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Scottish Government Publishes Independence Blueprint

by Robert Lee, Tax-News.com, London

29 November 2013


Independence would enable Scotland to design a more competitive and efficient tax system, its Government has claimed.

A new white paper published by the Scottish Government outlines the tax measures it would prioritize during the first session of an independent parliament.

The present Scottish Parliament is responsible for 7 percent of taxes raised. This figure will increase to around 15 percent when additional powers are devolved under the Scotland Act. Parliament will be able to vary some income tax rates, be responsible for Land and Buildings Transaction Tax, the Scottish Landfill Tax, and the Council Tax and Business Rates.

In contrast, an independent Scottish Parliament would have full control over taxation. The white paper argues that the existing UK-wide tax system is "complex and inefficient," and therefore creates "opportunities for tax avoidance." An independent Scottish Government would be able to design "a simpler tax system based on a clear set of principles with fewer reliefs and exemptions." This would, in turn, enable Scotland to "reduce the scope for individuals and corporations to exploit opportunities to avoid paying their fair share of taxes and so generate additional revenues without increasing tax rates."

If returned to power, a Scottish National Party (SNP) Government would not increase tax rates to pay for existing services. Instead, it would conduct a significant review of the tax system at an early stage.

The Government has, however, pre-announced that upon independence it would set a timetable for reducing the corporation tax rate. The rate would fall by a maximum of 3 percent against the prevailing UK-wide rate. According to the white paper, the Government's intention in releasing this information now is "to stimulate economic activity in advance of it taking place and to retain and attract new investment." It estimates that a lower rate would increase output by 1.4 percent, boost overall employment by 1.1 percent and raise investment by 1.9 percent after 20 years.

The Government also intends to develop a system that will minimize opportunities for tax avoidance. It will task the new Revenue Scotland with cutting compliance costs for small and medium sized businesses, and has set a target revenue gain of GBP250m (USD404.25m) a year, by the end of parliament's first term. Revenue Scotland will operate on a transitional basis, during which the functions currently carried out by HM Revenue and Customs (HMRC) will be continued in Scotland and the rest of the UK, on a shared basis.

The tax system would be established on four design principles; simplicity, neutrality, stability, and flexibility. It would be "built around Scottish circumstances and preferences to help increase productivity and economic growth while meeting the needs of the people," and welfare and tax policies would be developed in tandem, to ensure policy integration and alignment. "Appropriate" tax rates would be agreed upon, and the Government would consult with a range of groups when designing and reviewing the effectiveness of tax administrative policy.

The white paper also contains the following commitments:

  • To cut Air Passenger Duty by 50 percent in the first term, and to abolish the levy when public finances allow.
  • To examine how to "best develop and target" research and development tax relief "to encourage Scotland's innovative industries."
  • To increase the personal tax allowance, benefits, and tax credits in line with inflation.
  • To scrap the Westminster Government's proposals for tax allowances for some married couples.
  • To consider the case for an increase in the National Insurance employment allowance for small businesses.
  • To change the way "green levies" are paid for.
  • To halt the Westminster Government's rollout of the controversial Universal Credit, and to abolish the so-called "bedroom tax."

Scottish First Minister Alex Salmond said of the white paper: "This is the most comprehensive blueprint for an independent country ever published, not just for Scotland but for any prospective independent nation. But more than that, it is a mission statement and a prospectus for the kind of country we should be and which this Government believes we can be.

"Our vision is of an independent Scotland regaining its place as an equal member of the family of nations – however, we do not seek independence as an end in itself, but rather as a means to changing Scotland for the better."

The UK Government's Scottish Secretary, Alistair Carmichael, predictably criticised the document. He warned that an independent tax system would cost GBP600m a year to administer, and alleged that "the Scottish Government will continue to keep these things private. If they had convincing answers then today really would have been the day to share them with everyone."

A referendum on Scotland's future within the UK will be held on September 18, 2014.

TAGS: individuals | compliance | tax | investment | small business | business | tax compliance | tax avoidance | tax incentives | revenue guidance | corporation tax | United Kingdom | tax credits | tax authority | tax planning | tax rates | HM Revenue and Customs (HMRC) | tax breaks | revenue statistics | tax reform | HM Revenue and Customs (HMRC) | inflation | individual income tax | services | research and development | Tax | Tax Evasion

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