THE UK government has set out the new powers being handed to Holyrood to fulfil the ‘Vow’ of greater devolution if Scotland voted No to independence. Scott Macnab examines the main points
AIR PASSENGER DUTY
The tax on air passengers leaving Scottish airports will also be transferred to Holyrood. SNP ministers have already made it clear they want to reduce this in order to attract more routes to Scotland and boost the country’s tourism industry.
The Scottish Government would also be free to make its own arrangements with regard to the design and collection of any replacement tax if this is axed, including consideration of the environmental impact. Clause 14 of the draft legislation published yesterday says the Scottish Parliament will be given the power to tax air passengers departing from Scottish airports. It adds: “The clause includes provision for appointing the day when APD will be switched off in relation to Scotland.”
The Crown Estate’s economic assets in Scotland, and the revenue generated from these assets, will be transferred to the Scottish Parliament.
This will include the Crown Estate’s seabed, urban assets, rural estates, mineral and fishing rights and its Scottish foreshore.
“The transfer of responsibility for the management of the Scottish assets will include control of any revenues arising from those assets as well as responsibility for managing all liabilities relating to those assets,” the document states.
As Scotland is handed sweeping new powers over taxation and public spending, including elements of the welfare system. This will be accompanied by an updated fiscal framework for Scotland.
The Barnett formula, which determines Scotland’s annual budget from Westminster, will continue, but be cut back to account for extra revenues that Scotland will get from taxation. The Scottish Government and UK government budgets should be unchanged as a result of the decision to devolve further powers to the Scottish Parliament. So if a future Scottish Government decides it wants to put up income tax, it should be able to gain the benefit of that extra revenue and not have its budget cut by London to compensate for any perceived extra funding.
The Scottish Parliament will have full powers over elections to the Scottish Parliament and local government elections in Scotland. The parties on the commission have called on the UK parliament to devolve the relevant powers in sufficient time to allow the Scottish Parliament to extend the franchise to 16 and 17-year-olds for the 2016 elections, should the Scottish Parliament wish to do so. This power is being fast-tracked so that this younger group can be in place in time for the election in May next year. However, they still won’t be able to vote in the forthcoming Westminster
Holyrood will also get additional borrowing powers to ensure budgetary stability and provide safeguards to smooth Scottish public spending in the event of economic shocks. Consideration will also be given to handing the Scottish Government extra capital borrowing powers.
The amount will be decided on the basis of “specific risk”, the document yesterday states and this has yet to be calculated.
But it adds: “A clear plan will be needed to repay the debt incurred in order to ensure a sustainable fiscal position. This could be in the same year in the case of small and one-off shocks, or over a longer period for deeper recessions.”
Any deal will be subject to discussion between governments.
The receipts raised in Scotland by the first 10 percentage points of the standard rate of VAT will be assigned to the Scottish Government’s budget. These receipts will be calculated on a verified basis, to be agreed between the UK and Scottish governments, with a corresponding adjustment to the block grant received from the UK government.
The UK government proposes to go further and also assign the first 2.5 percentage points of the revenue attributable to Scotland from the 5 per cent reduced rate. VAT rates will continue to be set at a UK-wide level.
HMRC may disclose information as part of the process of deciding what may be proposed as the basis for the calculation in any agreement and as part of the process of seeking to reach agreement or in operating the agreement.
SCOTSMAN TABLET AND MOBILE APPS
The Scottish Parliament will be given the power to set the rates of income tax and the bands at which these are paid. There will be no restrictions on the thresholds or rates the Scottish Parliament can set.
All other aspects of income tax will remain reserved to the UK parliament, including the imposition of the annual charge to income tax, the personal allowance, the taxation of savings and dividend income, the ability to introduce and amend tax reliefs and the definition of income.
The Scottish Government will also be responsible for non-savings and non-dividend income, with a corresponding adjustment in the block grant it receives from the UK government. It will continue to be collected and administered by HMRC.
The changes are unlikely to be introduced for three or four years, but the Scottish Parliament is already in line to get sweeping new tax powers next year. Income tax will effectively be cut by 10p, with MSPs responsible for raising it back to the required level in line with need. This will include income from “employment, profits from self-employment, pensions, taxable social security benefits and income from property”.
An individual is a Scottish taxpayer if they are a UK resident for tax purposes and their main place of residence is in Scotland for the majority of the year.
The most contentious area of the latest devolution settlement. The Smith agreement did state that the Scottish government should be given a number of powers over Universal Credit payments, including varying the under-occupancy charge – the so-called ‘bedroom tax’. But Nicola Sturgeon went on the warpath yesterday, insisting the welfare proposals don’t allow Scottish ministers to vary Universal Credit without the permission of the UK government. That means Scottish ministers would not have the independence to take action to abolish the bedroom tax.
The document published yesterday states that Universal Credit will “remain reserved, and be delivered by DWP [Department for Work and Pensions] across Great Britain” and the Scottish Secretary will have to be “consulted” about any variations.
But it adds: “Scottish ministers will be able to decide whether to apply any under-occupancy reductions, or to choose to set them at different levels.”
Other newly devolved benefits include Attendance Allowance, Carer’s Allowance, Disability Living Allowance (DLA), Personal Independence Payment (PIP), along with social fund welfare such as Cold Weather Payment and Funeral Payment.
The UK government will continue to lead on the global stage on behalf of Scotland through its membership of international bodies such as the EU, G8 and UN. Its global network of embassies will also provide support for Scots in trouble abroad. This area was never likely to be transferred under any new devolved set-up short of independence.
The UK’s armed forces will continue to provide Scotland’s military defence capability, including Trident. This, along with membership of the Nato defence alliance and the permanent seat on the UN security council, means the UK is still regarded as a major military power on the global stage. Defence was never likely to be devolved.
All aspects of National Insurance contributions, inheritance tax and capital gains tax, fuel duty and excise duties will remain reserved, as will all aspects of the taxation of oil and gas receipts. Corporation tax will also remain reserved, despite the SNP demanding control.
The commission has called on the UK and Scottish governments to work together to avoid double taxation and make administration as simple as possible for taxpayers.
Universal Credit will remain a reserved benefit administered and delivered by the Department for Work and Pensions, despite the Scottish Parliament having some controls over areas such as frequency of payments.
Other benefits remaining at Westminster include bereavement allowance, bereavement payment, child benefit, guardian’s allowance, maternity allowance, statutory maternity pay, statutory sick pay and widowed parent’s allowance.
All aspects of the state pension will remain shared across the United Kingdom and reserved to the UK parliament.