Holyrood and Westminster at war over oil and taxes

Alistair Darling, the Chancellor and Gordon Brown's closest political ally, was one; Alex Salmond, the First Minister and leader of Scotland's first Nationalist administration, was the other.

Mr Darling was first into the fray, using an interview with The Scotsman to launch his most sustained, detailed attack to date on the SNP's flagship policy of local income tax.

He didn't stop there. He also dismissed the SNP's call for oil tax revenues to be distributed to Scotland and for a "fuel tax regulator" to limit the rising price of fuel.

Within half an hour, Mr Salmond was on his feet at Holyrood, telling of the "fury" in Scotland over the UK government's refusal to use its oil-tax windfall to help families and companies cope with crippling fuel prices.

"A massive national outrage" was how he described Scotland's position as one of the world's top oil producers but with nothing to show from the massive extra revenues being generated as a result of rising prices.

Yesterday's clash showed how central the arguments over oil have become to the future, both of the government in Westminster and of the Union itself.

Faced with fuel protests in London, anger over rising domestic fuel prices and an economy under severe strain, the Chancellor knows the Labour government's hold is precarious.

The First Minister knows that, too, but he also suffers from the frustration of watching billions in extra revenue, which he believes should flow straight into Scottish coffers, propping up his political opponents in London.

Mr Salmond has had a fairly easy first year as First Minister – but a tough past week. For the first time, he has appeared on the defensive as experts and political opponents have undermined flagship policies on local income tax, the Scottish Futures Trust and his pledge to cut early-years class sizes.

It was in that context that yesterday's war of words took place.

The Chancellor was adamant: the SNP's "sums do not add up" and local income tax would be a "massive mistake". He went on to claim that, despite its claims to be waiting for answers from the Treasury, the Scottish Government was "refusing to talk" to the UK government.

Mr Salmond was equally clear about what he regarded as a betrayal by the UK government of Scotland's interests.

"I believe that we must, as a parliament and as a country, make a claim on the huge additional resources flowing into the United Kingdom Treasury as a result of sky-high fuel prices. That must be done, because that is where the financial flexibility is available to meet the pressures," he said.

Until now, the Scottish Government has isolated a number of issues, such as firearms legislation and control over fishing negotiations, as issues of contention.

Yesterday's decision to challenge the UK government so directly over oil showed that Mr Salmond is now prepared to put this issue right at the heart of his fight with ministers in London.

For the Chancellor, his intervention on the SNP's tax plans represents a clear signal of the determination of the UK Labour Party to take on the Nationalists on their own ground.

>BULLETS

'Daft tax that will damage Scots on world stage'

ALISTAIR Darling yesterday warned the SNP's plans for a local income tax (LIT) would be "a disaster" for Scotland's vital financial services industry.

The Chancellor argued that the Nationalists' tax plans would act as a deterrent for Scottish firms trying to attract high-flying business executives north of the Border.

Mr Darling also maintained that Alex Salmond's government had not approached the Treasury to seek to use Her Majesty's Revenue and Customs (HMRC) to introduce the tax.

Last night, Mr Salmond would only say that his administration was "in the process" of discussing the move with the Treasury.

The Chancellor's broadside – ahead of a meeting with leaders of Scotland banks, insurance houses and investment businesses today – signals an intensification of Labour's anti-SNP rhetoric.

Mr Darling, who has been under attack over everything from possible fuel duty hikes to threats by firms to leave the UK due to higher taxation, attempted to throw the focus back on the Scottish Government.

He said: "Local income tax would be a disaster for the financial services industry.

"If we are going to attract the best to come to and remain in Scotland, to tell them that you are going to be paying more income tax would be the completely wrong thing to do."

The Chancellor added: "I meet the Scottish industry a lot and it's the first thing they mention. They are concerned by this proposal.

"In terms of the analysts, the experts, the people who make this industry work, if you start losing these people who say, 'I think I'll go and work in London or another part of the world', that would be hugely damaging. That is why the industry is so exercised about it."

Executives in banks and insurance companies have remained silent in public on the issue, but Mr Darling's remarks are sure to strike a chord with them. Senior figures in the financial services industry – which accounts for around 7 per cent of Scotland's GDP and employs 86,000 people – have grave reservations over LIT.

Mr Darling refused to be drawn on reports that the Treasury believes the Scottish Parliament does not have the power to introduce LIT. He said: "There are lots of arguments as to whether it is legal or not. Our criticism is that I don't think it's workable. Scotland would lose out if we had a higher rate of income tax."

He added: "At a time around the world when, frankly, all governments are under pressure to reduce headline rates of tax, to be travelling in the wrong direction here is just daft.

"It is not just a UK argument, this is argument people all over the world will be looking at it. I think Alex Salmond and his colleagues should just put their hands up and say, 'Yes, we made a mistake, let's just abandon this', because it would be completely damaging."

Mr Darling also claimed that the SNP was not talking to the Treasury, which controls HMRC, over the issue.

He said: "To be blunt about it, the Nationalists are refusing to talk to us about it. If they thought this (policy] was a goer, you would have thought they would open up with us and say, 'Can we use the HMRC computer systems' but they have not done it."

Yesterday, the First Minister refused to go into detail on contacts between the Scottish Government and Whitehall.

Asked specifically about the issue, he told The Scotsman: "We are always raising issues and sometimes we get an answer, sometimes we don't. We are happy to discuss it. We are in the process at the present moment. We have a set of proposals."

Mr Salmond maintained: "We wouldn't introduce a taxation that would deal a blow to the competitive base of any industries in Scotland."

'Outrage' of soaring fuel prices in oil-rich Scotland

THE impact of rising fuel prices was yesterday branded a "massive national outrage" by Alex Salmond, who called on Alistair Darling, the Chancellor, to use some of his oil tax windfall to cushion the blow of high fuel prices in Scotland.

The First Minister said Scotland had been left in an "extraordinary position" with soaring prices at the pumps while every other oil producer in the world was benefiting from increasing revenues.

Mr Salmond told MSPs that the UK Treasury was expected to reap an additional 4 billion in North Sea revenues – on top of the 10 billion predicted from initial forecasts.

"There seems to be plenty of room for manoeuvre in order to implement some of the policies to reduce the impact of sky-high fuel prices on the people and industry of Scotland," Mr Salmond said during First Minister's Questions.

The SNP has been basing its demand for Scottish independence on oil for the last 30 years, but recent price hikes, which put oil at $130 a barrel yesterday, have given the Nationalists added impetus.

The price of oil has increased the amount of money going to the UK Treasury in tax – revenue which Mr Salmond believes should be coming to Scotland.

The subject of oil was raised in the Scottish Parliament by SNP MSP Jamie Hepburn, who claimed it was a "bittersweet irony" that Scots were missing out on increasing oil and gas revenues in the North Sea. Mr Salmond replied: "I think the mood actually is becoming one of fury in Scotland.

"That we alone among the oil producers of the world, producing ten times – ten times – our consumption of hydrocarbons at the moment, should be faced with an extraordinary position that while every oil producer, through sovereign funds and the build-up of huge sums of capital, has the resources available to power their economy into the future, what's left for the people of Scotland is paying sky-high prices at the pumps and the industries of Scotland facing escalating costs.

"A bittersweet irony? A massive national outrage – and it's time we did something about it."

Mr Salmond added: "I believe that we must, as a parliament and as a country, make a claim on the huge additional resources flowing into the United Kingdom Treasury as a result of sky-high fuel prices."

The SNP's plan for the first 100 days in government included a commitment to put in a formal demand for a share of oil revenues to come to Scotland. That was done in a low-key and largely symbolic fashion last summer and since then John Swinney, the finance secretary, has written to Mr Darling asking for oil and gas revenues to be transferred. He has yet to receive a reply.

This, though, is the first time Mr Salmond has used the public platform of First Minister's Questions to launch such a co-ordinated and acrimonious attack on the UK government over the issue.

The SNP wants Downing Street to introduce a fuel duty regulator which would use the increasing revenues from VAT to reduce the duty itself, helping the consumer.

This has secured limited support from a small number of Labour MPs, but not from the UK government.

Mr Salmond has often used Norway as an example, principally because the Norwegian government set up an oil fund ten years ago, saving oil revenues. The fund is now worth 170 billion.

But the Norwegians also pay the most in Europe for petrol, at 1.21 a litre, just ahead of the Dutch, who pay about 1.20. The average price in Britain is about 1.14 a litre.

However, yesterday's assault showed Mr Salmond is prepared to pick a fight with Gordon Brown and Mr Darling on an issue which is not only reserved to Westminster, but is central both to the UK economy and the case for Scottish independence.

No place for Brigadoon or Braveheart in the global economy

Scotland's financial sector must roll with the punches, reports Martyn McLaughlin

IF GOOD old Scottish prudence is to prove the buoy which keeps afloat the nation's financial services industry at a time when the tide of the global economy is turning, there can be no better example than Andy Hornby's last-minute decision to rename the title of his address to the country's key financial movers and shakers.

Having taken stock of the current economic climate, the 40-year-old chief executive of HBOS took his speech, initially branded "A Global Success Story," and amended it to "Delivering in a Tough World".

"We are," Mr Hornby confirmed to no-one's surprise at the inaugural Global Financial Services Conference (GFSC) yesterday, "in tough times."

Having started out as a squeeze before turning into a slump, the subprime mortgage troubles have, ten months on, accelerated into a full-blown international crisis. The blame may lie largely with US institutions, but Scotland's 300-year-old financial services sector is not immune from the fallout.

It is a frustrating situation, but one which Mr Hornby and his competitors yesterday sought to overcome. Held at the Edinburgh International Conference Centre, the GFSC gathered a spectrum of economists, senior officials, and academics to navigate a safe course through choppy waters.

Mr Hornby was optimistic, a feeling echoed by his colleagues in the industry. "We have to wait until well into 2009 for the return to what we might call a sense of normality," he said.

Caledonia, it transpired, had much to be proud of, traits which could help the sector roll with the punches.

"Scotland is a very successful brand, but it needs careful management and branding," said David Nicol, chief administrative officer of Morgan Stanley.

Dr Ken Lyall, chair of Walter Scott & Partners Limited offered a more offbeat take. "The Brigadoon and Braveheart image served to differentiate us in the 1980s. We exploited it ruthlessly," he said. "But as we developed, that kind of idea was marginalised. We're now operating in a global world."

Petrol 41p a litre without taxes

BRITAIN would have the second cheapest petrol and diesel in the European Union if government duty and VAT were removed, figures revealed yesterday.

Without the taxes, petrol would be 41.2p a litre and diesel 48.8p a litre.

Petrol costs around 1.14 a litre at the pumps and diesel 1.26 – provoking hauliers to demand a 25p per litre cut.

A 62 per cent tax share on unleaded was the third-highest out of all EU member states, the quarterly Energy Trends and Prices statistics produced by the Department for Business, Enterprise and Regulatory Reform revealed.

Philip Hammond, the Tory shadow Treasury minister, said: "Gordon Brown's claim that world oil prices are to blame for the soaring cost of motoring has been exposed as a sham."

He also attacked controversial plans to restructure vehicle excise duty, which could see drivers of less efficient older cars facing a big tax hike next year.

A Treasury spokesman insisted that the UK was generally a low-tax economy compared with other EU states.

BA prices begin to take off

BRITISH Airways is to hike the price of tickets as a result of the oil crisis – with holidaymakers and business passengers flying long-haul hardest hit.

The airline will increase its fuel surcharge by 60 from Tuesday on return flights lasting more than nine hours. Short-haul return flights will go up 6 while long-haul trips lasting under nine hours will increase by 30.

The move means passengers will pay from 32 to 218 in fuel duties on a BA return ticket.

BA said it would also increase its fuel surcharges by similar levels in markets outside the UK.

On Wednesday Sir Richard Branson's airline Virgin Atlantic announced fuel surcharge rises, although the carrier said that those sitting at the front of the aircraft would face higher charges than those in economy-class seats at the back.

In recent weeks airlines have announced cutbacks in services because of the sky-high oil prices while some carriers, including some operating between the UK and the United States, have gone out of business.

225m plan for elderly

FURTHER details on how 225 million of funds being provided by energy companies will be used to help pensioners living in fuel poverty are due to be announced at Westminster today.

The government is to provide the firms with personal details of people claiming pension credits so they can receive fuel rebates and energy-saving grants to keep their homes warmer.

The move comes as Stephen Ladyman, a former Labour transport minister, called on Gordon Brown, the Prime Minister, to "strike a new deal with the motoring public" and cut the tax on fuel when prices at the pumps are being driven up by global oil prices.

Mr Ladyman said a system akin to the "fuel duty regulator" proposed by the SNP should be introduced. This would return any increased VAT revenue received by the government from higher fuel prices into a cut in the fuel duty paid at the pumps – currently 50.3p a litre.

He said motorists were more likely to ditch Labour than give up their cars.