Ministers must take care when adopting Calman tax plans

THIS newspaper incurred the wrath of Labour's newly appointed Scottish Office ministers in 1997 by suggesting that, in comparison to the radical decisions taken in the first days of the government under Tony Blair, the Scots had hit the ground strolling.

It is not an accusation that can be levelled at the Conservative-Liberal Democrat coalition, which is planning to use its first Queen's Speech next Tuesday to promise legislation to introduce the reform of Holyrood proposed by the Commission on Scottish Devolution chaired by Sir Kenneth Calman.

In the run-up to the election, the Tories, although they had been instrumental, along with Labour and the Liberal Democrats, in establishing the commission, appeared to be lukewarm about Calman. Their new-found enthusiasm for a scheme that has the potential, a decade into devolution, to make Holyrood a more mature legislature is welcome.

At the heart of Calman was the thoroughly sensible proposal to make Holyrood more fiscally responsible, replacing the unused power to raise or lower the basic rate of income tax by 3p in the pound with a new Scottish income tax that would apply to both the basic and higher rate.

Holyrood, as originally conceived, spends large sums of money, but its elected politicians are not accountable to the electorate for raising most of the funds they disburse. The Calman proposals are, therefore, sensible in terms of their objective of introducing greater fiscal accountability to the democratic process.

If the coalition partners stick to the proposals, as they have indicated they will, the two rates of tax levied in Scotland will be cut by 10p in the pound, with the block grant from Westminster reduced accordingly. Holyrood politicians will then be given the powers to raise or lower income tax, with, in theory at least, no upper limit.

While we applaud the principle behind this – we have long argued the current set-up makes it easier for politicians to give in to temptation to spend money they do not have to justify raising – we would urge that the new Westminster government takes a great deal of care with the detail.

The first, and most fundamental, question to be answered is whether Her Majesty's Customs and Revenue can administer two tax rates north and south of the Border and how much the system will cost to set up.

Second, the new government must set out how it sees this new arrangement in relation to the broader question of the funding of the regions and nations of the UK, including Scotland, for, even under the new plans, the Barnett formula will continue to apply.

Beyond these important details, the new government must ensure that, in giving the Scottish Parliament greater powers of fiscal responsibility, the emphasis should not merely be on the fiscal side of the equation. Scots will want to be sure Holyrood politicians use these new tax powers responsibly.