CLAIMS that the UK Treasury has started “gaming” to protect its own revenues from devolved Scottish tax competition should be given further consideration, a committee of MSPs has recommended.
Holyrood’s Finance Committee is seeking further evidence on the Smith Commission’s call for devolution to cause “no detriment” to any part of the UK, and how this can work in practice.
A tax expert has warned Holyrood to expect “malicious actions” by the UK Government to erode the Scottish tax base, and “malign neglect” by HM Revenue & Customs in collecting Scottish taxes if the Treasury does not have a financial stake in the Scottish income tax base.
The Treasury said there is no evidence to support the claim, but Deputy First Minister John Swinney said he has already been the victim of “gaming” when his new property tax rates were quickly undercut by the Treasury.
A Finance Committee report on further fiscal devolution states: “The committee notes that there are clear differences between the two governments regarding the clarity of the no detriment principle.
“The committee intends to take further evidence on this issue as part of its forthcoming inquiry on the fiscal framework.”
It added: “The committee notes that there are clear differences between the two governments regarding the question of gaming.
“The committee recommends that the issue of gaming needs further consideration within the context of the no detriment principle.”
The report quotes Professor David Heald, chair in accountancy at the Aberdeen University Business School, who warned Scotland’s new tax powers may be vulnerable to gaming by the UK Government.
He warns the UK Government “will not allow Scotland to erode its own tax base and the Treasury will have retaliatory instruments”.
He also suggests that if “the UK Treasury does not have a financial stake in the Scottish income tax base, I would expect both malicious actions (eroding that base through other tax measures) and malign neglect (inadequate attention being paid to interactions with other tax measures and inadequate enforcement from HMRC in the entirely new situation where determination of Scottish residence matters)”.
The committee has also called for greater transparency and accountability in discussions between the Scottish and UK governments on further fiscal devolution.
Finance Committee convener Kenneth Gibson MSP said: “The lack of clarity on issues such as the calculation of the block grant and the ‘no detriment’ principle must be addressed prior to the implementation of new financial powers for Scotland.
“We are calling for the publication of a clear timetable for the implementation of Scotland’s fiscal framework.
“In particular, we call for the timetable to allow sufficient time for parliamentary scrutiny of a draft framework so that it is clearly understood how decisions are made about the operation of Scotland’s new powers.”
SCOTSMAN TABLET AND MOBILE APPS