Comment: Timescale for ‘more powers’ is a curse

LORD Smith of Kelvin, now chairing the Commission on “more powers” for Scotland, has held many posts in a distinguished business career. Key to these has been his training as a qualified chartered accountant. So it is with particular interest – or perhaps foreboding – that he will ponder the submission this weekend from his colleagues at the Institute of Chartered Accountants of Scotland (Icas).
Lord Smith has a nightmare task. Picture: Ian RutherfordLord Smith has a nightmare task. Picture: Ian Rutherford
Lord Smith has a nightmare task. Picture: Ian Rutherford

It’s never been hard to tell an Icas paper from a bodice-ripper. And this one, at 38 pages, is particularly heavy-going. But it is a bodice-ripper par excellence on the issue of “more powers”. And it should be required reading, not only for every member of the Commission but also for all those who have set store by “The Vow” and in particular the desperate timetable set by Gordon Brown for its delivery.

The Icas paper is not unsympathetic to “more powers”. It favours devolution of Air Passenger Duty. It calls for powers to allow the setting up of a minimum wage for Scotland. And it argues for greater borrowing powers for investment in infrastructure. The tests that it sets the Commission are not unreasonable. It says a wide programme of education is needed on the powers which have already been devolved and which will come into effect next year and in 2016. A distinctive feature of these new taxes, it rightly notes, “is the lack of general awareness about them”.

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Scrutiny in the Scottish Parliament must become more rigorous and effective and a Scottish Office of Budget Responsibility should be established. On specific powers, Icas says these should only be devolved where they generate benefits which outweigh the costs of setting up those powers. And it argues that further devolution of income taxes should be brought in on a step-by-step basis to avoid problems in implementation and the risk of unintended consequence. Icas members have already expressed concerns about the preparedness of HMRC to operate the Scottish Rate of Income Tax fully and effectively from 6 April, 2016.

But what hope is there for such consideration and preparedness? Even for “more powers” enthusiasts, the timetable Brown has set must rank as one of the greatest political follies ever foisted on Scotland. It has committed us to a maniacal rush to a White Paper and legislation, even assuming agreement can be reached between opposing camps within a few weeks on what “more powers” should entail. Smith has a nightmare task.

For anyone expecting safe, considered, thoughtful legislation in such a crazed timescale, we have been lumbered not so much with a “vow” as a curse. It is nonsense on stilts for a country to approach legislation in this way, and particularly legislation which impinges directly on powers of income and capital taxation, financial stewardship and borrowing arrangements. This is a timetable innocent of the considered process of law-making and one that will give business leaders nightmares, for they are in the direct line of the fire of consequence. Yet all this is to be rushed through by a whooping caravan of big-spend lobbyists and a raucous entourage of supposed beneficiaries.

Last Friday SNP MSP Annabelle Ewing welcomed the STUC submission calling for new tax powers to include income tax at all bands and other personal wealth-related taxes, air passenger duty, aggregates taxes, all land taxes, inheritance tax, capital gains tax reliefs plus 50 per cent of VAT and an assignment of alcohol, tobacco, fuel and gaming duties. It also urges that welfare powers including housing benefit, attendance allowance, carer’s allowance, the work programme and others should all be devolved.

But what ear is being extended to those who will be picking up the tab for this? Bear in mind that Icas figures just 13,000 people in Scotland qualified for the top 50p rate of income tax in 2010 and that another 10 per cent on the top rate might raise about £240 million or less than 0.4 per cent of public spending. This is a pathetic amount in the context of a Scottish budget black hole reckoned by Fiscal Affairs Scotland to balloon out to £5 billion.

Who in this rush will take time to listen to the sceptical and reticent, the quieter Scotland that voted No? Who is listening to the tens of thousands of businesses – the front-line workhorses for HMRC who will have to bear the costs of different levels of taxes and rates?

It is on the practical consequences that “more powers” will succeed or flounder. The paper repeats the call of tax practitioners and business for greater alignment of income tax and national insurance – unlikely to be met if income tax rates are devolved but national insurance is not. “The interaction between income tax and national insurance and between taxes and the welfare system is very intricate. The Smith Commission may not have sufficient time to fully analyse the ramifications of proposals to devolve some elements of this. An alternative approach could be to consider a more radical separating of tax and national insurance but, again, this will need time to properly evaluate.”

The paper is particularly good on the mayhem that can arise on differential rates of capital taxes and the consequences for pension funds and savings institutions. For example, the inclusion of investment income within the ability to vary income tax rates “would impose costs and complexity on banks and other deposit takers if the basic tax rate for investment income was to differ between different parts of the UK”. This would pose significant problems for pension providers – a critical part of Scotland’s financial services industry.

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And above all, it sets out the need for a clear road map for adoption and implementation “to provide confidence and certainty for the business sector and the Scottish electorate, and to manage expectations on speed of delivery”.

And if none of this Icas paper registers, consider this: what is the point of a Scottish Parliament bristling with “more powers” that are found to be operationally defective or which we cannot use because of thoughtless drafting?

Proponents of “more powers” fear Lord Smith’s commission will fall short of those being loudly demanded. The greater risk surely is that this rush to legislative “result” will emasculate the parliament with powers unusable. What, then, will have been the purpose of this rushed, demonic charade? «