Holyrood wins power to go £2.7 bn into debt

Published on Tuesday 30 November 2010 22:13

THE most radical transfer of financial powers to Scotland for more than 300 years is under way, with new legislation that will hand Holyrood £2.7 billion of new borrowing powers.

• First Minister Alex Salmond claimed the Bill did not go far enough for his liking Picture: PA

The UK government's plans to give Holyrood borrowing powers for the first time were published in the Scotland Bill, which also includes a raft of new financial instruments capable of raising about 12bn.

The legislation includes a new Scottish income tax that will force the parliament to raise about a third of the 30bn it spends each year.

Published on St Andrew's Day, the bill will give the parliament borrowing powers, with 2.2bn earmarked for construction projects such as the new Forth Bridge.

The remaining 500 million in borrowing powers is for smoothing discrepancies that may emerge when the new income tax is implemented.

On a day full of symbolism, Scottish Secretary Michael Moore launched the document at the first home of the parliament on the Mound, saying the bill represented the "a new chapter" of devolution.

He hailed the constitutional change as the "largest transfer of fiscal powers" since the 1707 Act of Union, adding that it was a "radical but responsible step".

Mr Moore added: "The level of taxation will be Scotland's to decide and those who set the rates will answer directly to those affected by them. Power will rest with the Scottish people."

More: Scotland's fiscal powers

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The proposals outlined in the Scotland Bill were largely based on the recommendations of the Calman Commission, the body set up by the pro-Union parties at Holyrood in 2007 to look at the constitution.

The commission, under the chairmanship of Sir Kenneth Calman, had recommended that Holyrood should have borrowing powers – an economic lever available to Scottish local authorities but not to the parliament.

But yesterday's bill outlined the extent of the borrowing powers for the first time. Scottish ministers will have the power to borrow up to 500m from the National Loans Fund to make up differences arising from their new income tax powers. Ministers would be required to repay the loan within four years.

When it comes to funding construction projects, Holyrood ministers would be allowed to borrow up to 10 per cent of the Scottish capital budget in any year, which equates to around 230m in 2014-15.

The overall stock of capital borrowing from the NLF should not be above 2.2bn. In most cases, the NLF will fund a loan for construction projects for a maximum of ten years. However, up to 25 years could be negotiated in the case of specific projects, such as the Forth replacement crossing.

At Westminster, Chief Secretary to the Treasury Danny Alexander identified the new 2bn Forth bridge as a project that would be funded by the new powers.

He said the powers would "particularly help the Scottish Government to gather the resources it needs for the Forth replacement crossing which is obviously a major capital project that the Scottish Government and whole Scottish Parliament has set a high priority to."

Mr Moore said it would cost the taxpayer 45m to implement the changes detailed in the bill, which are expected to come into force by 2015.

Under the new arrangements, Holyrood ministers would have the power to set a Scottish rate of income tax. This would supersede the so-called Tartan Tax, which has never been levied.

From April 2016, Holyrood will set a Scottish income tax rate each year, applying equally to the basic, higher and additional rates. This would be accompanied by a reduction of some 35 per cent in the Scottish budget Treasury grant, currently worth about 30bn a year.

At the same time, the main UK rates of income tax will be reduced by 10p for those defined as Scottish taxpayers – those domiciled in Scotland.

Scottish ministers would then have the freedom to set a rate that was either below or above the rest of the UK. The bill suggest the new tax represents a "significant funding stream" with a 1p increase in the rate currently yielding 450m – the equivalent of 1.7 per cent of the current Scottish budget.

No cap has been imposed on the upper end of the tax rate, although ministers will have to judge what sort of tax changes are politically acceptable.

To help administer the tax, there will be a seat for a Scottish minister on a UK Scottish tax committee.

However, SNP First Minister Alex Salmond claimed the Scotland Bill was "far too limited". He said 14 meetings had been held with Treasury officials in an effort to "improve and enhance" the Calman proposals.

"This bill was a great opportunity which the UK government has missed," Mr Salmond said.

"Unfortunately, people will be disappointed by a lacklustre Westminster bill that tinkers around the edges, retains the key powers in London, and leaves big questions unanswered."

Mr Moore had to run the gauntlet of about 60 students protesting against tuition fees when he arrived at the Church of Scotland's General Assembly building to launch the bill.

The legislation also seeks to transfer power over air weapons, the drink-drive limit and the speed limit – although not individual limits for different types of vehicle.

New powers over stamp duty and landfill tax will also be handed to Scotland –which will also have some powers to create its own taxes.

These have yet to be specified, but Mr Moore suggested a "plastic bag tax".

In future, the executive body will officially be known as the Scottish Government – a term the SNP began using when it won election in 2007.

Scotland will be able to run Holyrood elections, a power presently reserved to Westminster. A post of Scottish Crown Commissioner will be created.

The leaders of the pro-Union parties, Labour's Iain Gray, the Scottish Conservative Annabel Goldie and Tavish Scott of the Liberal Democrats, issued a joint statement.

"We welcome this bill from the UK government," it said. "We have an opportunity to work together for the good of Scotland. We're prepared to make that happen. The SNP now needs to put Scotland first and join with us.

"It is not too late for them to work with us in a way that is consistent with the will of the Scottish Parliament and with the grain of Scottish opinion. But we will ensure that whether they do or not these proposals will now be properly considered and voted on in the Scottish Parliament."

The bill was also welcomed by business leaders. CBI Scotland director Iain McMillan said: "The Scotland Bill will significantly increase the powers of the devolved parliament, which already has substantial influence over Scotland's economy through its control of areas such as education, skills, infrastructure investment, economic development, planning and local taxes.

"We are also pleased that the principal business taxes that affect our members, such as corporation tax, together with matters such as employment law, health and safety and company law, will remain with Westminster and continue to be applied uniformly across the UK.

"We also welcome the return to Westminster of corporate insolvency as a reserved matter.

"This will maintain the UK single market and level playing field that is so prized by businesses."