In the wake of the independence referendum, the debate has moved quickly to devolving further tax (and other) powers to Scotland.
Whilst the outcome may or may not be tied to addressing the decentralisation of powers to regions in England and Northern Ireland – Wales is in separate discussions – what might Scots expect to happen next?
Legislation is already in place to deliver devolved income tax powers to Scotland from 2016, under the Scotland Act 2012. The Scottish Parliament has the power to vary, from 2016, the key income tax rates; reducing the 20, 40 and 45 per cent bands by up to 10p in the pound and, interestingly, with no upper limit on any increase. This would not apply to savings income and HMRC would continue to administer the tax.
The default position is that this devolution of income tax powers will still happen, although it will be up to the Scottish Parliament to decide whether it wished to stick with the UK rates or how to apply them.
Critics of the 2012 provisions say they do not allow for the imposition of a new tax rate, say reinstating the 50p top rate, and that decisions on other tax matters, such as the level of personal allowances, are still reserved to Westminster. Whilst Holyrood’s policy post-referendum is still to emerge, it might be expected that the other major political parties’ proposals published in the spring give clear indications of future plans.
The Strathclyde Commission, for the Conservatives, recommended revising the Scotland Act 2012 to allow the Scottish Parliament freedom to set rates and bands as it wished, but with the other scope of control and administrative provisions unchanged. Scottish Labour also proposed building on the existing legislation, but extending the rate variability of 10 to 15 per cent, and granting the powers to introduce a new, higher rate (such as the 50p rate) if it wished. The Scottish Liberal Democrats proposed a process of greater federalism and devolution of tax powers, whilst not being specific as to income tax rates and bands.
Some key stumbling blocks to full income tax devolution still have to be overcome. The integration of the tax and the benefits system, through Universal Credit, gives unwelcome complexities if benefits are not to be devolved too. Progress now needs engagement with politicians and voters, and recognition of the practicalities and tax management options with an open mind.
And Scots taxpayers? With a majority having decided against independence, the next step on the devolution path is that they will have the opportunity to pay additional income taxes to fund additional spending choices, if that’s what they choose to do. To predict change in 2016 would be rash, but a guess would be that structural changes to rates and bands will be implemented, and rates start to change about 2018 at the earliest. Even if the direction of travel is clearer, there’s still a long way to go.
• Elspeth Orcharton is director of tax at the Institute of Chartered Accountants of Scotland (Icas)