Scotland’s political parties should work together to develop innovative approaches to devolved taxation, according to a new paper.

The Royal Society of Edinburgh, Scotland’s National Academy, has offered to work with policymakers in developing a broadly-supported fiscal policy.

RSE general secretary Professor Michael Keating said: “The RSE has done extensive work in exploring the problems with taxation in devolved nations, and particularly Scotland.

“There is a widely shared view that the present system is neither economically efficient nor socially fair. The fact that council tax is based on a property valuation some 32 years old is a glaring anomaly. Drawing on the expertise of our Fellows, we have explored a range of options for reform. 

“No party is willing to take the political risk of changing the system. We are therefore calling for a cross-party consensus in Holyrood to review tax policy and agree on reforms. The RSE is ready, willing and able to advise Holyrood on how best to proceed. All it takes is the political will to take that first step.”

The RSE recently submitted advice papers suggesting sweeping changes to the tax system: the Celtic Academies Alliance Taxation Roundtable Report and the Fairer Council Tax advice paper.

The Celtic Academies Alliance report was drawn up after discussion instigated by the RSE in November 2022. It says that rather than having a coherent direction for income tax, it appears that “fiscal drag” – not increasing tax thresholds in line with inflation – is the default policy for both Scottish and UK Governments.

The report explains that despite repeated warnings from the Office of Budget Responsibility and the Scottish Fiscal Commission, Scotland and the UK’s public finances are unsustainable. 

It adds that this fact never appears to feature much in political debate. It calls for a radical reevaluation of fiscal policy in Scotland, recommending that various options should be explored, which include allowing the tax burden to fall less on economic activity and more on land.

The Fairer Council Tax advice paper, initially drawn up in response to the Scottish Government’s consultation on council tax, suggests a range of changes to the current system, such as: a complete and more regular revaluation of properties which would be made easier by the abundance of data now available, or a taxation policy that incentivises households to become greener.

RSE fellow Professor David Heald said: “What we at the RSE want to do is start a full-scale national discussion and debate about fiscal policy in Scotland, including on council tax which still depends on 1991 valuations.

“There should be a forum to discuss all the options available and thereby build a national cross-party consensus ahead of the next Holyrood election, that reform is essential for reasons of efficacy and fairness.

“Mismanaging those parts of the tax system which are currently devolved damages the reputation of the Scottish Parliament and of devolution itself.”

The possibility of a Green Land Value Tax (GLVT) is considered to need further exploration as one potential innovation to update the current property tax system. GLVT would split tax between land value and the building value – incorporating a discount for the property’s energy usage.

The RSE suggests that a policy like this is well-suited to Scotland as it would update the tax system and simultaneously help reach climate goals.

Professor Iain McLean, chair of the Celtic Academies Alliance roundtable, said: “The Scottish Government has the opportunity to bring in a fairer tax system in place of some of the terrible taxes it has inherited, especially the monstrosity of Council Tax.

“I hope it will take the opportunity.”