Official Report 790KB pdf
The next item on our agenda is our second annual evidence session with representatives from Revenue Scotland on how it fulfils its functions. I welcome Elaine Lorimer, who is the chief executive, and Aidan O’Carroll, who is the chair of Revenue Scotland.
I thank the Finance and Public Administration Committee for the opportunity to appear before you this morning. When we attended the committee last year, following the publication of Revenue Scotland’s annual report and accounts, we welcomed the opportunity to have at least an annual meeting with the committee, so we are delighted to be here again. I am sure that we will also refer to our annual report and accounts for the year to 31 March 2024, which were laid before Parliament in October.
I want to comment on a few aspects of the organisation’s performance. We continue to strive to be as efficient an organisation as possible, with a continued focus on improving our automation, our use of technology and on having a digital-first mindset. In collecting £855 million in revenues for the Scottish Government, we maintained our cost profile below 1 per cent of revenues collected, which is an important benchmark for us. We maintained our investment in our systems and technology, continuing to upgrade our core Scottish electronic tax system. We have also continued to build our in-house team of digital specialists to ensure that we deliver the best value for money and practical improvements in our technology and automation.
In March 2024, we published “Building on Success: Corporate Plan 2024-2027”. I am sure that we will discuss aspects of the plan at this meeting. Suffice it to say that we remain focused on enhancing our services to our stakeholders and remaining highly cost-efficient and effective while ensuring that we are engaging with the wider stakeholder community as the tax landscape in Scotland continues to evolve.
Elaine Lorimer and I want to talk about the additional tax responsibilities that we will be taking on over the next couple of years but also about the way in which we are increasingly collaborating with local authorities and other parts of the Scottish Government to share our insights, experience and expertise. I believe that we are a progressive organisation, and I want us to play a full part in the formation and the reformation of tax and revenue policies in Scotland at local and national levels.
I highlight our continued progress on being a great place for our people to work and a fully supportive and inclusive environment in which people can learn and develop. We are delighted with the employee satisfaction scores across a number of measurements, which tell us that we are getting a lot of things right. As we have embedded equality, diversity and inclusion principles into our culture through a strategic steering group, as well as finalising a mainstreaming approach to promote all aspects of EDI in our culture, we can be pleased with the continued progress and the very positive feedback that we are getting with a continued focus on that important area.
We have an excellent board at Revenue Scotland, with great diversity of skills and experience. I want to thank the board members publicly for all that they do and for their support for me as the chair. Over the coming months, we will be recruiting for new appointments, and I look forward to enhancing our diversity through that process. As part of that drive, we have recently conducted a successful campaign to attract co-optees to our audit and risk committee as well as our staff and equalities committee, which will further enhance the diversity of those operating at board level.
Finally, I want to record the thanks of the whole board to Elaine Lorimer and her leadership team for another strong year of progress and to the wider team of great talent that we have at Revenue Scotland. We look forward to continued progress as an organisation that has at its heart the responsibility for effectively managing and collecting devolved taxes for the benefit of public services in Scotland. I thank the committee again for the opportunity to engage with you and I look forward to our discussions.
Thank you for your statement—it is much appreciated. I saw Elaine blush briefly at those remarks.
In time-honoured fashion, I will open with a few questions and then we will go round the table so that colleagues can come in.
Revenue Scotland was created by section 2 of the Revenue Scotland and Tax Powers Act 2014, which I remember very well. It sets out a number of particular functions, one of which is to provide information, advice and assistance to Scottish ministers in relation to tax. Does that include input into the Scottish Government’s tax strategy?
Yes. As the committee will be aware, the Scottish Government is about to publish its tax strategy as part of the papers that it will produce for the budget. Revenue Scotland has been involved in providing some input, commentary and feedback on drafts of the strategy, and we are grateful to Ms Robison for facilitating that for us. We were also invited to various round-table discussions that the cabinet secretary and the Minister for Public Finance led. We have had involvement, but, ultimately, the strategy is not ours—it belongs to the ministers. Therefore, all that we are able to do is provide that input and advice, and it is for them to take decisions on what we have said.
Is the impact of behavioural change on tax decisions one of the areas on which you would give advice?
Not necessarily. The information that we can provide is the official statistical information that we publish, which is available for all to see. Of the taxes that we are responsible for, landfill tax is designed to alter behaviour through the structure of the tax. We are able to provide information at a statistical level, and we are also able to provide information on what we see on the ground; however, for this particular tax strategy, we have not really gone into that in any detail.
Obviously, you are not in control of income tax and so on.
That is exactly right.
Where land and buildings transaction tax is set has an impact on behaviour, does it not?
It might well have an impact on behaviour with regard to taxpayers making choices about which properties to purchase and so on, but that is not something that we would take a view on. What we can do for ministers and the Scottish Fiscal Commission is provide our information on what we see in relation to volumes and value of transactions and the split between residential and non-residential. It is for ministers to draw their own conclusions in relation to the impact of rates and bands on behaviour.
You talk about upholding four founding principles that underpin the Scottish approach to tax—certainty, convenience, efficiency and proportionality to the ability to pay. Do you think that six income tax bands is efficient?
Convener, you know that it is not for me to express a view—
Sorry, I was being a bit sneaky there. I just thought that I would try to catch you unawares, early on.
No, I am afraid that you will not catch me—not on that one. You quote the Adam Smith principles, which, of course, are dear to our hearts.
The tax collection rate remained at 99 per cent, and the administrative cost of tax collection was £7.8 million, which represents 0.87 per cent of tax collected. In his opening statement, Aidan O’Carroll talked about how keeping those costs below 1 per cent is an important benchmark. I notice that there was quite a significant jump over a year, from £6.9 million—which represents 0.71 per cent of tax collected—to £7.8 million. In terms of tax collected, that is a 22.5 per cent increase. Will you talk us through that a wee bit? I should also say that your capital spend was down 28 per cent, by £200,000 from £700,000.
I will break that down for you. You are referring to the resource costs that we are funded for as an organisation. The committee might remember that during our appearance last year, we described the work that we were doing to prepare to introduce Scottish aggregates tax. We described the small increase in staffing that we would need for that.
The other area for us has been the on-going development of our own capability as an organisation. Digital and data skills are increasingly important for us. As part of our bid for resource funding for this past financial year, we asked for a small uplift to allow us to bring an extra couple of staff into our information and communication technology team. We now employ a data engineer and a business analyst, who helps us with the planning of our new system development for aggregates tax and, more broadly, with understanding the processes that we have as an organisation. The uplift in resource funding was to capture those two elements. In addition, there was the increase in pay that had to be funded as we moved into this financial year as a result of the pay settlement.
You will see from our accounts that there has been an uplift in staffing. I think that we have brought in around 10 staff over the course of the year—
It is 11.
Those staff cover the areas that I have just described.
In relation to capital, we had less capital last year because of the stage that we were at in the development of our tax system. You will see in due course that we will be looking for additional capital to enable us to finalise the development of our system in relation to the introduction of aggregates. We have also been invited to be the tax authority for the Scottish building safety levy when it is eventually introduced. We will look for additional capital for that, because we need to develop our system to accommodate two new taxes.
I notice that your staff numbers have gone up from 83 to 94 on average. Do you envisage the staff complement growing further, given the fact that you have the buildings levy and potentially other taxes on the horizon?
In essence, we are doubling the number of taxes that we administer but I assure the committee that we will not double our staffing. We expect there to be a small uplift, but we are also very mindful of the cost-to-collection ratio, to which Aidan O’Carroll referred. When we look at how we can accommodate the introduction of new taxes, we absolutely consider our organisation’s efficiency so that the uplift in the staffing complement that we would be looking for is kept at the margins.
We expect a small increase in staff, but we are not talking about many—a handful.
The key is also to ensure that we maximise the use of digital, particularly for any new taxes. That should also limit the number of human resources that we would need to add, as long as we are able to ensure that we have good online capabilities with the taxpaying community for the new taxes.
I was about to go on to that. On your digital data strategy, I understand that you have
“a vision of a single end-to-end digital tax service by 2026-27”.
In September, we were in Estonia, where the authorities have already achieved that. Where are we relative to other tax administrations?
The vision is ambitious for us, because our tax system was not set up with that in mind. In essence, what we describe in that statement is a single view so that my staff, who have access to the system, would be able to see the whole journey of a tax return or of a taxpayer interacting with our system.
That is the internal back-office efficiency that we want to create but, at the front end—the public end—we also want to improve the accessibility and visibility of the data that we hold so that agents who represent taxpayers can see in a dashboard format the current state of play for their taxpayer or client or so that a solicitor’s firm, for example, can see a firm view, which shows the status of the various transactions or interactions that it has with us in a single view.
That is what we are talking about when we talk about an end-to-end journey, but we have a bigger vision, which is to have our data in shape so that we are able to share it and join it up with other sets of data that exist within the public service. For example, we are interested in seeing what we can do to join up our data with that of Registers of Scotland so that we are able not only to provide the information that we have about the ownership of property but to link it with the mapping data that Registers of Scotland holds.
That is where we are on our journey of improving our digitalisation, but we have to recognise that we have only two taxes at the moment and our system was not necessarily created with the view that we now have in mind.
I also note that there will be
“significant upgrades to accessibility and assistive technologies”
on your website. I take it that that means that it will not take four years and cost £3 million to upgrade the website like it did for the Scottish Parliament.
Our website is under continual improvement. Our annual report and accounts relate to last year, but this financial year we have already improved accessibility to our website. We have introduced software called Recite Me. Anybody who comes on to our website can access that software, which allows the website to speak to them.
As a result of user feedback, we are also looking at the layout of our website and the accessibility of the information on the website to ensure that it complies fully with the standards that are expected of a modern digital offering. Those actions are already in train. Therefore, it is not a case of switching the website off and introducing a new website; it is a case of iterating the website that we have.
11:15
That is excellent. I was heartened to see that Revenue Scotland’s compliance activity secured £35.5 million in tax, compared to £10.4 million in the preceding year. That is a 241 per cent increase and it represents almost five times the cost of running your entire organisation for a year, so well done. Can you talk the committee through how you achieved that and say whether there is room to increase that further?
Thank you for the opportunity to explain that to the committee, because it is quite a nuanced position. I will start by paying tribute to and thanking my compliance teams. We have some real expertise in Revenue Scotland now. There are nine different professions represented in our organisation, so our approach to compliance draws on expertise from across the organisation, although it is obviously our tax professionals who fundamentally lead on that.
The figure in our accounts this year represents two areas, one of which is where we have, through our direct compliance activity, come to the view that more tax is due, so additional revenues in that year have come into our accounts on the basis of that compliance activity and the action that we have taken with taxpayers. Another element of that figure relates to where we have protected revenue, which is where we have undertaken inquiry work with taxpayers and come to the view that, although they might feel that the tax is due to be repaid, we have been successful in arguing the case with them that it is not due to be repaid. Therefore, the figure of £35.5 million is a combination of additional revenues that have come in in-year and protecting revenues that would have had to be repaid had we not been successful in arguing that case. That is a result of our compliance activity.
Thank you. I will open questions to colleagues around the table, beginning with Craig Hoy.
Good morning. You said that the administrative cost of tax collection has risen from 0.71 per cent to 0.78 per cent, in anticipation of other taxes coming in that you will administer. Do you expect that figure to fall in future years as you get efficiency and economies of scale in place?
In essence, that number is dependent on two elements. One is how much revenue we bring in, and that is dependent on a range of different factors, not least of which is the number of taxes that we are asked to administer and the estimates of the revenues that are associated with that. The second element is the cost of administration, which is our direct costs as an organisation. Our expectation and our hope—actually, it is more than an expectation; we are determined that we will keep our costs within the 1 per cent benchmark. The ability to do that will come down to on-going investment in our digital systems and keeping a keen eye on the efficiency of our processes.
As the committee might remember, part 2 of the Aggregates Tax and Devolved Taxes Administration (Scotland) Act 2024—for which, many thanks—contained provisions that, in essence, paved the way for secondary legislation to come forward that, after consultation, would allow us to introduce more automation and to rely on electronic communication, rather than having to send some of our more formal applications by post and recorded delivery. We need to get that legislation through, because that will enable us to bring that efficiency back to our organisation. Therefore, there are two elements: we need the taxes that we are collecting to bring in a sufficient amount of revenue; and then the ask of our organisation is to be as efficient as possible.
The new taxes that we will be taking responsibility for will raise relatively modest amounts of money compared to LBTT. Therefore, the board’s focus is how we keep our costs below 1 per cent. Technology is key, as is investing in efficiency, as Elaine Lorimer said. We are aware that that 1 per cent will come under more strain as a result of implementing taxes that will not raise as much as LBTT does. We are laser focused on ensuring that we keep our costs below the 1 per cent level, as that is a precious benchmark for us.
I want to ask about the rationale for that benchmark. What underpins it? Does it represent international best practice? How does your performance in that regard compare with that of your equivalents in the rest of the UK and overseas?
It is an Organisation for Economic Co-operation and Development benchmark. It is the only benchmark that we have. It is a bit of a blunt instrument for us, because we do not have the whole panoply of taxes that other tax authorities have to collect. However, when we look at comparable organisations around the United Kingdom and abroad, it is clear that we are right there when it comes to efficiency. Against that benchmark, we are much more efficient than our counterparts in Wales, for example, and we are on a par with our other sister organisations in the UK.
Is there an assumption that digitisation will drive costs down over time?
Yes, that is our hope.
Absolutely.
On workforce and staffing, the convener identified that there was an increase of 11 in the workforce. There was also a 10 per cent salary increase in 2022-23, other than for the senior management team. Was that consistent with salary increases for the rest of the public sector in Scotland?
That 10 per cent figure is an average. Our staff are all civil servants. I am in the senior civil service, but the rest of the staff are under the Scottish Government’s main terms and conditions. The pay uplift that our staff on bands A to C received was absolutely in line with what had been negotiated by the Scottish Government.
If 4.65 per cent was the lowest increase, what was the highest increase that someone in the organisation would have received?
The highest was a 17 per cent pay increase, which came about as a result of working through what had been negotiated by the Scottish Government as part of the pay negotiations with the unions. That represented a combination of a percentage uplift and an incremental increase. Bands A to C are on step increments, so it was a combination of an incremental increase and the percentage pay uplift that was given.
Was there any shift in pension contributions during that period, or are those set centrally for the organisation?
Absolutely. Our staff are all in the civil service pension scheme, so that is standard.
In relation to the internal audit narrative, one of the things that the directorate for internal audit and assurance looked at was the approach to hybrid working. What was the rationale for including that issue in the internal audit function?
We introduced a particular form of hybrid working during and post the pandemic, and we wanted to get assurance on the approach that we took, which was a multistakeholder approach. We wanted to make sure that we took on board all our employees’ feedback on the ways in which we could work, while at the same time, as an organisation, ensuring that we did not lose productivity as a result of anything that we were doing.
It was important that we got independent verification of our approach and the policies that we have now set. Although we can take a lot of comfort from the fact that our employees are very positive about the new hybrid working arrangements, we wanted to ensure that the processes that we put in place, the logic for those and the evidence-based approach that we took could be properly audited. That was why we chose to get that measured.
The report that came out was very positive about the approach that the team had taken to hybrid working, and we have now implemented the hybrid working model as a permanent arrangement, as opposed to a pilot arrangement, which it was initially.
Right from the beginning, our approach has been evidence based. When we had the opportunity to review our operating model post-Covid, as we came out of a period of wholly remote working, we did not want simply to slide into an arrangement. We wanted to make sure that it was evidence based. Aidan O’Carroll has outlined some of the elements that we took into account.
Our hybrid model requires anchor activities in the office—not a set number of days in the office each week but activities that it is mandatory to undertake in the office. Our model has allowed us to reduce our footprint—we have halved our accommodation costs as a result—and to be less Edinburgh-centric with regard to where our staff are recruited from and where they live. Although we recognise that Victoria Quay is still our office space—staff have to be prepared to come to Victoria Quay—we now employ people from all over Scotland, which has meant that the attraction of Revenue Scotland as an employer is coming through in the quality of candidates that we are able to recruit.
My final question is on the assessment of the tax gap. I am assuming that the tax gap is the gap between the tax that an organisation such as yours would expect to get and the tax that it ends up getting. You have said that, where self-assessed taxes are concerned, you are not in a position to estimate the tax gap. Could you elaborate on that point? What are the barriers to your ability to do so, and how do they play into the successful compliance work in which you have engaged?
Because we are dealing with self-assessed taxes, which are very different from income tax and automatic deduction under pay as you earn, for example, or the payment of corporate tax, we cannot look in the traditional way at where a tax gap would appear. We take the evidence that we have from the returns that we have made, and we also look at the quality and first-time accuracy of those returns.
As Elaine Lorimer alluded to earlier, there might be a potential gap in relation to the correct implementation of self-assessment. We consider that point and try to ensure that we are getting the 99 per cent compliance and that it is accurate. However, that does not give us the information on what we might expect to see.
The Scottish Fiscal Commission might set out its forecasts of where it thinks that LBTT would be—we feed our factual evidence into that, obviously, which helps to inform the Scottish Fiscal Commission’s forward projection. However, that is not an effective tax gap—it is simply about estimating where the economy is and where the transactions are at a particular time, particularly on the LBTT side, and what we would expect to receive. With regard to the work that we do with the Scottish Fiscal Commission, the estimation has been pretty accurate. For the taxes that we are dealing with, the tax gap question is not as relevant as it would be for other taxes.
With regard to the success that you have had in relation to compliance and recovery—obviously, the recovery of taxes that were not paid, rather than those that you did not hand back, as it were—is the model that the more effective you are with compliance, the less likely people are to just chance their arm and not pay? Do you expect that position to improve over time?
I will let Elaine answer that.
Our ideal, of course, would be that we do not have to do any compliance work because everybody is compliant.
I suspect that you are backing a loser there.
We see our job as making it as straightforward as possible for taxpayers to understand their obligations and to know the amount of tax that is due. Obviously, we hope that some of the compliance work that we do provides a bit of a deterrent, but human nature is such that there will always be a need for us to do that work.
What we are finding interesting is that, because so much information is held digitally now—I know that I talk about data and digitalisation quite a bit—it is becoming, and will become, the core of our operations. We are interested in having access to other data. For example, we have a pilot running under the Digital Economy Act 2017, which is a United Kingdom piece of legislation, that is the first of its kind. We are the first Scottish project under that legislation, with three local authorities that are willing to share their non-domestic rates data with us. That allows us to clash that data, if you like, with the information that we have on non-residential land and buildings transaction tax. The more we are able to compare our data with other publicly available data sets like that, the easier it is for us to do our compliance work and the greater the deterrent to people giving us one set of information and a local authority an entirely different set of information.
11:30
We said last year that we were launching a publicly available document on our litigation and settlement approach, and our settlement strategy. Where we do ultimately have to go to litigation, it needs to be the right cases for the right reasons—in order to stop a certain behaviour or to ensure that we are collecting the correct amount of tax. I would say that, based on what the team have been doing, that strategy is effective. In the most recent seven cases that have had to go to tribunals, Revenue Scotland’s view has prevailed in relation to closing a perceived loophole or ensuring that we are correctly attributing tax through the additional dwelling supplement—residential and non-residential—which tends to be one of the main areas of dispute at the moment. The more we do that and get that message out publicly, the fewer disputes we should have. That is in everybody’s interest, because disputes are costly.
There is quite a big differential in LBTT between Scotland and the rest of the UK. In terms of the pre-compliance work and any subsequent recovery work, is there a difference between the patterns of behaviour that you see north and south of the border?
I am not able to comment on that. My team would be able to give you the answer to that, but I cannot give you an accurate answer, so I should not even try.
Okay. I am just interested in whether there has been any behavioural shift in the jurisdictions.
We have excellent working relationships with our counterparts in HM Revenue and Customs. Part of our compliance approach, under our legislation, is that we are able to share data with HMRC and vice versa. Where we have interests in particular types of transaction or particular taxpayers, we are able to work collectively and collaboratively with HMRC.
I want to ask about the 1 per cent for admin costs. I am wondering how realistic that is going to be. I saw that you have been doing work on green freeports relief; I suspect that that relief might mean that your revenues fall. You have also been doing work on the Visitor Levy (Scotland) Bill, and you might not get very much money out of that. Is the 1 per cent realistic? I get your point about digitisation and that kind of thing.
It is important to point out that the visitor levy is not a tax that we are collecting. It is not our responsibility. It is a tax that local authorities have been given the powers to collect. The role that we have proactively taken with the visitor levy is to offer our expertise in self-assessed taxes to local authorities, COSLA, the Society of Local Authority Chief Executives and the local government Digital Office. The visitor levy is a self-assessed tax, and local authorities are not used to collecting self-assessed taxes. That has been our remit. We would not factor the visitor levy into our revenues.
You make a point about what our future revenues might look like, particularly given the two new taxes that we are due to take on. The revenues associated with that are smaller than LBTT revenues. LBTT is the main tax, in terms of the revenue that we bring in. As you know, we publish our stats on LBTT every month. This year, we are on a par with the Fiscal Commission’s forecast. If you were to look at—
Is that above last year’s level?
Yes, it is. It is more than £900 million, which is what our forecasting expects us to bring in on LBTT, which is both LBTT and the additional dwelling supplement. If LBTT holds up and we maintain our efficiency in the introduction of the other taxes that we are being asked to operate, and if we continue to invest in digitalisation, our view is that we should be able to stay within that 1 per cent, but it is going to become increasingly challenging.
On a completely different point, you still have one female and six males on the board. How long will that continue, and when will there be a bit of a balance?
We will have the opportunity to address the balance quite soon, as we will be recruiting for two board members at the turn of the year. I am hoping, based on the discussions that I have had with the chair of the selection panel and the ethical standards commissioner, that we will be able to progress our diversity, and our gender diversity, in that recruitment process.
I have also mentioned that we recently made offers to three co-optees to work on our audit and risk committee, as well as the staff and equalities committee, which will improve our gender statistics. Those individuals will learn on the job and could become future board members, either at Revenue Scotland or another public body. That is positive.
The constraint that we had in 2021 on our ability to progress any form of positive discrimination has changed. A little bit more flexibility has come from the changes that have been laid out in the ethical standards commissioner’s updated code. Again, I am hopeful that, in the process that we are about to go through, we will be able to ensure that we improve diversity more broadly, as well as gender diversity. The issue is very close to my heart because, as you know from our discussion last year, I was somewhat frustrated by the process in 2021.
Of course, it was the commissioner for public appointments.
Right, okay. That is fine.
The report indicates that service user satisfaction is at 76 per cent. Is that good or bad?
We think that it is good, but it is not good enough. We set ourselves a new target in our key performance indicators for our most recent corporate plan. The figure has been taken from the UK Institute of Customer Service, as we wanted to go to an established, recognised institute to arrive at the benchmark. As I understand it, the national score was 75.8 per cent, so we are within range.
Obviously, we have ambitions to have a better customer service satisfaction score, so we are doing all that we can to reach out for feedback in an even more proactive way than we have done in the past .
Feedback in the report comes from users of our SET system and users of our website. This year, we have started to plan to do more work to reach out to people more broadly. As part of our on-going relationship with the aggregates industry and taxpayers’ agents, we will be looking for more qualitative feedback, rather than just quantitative feedback. I am fairly certain that our board will be looking for us to stretch that target over the course of the period that is covered by our new corporate plan.
Your compliance figures look good. I presume that part of your job is to upset people who do not want to pay tax, and that your customer satisfaction score could never be 100 per cent, because some people just—
Exactly. We will never get to 100 per cent. Part of the culture of Revenue Scotland is that, in the delivery of difficult messages, it is how we deliver them that matters.
I picked up that you have had a few issues with the three-yearly lease reviews. Could you explain why we have the reviews and what the problems were?
Three-yearly lease reviews are set in the LBTT legislation. Essentially, if you are a leaseholder, you should submit a return to Revenue Scotland every three years, whether your position in relation to your lease has changed or not. If you have a lease that runs for 10 years, for example, you should be sending us a return at year six and year nine of your lease.
This is the hardest bit of the legislation for us to operationalise, because it places us in direct contact with the taxpayer after the event. When someone enters into a lease for a non-residential property, they will normally use a solicitor or another agent of some description, who will put the return in. That is often where the relationship ends. Three years down the line, we expect that taxpayer to understand that they should send us a lease review return. We have found that, over the period, we have struggled to get above 50 per cent of taxpayers who are in that category to respond and produce a return on time.
That has been a concern to our board, because it is an element of our legislation that is not performing well for us. We have to remember that it is a self-assessed tax, so the obligation is on the taxpayer to make the return. We recognised that this was increasingly a problem for us, and so some of the changes that we have made in the past few years were about trying to make it easier for the taxpayer to understand their responsibilities. We contact them beforehand to remind them of their responsibility.
We are, of course, finding that our data is not necessarily accurate because the lease might no longer be held by the taxpayer, and there can be changes to addresses and so on. We correspond with them and send them messages if we have their consent to do so. We have involved the Law Society to see whether solicitors could let their clients know that they have a responsibility that is due. In spite of all that, we still find it difficult to get above 50 per cent.
What was the reason for the three-yearly reviews? Most 10-year leases will not change.
This is my understanding of the policy. During the period of a lease, there could be rent reviews in which the value of the lease would increase or, indeed decrease. The lease review provision is to ensure the right amount of tax for the duration of the lease. A net present value calculation has to be done.
It is not just an admin thing; it could involve tax revenues.
Yes, and that takes me on to my next point. The taxpayer is under an obligation to put the return in and we have made it as easy as possible for them to do that. Some of the changes to our system allow for the pre-population of data.
When additional tax is due, it should be paid at that point. There can also be reimbursement of tax—because of the recent economic situation in Scotland, we have found that sometimes we have to repay tax in some areas. With the data that we have thus far, and recognising that on-time returns are still at the 50 per cent mark, we do not find that a huge amount of additional revenue is being produced.
If we were to separate out the different elements of the taxes for which we are responsible, that is the one area in our admin costs in which we are inefficient, and it is because of the legislation that we have to operationalise. I describe it as our organisational bind, because we have no discretion—we have to issue penalties when returns are late or not received at all.
Okay. That is helpful. Perhaps the issue can go into Liz Smith’s finance bill when it comes along.
I was thinking exactly the same thing, funnily enough.
It might need to be reviewed. That is great, thanks very much.
Great minds think alike.
When we had the debate about changing from a reserved aggregates levy to a devolved aggregates tax, there was an interesting discussion prior to the implementation of that law about how good we are at understanding how much of a reserved tax is collected from Scotland. I know that you are not responsible for that, but do you have better sight of the information and data on how much tax is being collected from reserved taxes than you had previously? There was a bit of a muddle when we had this discussion the last time that you were here.
11:45
You are right that it is not for us to take a view on that. We are working on the basis of the information that the Scottish Government has received from HMRC.
We have found with landfill tax, which I think is the easiest comparator, that, certainly in the early years, we brought in more tax than was originally forecast. That is because we were much more present and because we worked hard, and continued to work hard, to ensure a level playing field for the industry.
The committee had a witness from HMRC who, at the time, found it difficult to tell us how much of a UK tax had been raised in Scotland. I was a bit surprised that they did not have the data on that. I am pleased to hear that you think that there is a greater understanding of how—
That area has not really been a focus for HMRC, specifically in relation to the aggregates tax. I do not think that a lot of resource was put into compliance activities and so on around that.
It is quite important for the overall tax burden in Scotland.
We have found that, through the engagement process that we have had to date with industry, we are getting a lot of pointers that will be quite helpful for future compliance activity in Scotland for the businesses that are based in Scotland. I am quite confident that there will be a smooth transition and, at the same time, we will have good information on what is being extracted and where.
That is good to hear, because, obviously, the better the data, the better it is for policy makers.
We have been working closely with aggregates industry bodies, and we are building up our understanding of the industry all the time, including who the operators are and where they are located. All that builds our capability, so that, by the time the tax goes live, we should understand the industry pretty well.
That is very helpful.
I have a few questions. The first is on the potential for delegation to Registers of Scotland and the Scottish Environment Protection Agency. You can delegate responsibilities to those bodies, but you remain accountable. Can you talk me through your risk assessment to ensure that nothing goes awry with that? It is not that I have any particular concerns, but any form of delegation brings risk—that is where I am coming from.
We no longer delegate any part of our function to Registers of Scotland, although we have powers to do so and we did so originally. Initially, it processed paper returns for LBTT for us, but now we have very few of those, so we do that.
SEPA is the bigger partner for our taxes. For the Scottish landfill tax, we have a very structured memorandum of understanding. We also have important underpinning documentation on data, data transfer and the security of that. We have regular senior-level meetings with SEPA; I meet one of its chief officers regularly to discuss its performance.
SEPA has a small number of staff who are security cleared to work on our taxes, and they sit within a small team in SEPA. SEPA is very clear that it needs to provide us with assurance on how that team operates and on information sharing. One thing that we would like to be able to do, but cannot because our legislation does not allow it at the moment, is to share more data internally in SEPA than we currently can. At the moment, things are absolutely ring-fenced to the tax function that we delegate to SEPA.
In addition, as accountable officer, I receive certificates of assurance as part of our annual report on accounts, and I receive a very detailed one from SEPA. Since the troubles that it had with the cyberattack that it unfortunately suffered, SEPA goes to quite significant lengths to ensure that it is able to provide me with assurance around its ability to continue to protect our data and to operate in the event of any business continuity issue that might arise.
You have already answered my follow-on question. That was fairly well documented.
This is a question that I asked you last year, but I will ask it again, because I am going to put it to every public body that comes in front of me at any committee. How are you preparing for the potentially exponential growth in the use of artificial intelligence? What is your thinking this year compared with last year? What external consultants are you using, and what is your risk assessment? This is just a checkpoint.
We are not using any external consultants on artificial intelligence, because, with our budgetary position and the constraints on discretionary spend, we are not in a position to employ consultants to support us in that sort of analysis. We are fortunate that we are closely aligned to the Scottish Government, so we have access to the expertise that exists in the Government on artificial intelligence, and we are plugged into the digital directorate and the work that it supports. We have a board member who is an expert in digital systems, and he, too, has provided us with support.
We are already using automation, and we will continue to develop that. On our position in relation to whole-heartedly embracing artificial intelligence, I think that I said last year that we would not be first in the queue to do that, and I maintain that position this year. As a tax authority, we need to be open to the possibilities and ensure that we connect with those who understand more about artificial intelligence than I do. However, we also need to be cautious, because we are conscious of the data that we hold, and we must ensure that the introduction of any other form of artificial intelligence beyond automation is done in full cognisance of the risks that that might bring to our organisation.
We have also engaged with NEC Software Solutions, which is our main information technology provider, to ask what it is seeing across its spectrum of delivery. That insight has been quite interesting.
As a board, we will always look at whether there is an opportunity for better automation, so that we can cut out manual processes, or whether there are better algorithms to apply to the data that we have, so that we can be even more efficient and effective at spotting anomalies in that data. From a practical perspective, that is principally what AI might drive for Revenue Scotland: algorithms that, in the future, we might be able to run across the data that we have in order to create better compliance activity.
The third area of potential risk is AI-enabled cyberattacks, which have become increasingly more sophisticated. Is that something that you expect your new digital person to consider in more detail?
Yes—absolutely. In our strategic risk register, cyber is right up there as one of the top risks that we pay close attention to, to ensure that our data is protected and that we are doing everything that you would expect a public body to do to protect its systems.
Over the past year, we have run audits of our systems in relation to cybersecurity. We have continued to ensure that we upgrade all the time, so that we can provide assurance to our board around protection against cyberattack. We have also run a business continuity exercise specifically on cyber. We will run another one in the next couple of weeks specifically on a cyberattack.
When the audit team looked at our approach, one of the recommendations that it came up with was that we needed to do a bit more intensive work on the management of the relationships with our third-party suppliers specifically on cyber by interrogating them about the plans that they have in place and, potentially, involving them in some of the business continuity exercises that we run. We have adopted the recommendations of that audit.
I can say—and Aidan O’Carroll might want to say on behalf of the board—that cyber is one of the top risks that we always pay attention to. We rely on third-party suppliers, so we do not carry systems in-house. For example, we rely on the Scottish Government for the security in its SCOTS connect network, which is what our system sits on. We rely on NEC, which is our main supplier, for our tax system. It can provide us with a very high level of cyberassurance. Those are the two main areas where we need to focus our attention. We must not take anything for granted.
One of the co-optees that we have put a job offer out to is a cybersecurity specialist. The board is acutely aware of the issue. The dangers of a potential cybersecurity attack keep me awake at night and I think that they would keep every board chair awake.
I regard the fact that that keeps you awake as good news.
We have talked about your risk assessment in general. In the context of the constraints in public sector funding, you have already commented in response to a number of questions about things that you cannot really afford to spend on. You just referenced the Scottish Government’s human resources and finance corporate transformation programme. Are you alluding to the possibility that that could mean further restrictions or lack of growth in funding or is it as much about what that might bring to you? I am interested to hear a bit more about that.
I referred to the SCOTS connect network, which is not part of the corporate transformation programme. We still have the corporate transformation programme in our risk register, although the risk level is reducing. Last year, it was quite a high risk for us as an organisation. We had it on our risk register because of the programme’s introduction of an Oracle system, which has become the bedrock of our human resources system and our finance system.
At the moment, that does not impact on our tax system because our board took a decision a few years back to break away from the Scottish Executive accounting system—SEAS—for tax transactions. Our tax system and our tax transactions sit outside the corporate transformation programme, which meant that I, as accountable officer, did not feel that we were taking on as much risk as we could have done with the introduction of a system over which we had no control.
The reason that it was a risk for us was because we relied wholly on the Scottish Government to introduce that system with all of our HR and financial transaction data based on its testing. We had no involvement in the testing of the system either. We engaged at every level to ensure that we understood what was coming our way. Along with peer organisations, we also influenced as much as possible the approach to public bodies like us. Around 30 organisations are customers of the Scottish Government’s shared services.
The system went live in October. To the great satisfaction of all, my staff were able to be paid at the end of October, so the data had been transferred. Basic things like that were really important. If the Oracle system is able to be rolled out in the way that we hope, it will give us great functionality and brilliant access to data in a way that we did not have under the old system, but it will take time for it to be rolled out. It still sits in our strategic risk register, but the risk level is declining now that it has gone live. It is now all about operationalising the new system and maximising the benefits from it, while recognising all the time that it is not our system—we are just a customer.
As for our relationship with the Scottish Government, we want to move ourselves into a position where we class the dynamic in a different way. A number of us—chief executives and other bodies—talk about the intelligent customer, and we really want to be seen as intelligent customers of the system, given the plans for it.
12:00
Lastly, every time that you come in front of us, you always talk very positively about the culture that you are fostering. I regard culture in organisations as hugely important and, of course, something that comes from the top. Often, the culture of an organisation stays endemic to it, even after the original people have moved on to different things. What is your guiding philosophy? What are, if you like, the top trees that you are planting that will grow and bloom for generations after we have all moved on?
That is a lovely question. Yes, I am very proud of the culture that we have created in Revenue Scotland, but I am not complacent about it at all. Our people survey results for the current year will be out in the next few days, and we will wait and see what they say, but one of the things that I think that we have managed to create is trust between the leadership and the staff. We engage with our staff and involve them in decisions about our organisation, how we are evolving or how we are changing the corporate plan, and all of our staff are involved in that. There is regular on-going engagement.
I would like to think that our staff see that, when we say that we will do something, we do it—we follow through. What they see is authentic leadership. Even when we have to deliver difficult messages, we can deliver them in a way that lands with an impact that people appreciate. That is the way in which we lead.
For me, trying to create a culture that continues to evolve, but which keeps all the good bits as we get bigger and older as an organisation, boils down to the people whom you employ. Therefore, it is important that, when we make decisions about anyone who joins Revenue Scotland as a member of staff—everyone, irrespective of grade, from the most junior member of staff up to the most senior—we look for not only talent but attitude. We are looking for people who are interested in delivering public service and in making their job as good as it can be. In other words, it is not just about what they come in to do each day; it is about their thinking about how they can make it better, how they can be more efficient and how they can work with their colleagues to deliver a better service. That is the sort of culture that I have tried to embed in Revenue Scotland. As more senior people get appointed, I am looking for leadership that is imbued with those sorts of values and which, obviously, brings its own authenticity, too.
In my career, I have had experience of all sorts of different types of organisations, and I have had experience of working in organisations where I understood very early on the importance of the tone that comes from the top. That is something that I have taken with me as I have gone through different senior leadership roles in my career. This job at Revenue Scotland has enabled me, by employing the people whom we have employed, to foster that sort of ethos, which I hope will be lasting.
I think that the board has a really big responsibility here, too. The tone is set not just by me, but by the chairman and the members of the board. Aidan O’Carroll made me blush earlier in the session, so I am going to make him blush now and say that the tone set by him and the board is very complementary to the tone that I have set. That makes for a really strong team not just in how we represent our organisation externally, but in how we work with our staff internally.
You knew that I was going to ask about the board, so thank you for bringing that in, too.
That is me as far as my questions are concerned, unless you have anything to add, Aidan O’Carroll.
The board has also been more visible in the past 12 months as part of a deliberate policy to engage more with staff, attend staff events and so on, so that we are not seen as somewhat distant from the business. I think that that has been very helpful, too.
Moreover, I think that delivering inclusivity, not just as a word or a concept but in our actions, is really important. Although we score really highly in a lot of the engagement indices in the survey—and I am not predicting what the scores will be this time round—I just want to reiterate that you can never be complacent, because if you are, the culture can just change overnight. That has certainly been my experience in the private sector.
It is all about trying to ensure that we do things consistently, that we are transparent and that we sustain what we are doing throughout the organisation. That will hold us in good stead for the future—and my successor, too.
Thank you.
Before I bring this love-in to an end, do you have any final points that you want to make to the committee? Is there anything that we have not touched on that you would like to emphasise?
I do not think so. We have had a good round-table discussion, which I am really thankful for, and which I hope that we can continue, at least on an annual basis. I regret that we were unable to run an event in Parliament to coincide with the launch, but that was really due to certain cost pressures and controls. If the opportunity were to arise in the future, we would be very glad to take it.
You could always have an exhibition outside the chamber at the bottom of the members’ block. It does not cost anything.
There is a 15-month waiting list.
I know. That is because it does not cost anything. [Laughter.]
The only thing that I wanted to do beyond thanking you very much for your time and your questions was to remind the committee that next year is our 10th anniversary as an organisation. We have some plans that we would like to bring forward with regard to sharing our learning of setting up a tax authority from scratch and really banking that, as well as looking forward. No doubt we will, in due course, come to talk to you about that.
Thank you very much for giving evidence today. That concludes the public part of our deliberation, and we will have a two-minute break to allow our official report and broadcasting colleagues, and witnesses, to leave.
12:07 Meeting continued in private until 12:19.