MSPs Call For Debate On Scottish Tax Reform

by Robert Lee, Tax-News.com, London

01 February 2016

The Scottish Parliament's Finance Committee has said that the implementation of new financial powers will necessitate a wide-ranging debate on tax policy.

The Committee has published its report on the Scottish Government's draft 2016-17 Budget. The Committee noted that while scrutiny has focused on spending in previous years, with the introduction of new tax powers for Scotland, it will increasingly focus on tax policy decisions.

The Scotland Act 2012 gave the Scottish Parliament the power to set a Scottish Rate of Income Tax (SRIT) from April 2016.

The Act provided that, in the case of Scotland, the UK Government would deduct GBP0.10 in the pound from the basic (20 percent), higher (40 percent), and additional (45 percent) rates of income tax. The Scottish Parliament would then be able to levy a Scottish rate that would apply equally across these three main bands. Under Scottish Finance Minister John Swinney's draft Budget, the SRIT would be set at ten percent, meaning that there would be no overall change in the level of tax individuals pay.

Kenneth Gibson, Convener of the Finance Committee, said: "A lot of the committee's attention has focussed, rightly, on the Scottish Government's taxation plans for the year ahead. This is the first time we've had to consider a Scottish Rate of Income Tax and, although the proposal is for this to be maintained at its existing level for this year, the additional financial powers expected to be delivered by the Scotland Bill mean that, in the future, taxation will account for 48 percent of devolved expenditure. It's important that people have the opportunity to contribute to a national debate on how these new powers should be used."

The Scotland Bill 2015-16, currently at the committee stage in the UK House of Lords, would implement reforms recommended by the Smith Commission, set up in the wake of the 'No' vote in the September 2014 independence referendum. It proposes that Scottish Parliament be given the power to set rates and bands of income tax from April 2017, and that Scotland retain a greater share of the value-added tax generated within its borders.

Swinney has said that the Scottish Government will demand "a fair deal" from the UK Government on tax and welfare powers and "will not sign up to a deal which will leave Scotland worse off." He added that "a deadline has been set for February 12 for our talks with the [UK] Treasury to be concluded and a deal to be done."

Swinney explained: "Unless we can get a deal that adheres to the principles of the Smith Commission, there will be no agreement and the deadline will be missed. That would leave the Scotland Bill and the new powers that are supposed to be being delivered in a constitutional limbo. We would be into unchartered territory – and the UK Government would be breaking its promise of more powers."

"That is because, for the Scotland Bill and all its tax and welfare provisions to come into effect, it requires Holyrood to pass a so-called legislation consent motion (LCM) – but if there is no deal on the fiscal framework, we will not be able to vote for that motion."

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