agreed, therefore we will move to a vote and there will be a short suspension until our members to access the digital voting system.