Leader: New powers over income tax do not go far enough

Today the Scottish Secretary, Michael Moore, will unveil a Westminster parliamentary bill designed to give Scotland significant new tax-varying powers as proposed by the cross-party Calman Commission.

It will be the biggest change in Holyrood's powers since the onset of devolution. Its proponents believe it strikes a fair balance between those wishing to maintain the advantages of the Union while granting the Scottish parliament greater control over the raising of the revenues that make up the Scottish budget.

Specifically, Calman proposed that the UK government should reduce income tax rates in Scotland by 10p on the basic and higher rates and reduce the block grant by a corresponding amount. Holyrood would then be free to decide whether to restore the 10p cut or set a Scottish rate that is higher or lower than the rate in the rest of the UK.

In The Scotsman yesterday a group of prominent business and academic figures argued that the limited recommendations of the Calman Report do not provide genuine fiscal responsibility, and urged that most current taxes should be devolved to the Scottish parliament. This would make Holyrood politicians more accountable for the financial decisions that they take while giving them the tools that could make a major difference to public services and economic growth.

We broadly agree with these arguments. The limitations placed on the Scottish parliament effectively prevent it from taking account of the state of the economy in Scotland. In particular, they deny the necessary discretion to operate a tax policy that would enable the economy to break free from a long era of underperformance.

The parliament needs broader powers, not only to make Scotland a more attractive location for inward investment, but also to encourage our own people to set up in business and for existing businesses to expand.

In a powerful speech last week to the Scottish Council for Development and Industry, Rudy Giuliani, the former mayor of New York, set out how a programme of spending and tax cuts, allied with a clean-up of the city, helped to achieve a remarkable turnaround. It is a transformation on this scale that Scotland now needs to effect if it is to have any prospect of break-out. It is all the more vital given the highly competitive global markets for capital, knowledge and entrepreneurial talent.

Quite the worst outcome would be for Scotland to keep tax rates as they are, or indeed raise them, to featherbed poorly performing and unreformed public services. Calman, while a step in the right direction, does not give the parliament the real fiscal powers to lift Scotland's economy and put an epochal transformation into effect. And it is epochal change that our country now desperately needs.

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