The introduction of “Scottish progressive rates of income tax”, aimed at the redistribution of wealth, has emerged as a key measure in Labour’s plans to strengthen devolution at Holyrood in the event of a No vote.
Increased control of income tax was at the heart of Labour’s package, which also included plans for a “fairer” property tax, devolution of housing benefit and more control over the railways.
According to the long-awaited report by Labour’s Devolution Commission, the changes would see the Scottish Parliament given the power to raise about 40 per cent of its budget from its own resources and hand control of three-quarters of basic income tax to Edinburgh.
Setting out Labour’s alternative to independence exactly six months before the referendum, the party’s Scottish leader Johann Lamont said the proposals could “reverse Tory tax cuts for the rich” and would ensure that those with the “broadest shoulders should bear the greatest burden”.
But the work of the commission was attacked by the SNP, which argued that the proposals did not go far enough and Labour had failed to follow through on suggestions that it would recommend the devolution of other powers, such as air passenger duty.
Under Labour’s plan, the new Scottish “progressive rates of income tax” would be part of proposals to widen income tax-varying powers that are already planned for Scotland.
The Scotland Act 2012, which comes into force in 2016, will already compel the Scottish administration to set an annual rate of income tax. Holyrood would have control of 10p of the basic rate – 10p in every pound.
Scottish Labour’s Devolution Commission, whose findings were published yesterday, concluded that the share of the basic rate controlled by Holyrood ought to be widened from 10p to 15p in the pound – a move that would mean three-quarters of the basic rate in Scotland would be under MSPs’ control.
These powers would be accompanied by the ability to vary the rates paid by more prosperous Scots in the “higher” and “additional” income tax bands. Currently, those in the “higher” band earn more than £41,451 and pay a 40 per cent income tax rate. The “additional” band is for the highest earners who take home more than £150,000 and pay 45 per cent. Crucially, the new economic lever aimed at taxing the better-off would not include the power to lower income tax in those two bands to below the rate set for the rest of the United Kingdom by the Westminster government. The only way income tax could be lowered below the rate set at Westminster would be if the levy was reduced across all income-tax bands.
By not including the ability to lower taxes for the top two bands below the rate set in London, Labour hopes to prevent Scotland from becoming a tax haven for the rich.
Last night, Labour sources indicated that the party planned to use the new tax system to extract more revenue from the 14,000 or so people in Scotland who earn more than £150,000 by raising the rate from 45 per cent to 50 per cent.
There were no plans, however, to use the proposed powers to hit those earning more than the £41,451 threshold.
Ms Lamont said: “The measures ensure that if the Scottish Government wants to cut tax for the rich, it must cut tax for all. At the same time, if we wish to make sure that those with the broadest shoulders should bear the greatest burden, you can raise tax for the richest while retaining the same basic rate for all.”
The Devolution Commission’s report Powers for a Purpose – Strengthening Accountability and Empowering People also suggested that Labour would reform the council tax system to make the wealthiest Scots pay more for public services.
The document said: “A system should be created which ensures that an updated and fairer system of property taxation continues to play an equitable part in supporting public services in the long run.”
At the document’s launch, Ms Lamont added that Labour would reform the property tax system to “ensure that the rich pay a fairer share”.
In addition to the devolution of housing benefit, which would allow future Scottish Governments to abolish the bedroom tax, Labour looked at other aspects of welfare.
It recommended the devolution of attendance allowance, the benefit for disabled people which amounts to nearly half a billion pounds a year. It also proposed handing over control of the UK government’s Work Programme – aimed at getting the jobless back in employment – to Scottish local authorities.
The document also recommended the devolution of railway powers that would allow the ScotRail franchise to be run by a not-for-profit operation.
The Barnett Formula, which determines how much money Scotland receives, would remain, although it would be tweaked to take account of the new tax-raising powers.
Last night, SNP politicians claimed Labour’s proposals represented a “watered down” version of previous models.
SNP MSP Bruce Crawford said: “This represents a U-turn on Labour’s interim report last year, which suggested devolving all income tax and other taxes such as air passenger duty – which would give a better deal for families and business.
“Under Labour’s watered-down proposals, 80 per cent of Scotland’s tax revenues and 85 per cent of the welfare budget in Scotland would remain in Westminster’s hands – which is nowhere near what the vast majority of people in Scotland want.”
Deputy First Minister Nicola Sturgeon said: “I welcome the fact that all parties agree the status quo is not good enough and are now committed to bringing more powers to the Scottish Parliament. But the only option on the table that delivers more powers is a Yes vote in September – there is no guarantee that any new powers would be delivered in the event of a No vote.
“Today’s proposals are a huge watering-down of what Labour had proposed in their interim report.”