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Scottish Labour Party Rift Over Tax Devolution Commitment

By Amanda Banks, Tax-News.com, London

07 February 2014


Two Labour members of the Scottish Parliament have warned their party against supporting full tax devolution in Scotland, with one arguing that a move to full income tax devolution would reduce the tax base and lead to Scottish independence "by default."

Ken Macintosh MSP explained his views in a submission to the Scottish Labour Devolution Commission, which was set up by party leader Johann Lamont to examine the existing devolution settlement. Lamont said at the time that Scottish Labour wanted "to meet the aspirations of the Scottish people for fuller devolution, while maintaining the integrity of the UK."

The Commission has identified income tax as "the best candidate for further devolution," and said it is "minded" to support its full devolution. The Commission argues that this would enhance accountability and responsibility, and allow a more progressive tax system.

A Land and Buildings Transaction Tax and a proposed Scottish Landfill Tax will be devolved to the Scottish Government from April 2015, to be followed by the partial devolution of income tax from April 2016. The current UK Government says that partial devolution of the tax will minimize costs and complexity, and that a consistent income tax structure across the UK relating to tax thresholds and the personal allowance will mean that businesses will not have to run separate payroll systems and that extra collection costs will be limited.

Macintosh's submission contends that a fully devolved income tax would be less redistributive and less progressive, due the fact that just 8 percent of all UK higher rate taxpayers live in Scotland. He further suggested that going too far with devolution "risks fragmenting the system and breaking down that shared sense of our common future."

Meanwhile, Labour MSP Ian Davidson has said that full tax devolution would mean the end of the Barnett formula, which gives Scotland a larger share of UK Government spending, and that this would "undoubtedly be to Scotland's detriment."

The Commission's recommendations will be presented at Scottish Labour's party conference in March.

The Scottish National Party recently complained that although it currently supports a top income tax rate of GBP0.50, it would not be able to implement such a rise under partial devolution without also raising the rate in lower tax brackets too. This "lockstep" rule also applies to income tax devolution in Wales, prompting an advisor to the Welsh Finance Minister to complain recently that the restriction makes the tax-setting power "unusable" in Wales.

TAGS: tax | economics | United Kingdom | tax reform | individual income tax

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