New taxing powers for Scotland: a sensible step or a botched job?

 A major but flawed step in developing devolution is being taken as the Commons debates the Scotland Bill today, giving the Scottish Parliament the right to levy up to 10% income tax and some lesser measures. Alan Trench powerfully critiques the Bill in his blog Devolution Matters. Already nervous NI opinion dipping their toes into the choppy waters of devolution finance over a differential corporation tax will probably have a fit when they read this.

The Bill would make the Scottish Parliament responsible for generating about a third of its own spending from tax revenues. But it does so very largely from income tax; the parliament will also have control over some minor land-based taxes, including stamp duty land tax, but by far the bulk of its revenues will be from income tax. It therefore has a narrow tax base, made narrower by the Bill — the Calman Commission proposed assigning Holyrood a proportion of income tax from savings and share dividends, but this has been dropped.

Then there’s the question of the block grant to Scotland. This will be reduced by an ‘appropriate’ amount, to allow for the new tax-raising powers. But the Command paper Strengthening Scotland’s Future doesn’t say how that will be done — what the ‘appropriate’ amount might be or how it would be calculated. The UK Government had the Calman report for 18 months before publishing the Bill, and in that time the Holtham Commission’s report ( on Wales) set out four methods of doing so. All the Command paper says about this is that ‘the circumstances make a definitive statement on the correct reduction to the block grant inappropriate at this time’. The lack of clarity on this key issue is deeply worrying

 

Alan goes on to lament the whole approach of successive UK governments to GB devolution since 1999.

The arrangements put in place in 1998-9 were limited, even for Scotland, and were inevitably going to need to develop. Ron Davies famously said ‘devolution is a process, not an event’ – a phrase almost as true for Scotland as it was for Wales. Instead, the UK Government treated devolution as an event, not a process. Once done, it was quickly forgotten

The worst casualty of this way of approaching the debate was the Scottish people. Deserving a serious debate in which the various options for their future were laid out and could be set against each other, what they got was two parallel discussions which have never really engaged with each other. The National Conversation treated the sort of autonomy that comes with independence as its reference point; the Calman process failed to engage with arguments for substantially enhanced Scottish autonomy within the union, and came up with a constitutionally conservative report, adding a measure of ‘fiscal accountability’ to the 1998 settlement.

Holyrood’s Scotland Bill Committee – which has decided to look at fiscal autonomy as well as what the Scotland bill actually contains – is the first time since 2007 that these two debates have been publicly joined up. But it’s happening late, in circumstances that mean the outcome of the debate is pretty clear, and with little time for their consideration. It’s a pretty flawed way of putting these options alongside each other.

What we’ve had, instead, is a debate characterised by a high degree of political partisanship and animosity.

On the Today programme this morning SNP Culture minister Fiona Hyslop put the case for increasing the Scottish Parliament powers to 85% of revenue raised in Scotland, including the right to vary business taxes. Presenter Evan Davis put it to her :

Smaller jurisdictions like Ireland undercut other countries and take a disproportionate share of global investment. It would be stupid for the UK government to encourage tax competition within the UK at the expense of the population as a whole, wouldn’t it ?

Ms Hyslop replied :

“I leave it to you to explain to UK ministers why they’re stupid, as they are have having this conversation with the Northern Irish at this moment in relation to corporation tax.”

Scottish Secretary Michael Moore said the Bill allowed for a further expansion of Scottish taxation powers but the government wished to maintain the tax integrity and single market of the UK.

More later, on reaction to the Bill and the debate.

, , , ,

  • Good piece, Mr Walker: deserves more consideration.

    First thought: this is an issue which goes a long way back. One starting point might be Margaret Thatcher’s pledge (1974) to end domestic rates. Another might be the disaster that was the Poll Tax (in large part, the attempt to redeem Thatcher’s pledge). Then Heseltine “solved” the problem at a stroke by creating the “community charge” and humping the rest onto doubled VAT. Also in there was the nationalization of the business rate.

    The result of all that was to shift the burden of local funding from the local authority to the national Exchequer. Overnight the ratio of tax shifted from 55:45 to 80:20. In other words, to generate a 10% increase in income, the local authority had to up the community charges four-fold.

    By not giving the devolved assemblies rights of pre-emption, the Westminster parliament continued, even magnified this effect.

    Moreover, somewhere in all that is the failure to recognise the glaring fact that property is like the gravy Hattie Jacques put in front of Tony Hancock: it doesn’t move around a lot. So it won’t cost so much to to tax. [NI Water, please copy.]

    Now look, Mr Walker, I’m just back from Jacobi’s Lear (directed by Michael Grandage) at the Donmar: I’m not back on Planet Earth yet. Give me time and space to muse further on your apparaisal. And, by the way, the production is in Belfast in March. Book early or regret it for life.