Income tax powers controlled by Holyrood from 2018

David Mundell was speaking to MSPs at the Scottish Parliament. Picture: Andrew O'Brien

Mr Mundell urged the SNP to set out whether it will propose new tax rises ahead of next year’s Holyrood elections, as the powers will be implemented in the next parliamentary term.

Deputy First Minister John Swinney recently said tax hikes are something that would be considered by the government.

Scottish Labour leadership frontrunner Kezia Dugdale has said she would raise taxes for high earners and, when she launched her campaign at the weekend, she held out an olive branch to Mr Swinney, offering to work together on the issue.

Mr Mundell was giving evidence to Holyrood’s devolution committee yesterday on the new powers being handed to Scotland.

Asked how long it would take before the new tax powers were operational, Mr Mundell said: “We’re trying to do it as quickly as possible.

“I think 2018 wouldn’t be an unreasonable objective, but certainly within the next parliament I expect the Scottish Parliament to be setting the income tax rates and bands for Scotland and to have the ability to top up welfare benefits. Therefore that needs to be part of the debate and discussion in next year’s Scottish Parliament elections.”

As well as greater control over income tax rates and bands, the bill gives Holyrood a half share of VAT revenues and a greater say over welfare powers in Scotland.

Mr Mundell said: “The huge challenge is getting it implemented as quickly as possible. Although there is criticism of the Calman Commission time-scale, what it has done is laid the groundwork for the income tax transfer.

“Because of all the issues around identifying Scottish transfer taxpayers, getting codes and systems – a lot of that work has been done. So I want the powers that are set out in this bill to be transferred to the Scottish Parliament to be operational during the course of the next Scottish Parliament.”

He added: “So I want, in next year’s Scottish Parliament election campaign, parties to be able to say as we get these powers, ‘we’re going to do this in relation to tax and this in relation to welfare’.”

But the Scottish Government has argued that the legislation currently making its way through Westminster does not fully deliver on the cross-party Smith Commission agreement.

It also wants additional powers over business taxes, employment policy, a number of benefits and equality law to be added to the bill following the SNP’s general election success.

Mr Swinney held talks with the Scottish Secretary on implementation of the measures yesterday. He earlier told MSPs he will continue to make a case for the UK government “to recognise significant deficiencies in the bill”.

The Deputy First Minister said he had been struck by discussions with stakeholders, where “key voices were telling me that the bill was inadequate across a range of areas, in particular in relation to social security and employment support”.

He said: “There is a real risk that the service people receive will be less effective as a result of not having a coherent package of measures and interventions available to us.”

He highlighted that the UK government had not taken forward any opposition amendments at the committee stage of the bill at Westminster.

“Since the publication of the draft clauses in January, the (Scottish) Government has made a range of suggestions of areas where we believed the draft clauses needed to be revised to deliver the substance of and the spirit of the Smith Commission.

Mr Swinney said the Scottish Government also believes there are eight “vetoes” in the bill, in relation to universal credit and a range of other issues, which it is unhappy with.

“One of our problems is that the UK government doesn’t consider the terms that these are expressed to be vetoes,” he said.