Governments must work together on tax regimes

The Tories made a pre-election pledge of no income tax rises. Picture: Lisa Ferguson

The Tories made a pre-election pledge of no income tax rises. Picture: Lisa Ferguson

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THE Conservative majority government combined with the unprecedented numbers of SNP MPs at Westminster raises a number of scenarios in terms of taxation and the wider economy north of the Border over the next five years.

The SNP leadership has made clear that a second Scottish independence referendum is not currently on the agenda, but the UK government will need to avoid creating a situation that might justify a change to this position.

What we do know is that the Scottish Rate of Income Tax (SRIT) is already on course to be introduced next April. This power to vary income tax will enable the SNP to deliver its manifesto pledge to reintroduce the 50 per cent top rate north of the Border. However, if the Conservatives stick to their election campaign pledge of no income tax rises for five years, will it be politically acceptable for them to do so?

Both the Conservatives and SNP are also likely to continue to focus on closing tax avoidance loopholes across the UK, and both parties are committed to increasing the tax paid by banks, a measure which could have a significant impact in Scotland.

With HSBC set to announce later this year whether it will keep its international headquarters in the UK, governments in London and Edinburgh will need to strike the balance between setting fair levels of tax on banks and encouraging them to continue to grow here as key employers and funders for businesses.

Conservative plans to hold an in-out European Union referendum, and the potential of a UK exit from Europe, would have the most significant implications in terms of National Insurance, VAT and the wider corporate tax system in this parliament, as these are all affected by member state rules.

While the ultimate impact of such a move is not entirely clear, this will create uncertainty over this term of government.

What we can be sure of is that taxpayers and the business community in Scotland will be looking for Westminster and Holyrood to work constructively together to create a level playing field north of the Border so they don’t find themselves at a disadvantage.

• Susie Walker is head of tax at Johnston Carmichael

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