THE UK government has potentially opened the door for radical new tax powers for the Scottish Parliament which could lead to MSPs being able to vary income tax bands at different rates.
A technical change in the law governing Scottish income tax has been interpreted by the UK’s leading devolution expert Professor Alan Trench to mean that the way is now open for a future change which will allow Holyrood to vary the bands differently.
Under powers laid down in the 2012 Scotland Act, any change in one income tax rate has to be mirrored in all the other tax rates.
The so-called “lock step” is a major issue in the devolution debate, with critics saying it ties the hands of the Scottish Parliament. But in the Finance (No2) Bill, which was debated yesterday, the UK government inserted two clauses which amends the wording of the Scotland Act which could allow the reform to be made in the event of a No vote in September in the independence referendum.
This has led to speculation that the abolition of the lock step could be part of the Scottish Tories’ plans for more devolution, due to be published next month.
The Finance Bill refers to Scottish “basic, higher and additional” rates, a technical change from the single Scottish rate referred to in the 2012 Scotland Act.
The measure is mirrored in the Wales Bill, going through parliament this week, which will give the same tax raising powers to the Welsh Assembly as the ones due to be handed to Holyrood in 2015.
Prof Trench of University of Ulster, who is working for the Devo-more group in Scotland and has advised the Welsh affairs committee, said the wording was a change to the original Wales Bill published last year and indicated a move towards abolishing the lock step.
He said: “The provisions in the Wales Bill mark a change from the draft bill published before Christmas.
“Instead of providing for a single Welsh rate of income tax across all three bands, the key operational clause now provides for Welsh basic, higher and additional rates and defines each of them separately.
“Clause 289 and schedule 34 of the Finance (No 2) Bill make similar changes to the finance provisions of the Scotland Act 2012.
“Both bills also provide for beefed-up arrangements for reports on devolved tax powers by the comptroller and auditor general, something that was conspicuously missing from the Scotland Bill.”
He went on: “The substantive policy behind the devolved rate of tax remains the same. The lockstep is still in place, and UK government policy backs it strongly.
“But this change creates the basis for abolishing the lock step and having different rates of tax for each band, if that policy decision were taken later, by altering the rule regarding what a ‘Welsh’ or ‘Scottish’ ‘rate resolution’ would be.”
However, a Treasury source said that the intention of the wording was not meant to open the door for new devolution powers. He said: “I think Prof Trench is over reading this.”
A Treasury spokesman said the purpose of the change was to enable for technical changes to be introduced more simply. It would not change the way the Scotland Act works.
He added: “As announced in the Budget, the government will introduce legislation to amend the provisions setting out how the Scottish rate of income tax is structured, to allow for further technical changes to be introduced in a more straightforward manner in secondary legislation.”
The Treasury has been opposed to scrapping the lock step because of the extra administrative cost involved.