New Scots tax powers shelved by coalition

THE coalition government is preparing to table a "slimmed-down" Scotland Bill, which will deny Holyrood major new tax-raising powers, The Scotsman has learned.

Senior government sources have said the bill, to be announced in tomorrow's Queen's Speech, could end up dropping controversial proposals by the Calman Commission.

The commission was set up by Labour to look at new powers for Holyrood and was backed by the Lib Dems and Tories. But it looks like its main recommendation, of giving extra tax powers to Holyrood, is about to be delayed, with only more minor powers, such as gun laws and traffic offences, being devolved from Westminster.

It appears the Tory-Lib Dem coalition is going to leave the tax issue for possible inclusion in a future bill during another parliamentary session. This opens the possibility that the policy could be ditched altogether. That would be a massive U-turn by the Lib Dems, who pushed hard in the commission for the Scottish Parliament to be given far greater responsibilities on taxation.

It could also leave former Scottish party leader and Calman Commission member Jim Wallace in a difficult position. In an interview with The Scotsman today, the new Advocate General has revealed he will take the bill through the House of Lords.

The commission proposed giving Holyrood responsibility over the top 10p of income tax collected in Scotland, allowing MSPs to reduce it by up to that amount or increase it as much as they like.

The proposal drew opposition from the Treasury, but the last Labour government still included the idea in a white paper preparing the way for a bill.

According to sources, it is opposition from the SNP that could prove crucial to the final shape of the bill.

Yesterday, Conservative Scotland Office minister David Mundell confirmed part of the process would be to enter discussions with SNP ministers in the Scottish Government.

A senior Whitehall source told The Scotsman this could lead to the most controversial measures, including tax, being dropped for the time being.

"The intention is still to go ahead with the package as a whole, but we don't want to put anybody under undue pressure; we want to build consensus in this process," he said.

"There are a large number of areas where there is agreement, so it is more than possible we will bring forward a slimmed-down bill with these measures in and come back to the more controversial ones later."

A senior government source said: "The ideal situation is that we open up the Scotland Act once, but if we are to be serious about the respect agenda with the Scottish Government, then we have to listen to what they have to say, especially as they are the ones who will have to implement it. It is a pity that the SNP did not engage in this process three years ago".

A Scotland Bill will be included in the Queen's Speech, but few details are expected to be included. Mr Mundell would not confirm a slimmed down version was being considered, but he said: "As a demonstration of our respect agenda, we intend to engage with the Scottish Government on the Calman process and the proposals on tax-raising powers. We have to acknowledge that this will play an important role in our thinking."

First Minister Alex Salmond yesterday confirmed his government's opposition to the tax-raising powers. He said the issue had been overtaken by events, with a restructuring of the tax system, including the Lib Dem plan to raise the income tax threshold to 10,000.

However, the SNP has always argued the tax-raising proposal was "a mirage" that failed to hand real fiscal powers to Scotland and could result in it losing out financially.

However, others have raised fears that, by abandoning the idea of the Calman Commission proposals as a single package, the coalition risks seeing other recommendations dropped.

Some Labour MPs have made it clear they want a rethink on speed limits and drink driving legislation being devolved, arguing there was no evidence to back up the recommendation.

It is known that the SNP and some Lib Dems oppose recommendations to hand back powers to Westminster on corporate insolvency, charity law and the registration of NHS workers.

Meanwhile, one Labour MP suggested to The Scotsman that if the tax powers were not taken forward in this bill, he and other "sceptics" may oppose the move in future legislation.

CBI Scotland director Iain McMillan, who served on the Calman Commission, warned against "cherry picking".

He said: "As a commission, we all agreed that nothing was agreed until everything was agreed, and it needs to be viewed as a whole package.

"At the CBI, we would be particularly concerned about the recommendations for certain powers being re-reserved being dropped, particularly on corporate insolvency".

The revelations about the slimmed-down bill come ahead of a Tory-sponsored Scottish Parliament debate on Thursday, discussing relations between the UK and Scottish governments.

The new Labour MP for Kilmarnock and Loudoun, Cathy Jamieson, who is still an MSP, intends to speak in the debate, and last night she accused the Tory-Lib Dem coalition of giving the SNP a veto on the Calman Commission.

"It is not good enough to give the SNP a veto on these measures put forward by the Calman Commission, which have already been subject to widespread consultation," she said.